Long-Term Capacity Constraints in the U.S. Rail System


The Department of Agriculture has been asked to provide an opinion on the issue of biofuels so that the party can develop a position on the matter for the upcoming federal election. If re-elected, we will need a clear, concise strategy for addressing the issue of biofuels. The issue represents a tradeoff between the uses of agricultural product, especially corn, to create ethanol. This reduces the amount of corn that goes into the food chain, which has been blamed as a contributing factor in rising fuel prices.

It is the position of the Department of Agriculture that the government should let the free market dictate the use of food products for the production of biofuels. We believe that this is the best course of action for several reasons. One is that the impact of price increase in agricultural prices is overstated. The majority of our corn production is used for animal feed, rather than directly for human food. As a result, products such as corn represent a relatively minor input in the cost of food at the grocery store. This is especially pronounced when we consider the high degree of processing that most food eaten has undergone. Evidence in the United States has shown that “when there are cost shocks in the food processing system due to changes in the commodity or farm product market, most retailers respond by passing on a fraction of their higher costs to consumers.” (Leibtag, 2008). Thus, we do not believe that there are significant negative impacts on food prices to Canadians as a result of commodity price increases due to ethanol usage.

We also believe that higher commodity prices will benefit Canadian farmers. Demand for biofuel is increasingly rapidly. In the U.S., 14% of total corn production was used for biofuel production; that figure is expected to increase to 30% by 2010 (Lapidos, 2008). As demand increases, so do corn prices. This stimulates demand for other grains that can be used as feed, such as wheat or sorghum (Ibid.). The animal feed business is also finding other substitutes, such as ethanol byproducts (Hoffman et al., 2007). Therefore, we believe that not only will corn farmers benefit, but farmers of other feed grains will benefit as well. We believe that this will be a short-term impact, as biofuel is likely to act only as a bridge to other forms of energy not yet developed.

In terms of energy, we believe it is important to develop alternative sources of energy. Biofuel from corn is, at presently, relatively inefficient. Surveys indicate that at best biofuel generates 1.3 times the energy it costs to product (Jaffe, 2007); several studies indicate it generates less than what it costs to produce (Wald, 2007).

Moreover, natural gas is the standard fuel required in ethanol production and our production already does not match our consumption (Ibid.). As a result, we do not see biofuel as a long-term solution to our energy problems. However, it can act as a valuable bridge, since biofuel is ready for market today and many of the best substitute options are only in the development stages.

On balance, we believe that biofuels represent an important bridge in our energy strategy. They are not a long-term solution, but they are the best alternative energy choice available today. As Minister of Agriculture, I recognize the benefit they will bring to our farmers in terms of higher prices for corn and other feed crops. We do not see sufficient negative impacts of biofuel development to actively discourage the practice. However, we also understand that securing our nation’s energy future will require other solutions. Providing long-term enticement to our farmers to produce crops for biofuel production may result in overcapacity when these other alternate fuels come to market. Therefore, we do not wish to actively promote the development of biofuels either. Allowing the free market to dictate the issue will allow our farmers to enjoy short-term gains while retaining flexibility to move into other crops should demand for biofuel falter. As Minister of Agriculture, I feel that this approach will yield the strongest returns not only for our farmers but for our energy future.

U.S. Dept. Of Agriculture

Industry: U.S. Department of Agriculture

Long-Term Capacity Constraints in the U.S. Rail System

Introduce the industry and the manifestations of the problem, mention a few viable solutions.

In 1998, the U.S. Department of Agriculture noted that the limited capacity of U.S. railroads had forced the rail roads to ration traffic more than ever before, making the service priorities given to other users a detriment to the transportation needs of smaller agricultural shippers. Rail congestion problems suggested that U.S. railroads had reached their limit (Brennan 1998: 2). Smaller producers of grain had less access to train transportation, as larger producers had recourse to other methods of transportation such as air or more costly freight truck carriers. Moreover, trains did not wish to accommodate less profitable smaller shipments. These subsequent transportation difficulties, which also affected even large producers to a lesser degree, ultimately limited U.S. effectiveness to compete abroad, for goods that required rail transportation to be shipped for export (Brennan 1998:2). Producers and feeders were becoming limited in their choice of location, as they had to base their operations closer to sources of raw materials critical to their industry. Farmers were considering switching crops less dependant upon rail transport. (Brennan 1998:2).

Increased consolidation of the rail industry also resulted in less choice for producers. Co-loading of multiple producers was avoided by the rail roads, to limit ‘stop and- go’ local traffic. Instead only single producers with large shipments that could go straight from point a to point B. were accepted. Thus smaller producers received less service as railroads gave preference to agricultural shippers that could fill trainload-size shipments, which enabled shipments to take place at higher volumes and more frequent intervals and thus generate more revenue (Brennan 1998:3). The merger-mania of U.S. rails also only favored large-scale producers, at the expense of small farmers, as smaller producers were less of a priority because of their smaller shipments, and smaller producers no alternative sources of transport to which they could turn.

Part II: Identify several possible solutions based upon the factual resources (NOT opinion) and discuss them in greater detail.

It was deemed that increased competition was necessary in the rail industry, either mandated by Congress, or the (Surface Transportation Board) STB could exert a more forceful regulatory role, to expand access to smaller producers, to reduce consolidation, and mandate competition.

Part III: Conclusion – Pick one of the solutions and tell why it was chosen, also tell why the others were not chosen.

However, while initiatives by the STB were phrased in pro-competitive language, and it insisted to Congress in December of 1998 that it already had done all it could to solve the problem, regional transportation and development organizations were, on the whole, disappointed in its efforts (“Achieving Rail Competition Requires your Support,” 1998, ARC presentation). Ultimately, the STB’s policy to address the issue offered no specific standards to determine if mergers would fail to meet expectations of enhanced competition, or what its vow to promote ‘enhanced competition’ could be understood to mean in practice. It resolved that a merger should be expected to serve the public before further consolidation was allowed, without specifying what the public interest was precisely. However, Congress did not step in to act in its place (“Achieving Rail Competition Requires your Support,” 1998, ARC presentation). The result has been decreased access by small producers to rail transport, as mergers have continued unabated. This resulted in the increased consolidation of the agricultural industry, to the further detriment of small farmers.

Works Cited

Achieving Rail Competition Requires your Support.” (1998). ARC (Appalachian Regional Commission) presentation. Retrieved 20 Jan 2007 at http://www.ams.usda.gov/tmd/LATS/ARCpresentation/ARC%20Pres.pdf

Brennan, William. (1998, Jul). “Long-term Capacity Constraints in the U.S. Rail System.” The U.S. Department of Agriculture: Agricultural Marketing Service. Retrieved 20 Jan 2007 at http://www.ams.usda.gov/tmd/summit/ch4c.pdf

Hoffman, Linwood; Baker, Allen; Foreman, Linda & Young, C. Edwin (2007) “Feed Grains Backgrounder” USDA Retrieved December 14, 2008 at http://www.ers.usda.gov/Publications/FDS/2007/03Mar/FDS07C01/fds07C01.pdf

Leibtag, Ephraim (2008) “Corn Prices Near Record High, but What About Food Costs?” Amber Waves Retrieved December 14, 2008 at http://www.ers.usda.gov/AmberWaves/February08/Features/CornPrices.htm

Lapidos, Juliet. (2008) “Why are Global Food Prices Soaring?” Slate. Retrieved December 14, 2008 at http://www.slate.com/id/2187882/

Jaffe, Eric. (2007). “The World After Oil” Smithsonian Magazine. Retrieved December 14, 2008 at http://www.smithsonianmag.com/specialsections/ecocenter/biofuel.html

Wald, Matthew L. (2007). “Is Ethanol for the Long Haul?” Scientific American. Retrieved December 14, 2008 at (http://jacusers.johnabbott.qc.ca/~biology/NYA/Wald (2007)SciAm (Jan2007)_42-49(Bioethanol).pdf

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