NEW ORLEANS, La. — Grain farmers in the United States are losing the one competitive advantage they have over growers in South America, says an economist.
Tom Scott, chief executive officer with Informa Economics, said American growers have relied on their cheap and efficient transportation system to keep corn and soybeans competitive with exports from Brazil and Argentina.
The U.S. is blessed with a vast river highway connecting farms in the Midwest with the Gulf of Mexico. The Mississippi River and its tributaries comprise more than 19,000 kilometres of inland waterways.
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Farmers rely on the Mississippi and Illinois river system to deliver 60 percent of U.S. grain and oilseed exports to port position every year.
Barge freight is typically two to three times cheaper than truck and rail.
Those transportation savings have helped offset the lower cost of production of growing corn and soybeans in South America.
However, the dynamic is rapidly changing.
“We’re in danger of losing that competitive edge,” Scott told the 2014 Oilseed & Grain Trade Summit.
“We’re starting to see it manifesting itself in a big way here recently, and we need to take notice and think about how we can deal with this as an industry in North America.”
Increased use of the U.S. rail and barge systems is dramatically driving up the costs of moving crops from the Midwest to the ports.
Scott said the Mississippi and Illinois river system is inundated with new demand from the upward bound movement of fertilizer, salt and steel and the downward bound movement of fracking sand from Wisconsin to Texas.
Mississippi River barge rates have risen to 1,000 percent of tariff, a record that surpasses where rates were following Hurricane Katrina.
“All you need to know is it’s more than double what it should be at this time of year,” he said.
There has been no major failure of the locks and dams, no terrible weather, no ice on the Illinois River, nothing out of the ordinary to explain the dramatic cost increases except for heightened demand for barge services.
Scott said farmers are paying more this year to get a crop to market that is worth less. The agricultural industry is being forced to buy freight away from the well-capitalized oil and gas and steel sectors.
“That’s something I think we’re going to be struggling with, quite frankly, for a while,” he said.
He doesn’t have any easy answers for growers and exporters. In fact, the situation may get worse before it gets better because of the crumbling infrastructure on the waterways.
U.S. farm groups are lobbying Congress to modernize the locks and dams. More than half of the nation’s 241 locks are 50 years or older and more than one-quarter exceed 70 years.
A 2013 report card by the American Society of Civil Engineers gave the inland waterways system a D- grade.
