SKYROCKETING ENERGY BILLS
The limited choices available to Ontario producers
Every farm is getting hammered with high energy costs and, according to one expert, if farmers try to do continue what they have been doing in 2005, it is going to cost them a quarter of a billion dollars more on energy alone.
by SUSAN MANN AND DON STONEMAN
Henry Stevens' hydro bill rose 22.5 per cent last year, even though his consumption remained the same and despite the fact that he scrupulously fine tuned heaters and lights in the broiler operation that he and his wife Marg runs near Palmerston. What's more, their tractor diesel bill was 26 per cent higher even though tractor use was limited and fields are custom planted and harvested.
Typical energy-dependant farms like the Stevens' broiler operation are facing even greater challenges in 2006. Overall, the Stevens' costs for a wide range of inputs, from fertilizer and pesticides to electricity and diesel fuel, are expected to rise by as much as 25-30 per cent this year compared to 2004. There may be a plan to help farmers conserve electrical energy. But other costs are due to skyrocket as well.
According to the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA), farm expenses in 2004 totalled $8.6 billion. Energy (in the form of electricity, heating and machinery fuel), fertilizer and pesticides cost Ontario farmers $1.467 billion. Energy costs rose substantially in 2005 and they will increase again in 2006.
"If (farmers) try to do what they have been doing in 2005, it is going to cost them a quarter of a billion dollars more to do it on energy alone," observes Ted Cowan, a senior researcher with the Ontario Federation of Agriculture.
The Stevens farm on 100 acres in the north end of Perth County. They grow soybeans, wheat, and corn in a three-year rotation and they produce 18,000 to 20,000 broiler chickens at a time in six crops a year. For them, there's no getting away from burning diesel fuel to clear snow and clean out the barn between crops of chickens.
Soy and wheat crops are already no-tilled. Stevens conventionally plows and tills for spring-planted corn. No-till corn hasn't caught on near Palmerston and no one wants to give up bushels of yield, Stevens says. So far, his custom-farming operator has held the line on costs in 2005, "which kind of surprises me," Stevens notes.
Propane heats the chicken barn in the winter. Steven's propane bill increased by a relatively modest 6.15 per cent last year, compared to 2004, even though the number of litres used remained the same.
But the increase in hydro costs was far more dramatic. Usage stayed roughly the same compared to the previous year, even though the summer of 2005 was considerably hotter than 2004. But month over month, the hydro bill was 22.5 per cent higher in 2005 than in 2004. Stevens figures two-thirds of the total bill was for the barn, and the rest runs the house.
Stevens does have the advantage of using his chicken manure for fertilizer. He soil-tests every three years and analyzes his chicken manure regularly.
Negotiating the costs
Stevens is one of the lucky farmers in Ontario and stands a chance of having his fuel price increases covered, if the pricing system allows for it and negotiations and arbitration go his way.
Every December, Chicken Farmers of Ontario (CFO) negotiates with processors on a live price for chicken, which is adjusted every quota period for the major inputs of feed and chicks. Energy is the next largest cost and CFO negotiates annually with processors on electricity and other production factors, says Mike Nailor, CFO's director of economics and information management.
Negotiations were to have concluded as we were about to go to press. If a price couldn't be negotiated, an arbitrator will make a final decision in mid-January. Last year, CFO sought a 1.5-cent per kilogram increase in price, but the arbitrator granted chicken growers a disappointing fifth of a cent.
The greenhouse industry is not even that fortunate. Rising energy costs, says Glen Lutz, chair of the Ontario Greenhouse Vegetable Growers, "are creating horrendous pressures on growers." Many farmers don't have any way of recovering these escalating costs.
As diesel prices spiked in the fall, many suppliers were tacking a fuel surcharge onto the cost of deliveries and trucking. "We get the fuel surcharge from everybody, but it's not accepted business practice in the produce industry to pass it on to the retailer," says Burkhard Metzger, chair of the energy and environment committee for the Ontario Greenhouse Vegetable Growers.
High fuel costs will hurt because there are few substitutes, says Prof. Alfons Weersink of the agricultural economics and business department at the University of Guelph's Ontario Agricultural College. He believes that farmers will change what they grow. "More energy-intensive crops like corn will likely decrease significantly (in number of acres), compared to other types of crops."
OMAFRA, which monitors and reports farm input costs, says that farmers paid $213 million for electricity in 2004. (Figures for 2005 won't be available until next July.) But Ontario Federation of Agriculture researcher Ted Cowan thinks that OMAFRA underestimated usage and that a more accurate figure is $400 million. That would be about four per cent of Ontario's total bill of $10 billion, which reflects the fact that farmers tend to run energy-intensive businesses.
Regardless, farming's electrical bill is projected to rise this year to 20 per cent over 2004 levels. The cost of natural gas, used to fire tobacco kilns, run grain dryers, heat greenhouses and some poultry barns, is projected to go up by more than 25 per cent. Farmers finishing up a five-year contract that shielded them from rising costs will get a bigger jolt with these drastically higher prices. Cowan says their natural gas costs will almost double.
When diesel fuel prices eased off from the spike in August and September, it was only a respite. Diesel prices are projected to increase by 30 per cent in 2006, compared to 2004.
Products made from oil, such as tires and plastic bale wraps, have also gone up in price, Cowan says.
Preorder and prepay
As long ago as 2001, the National Farmers Union (NFU) was blaming concentration in the hands of a few suppliers for setting the stage for increasing energy prices.
Similar to fertilizer price hikes, "increases in diesel fuel prices far exceed the amounts needed to cover increases in crude oil prices," NFU stated. "Increases in diesel fuel prices cannot be explained by citing increased oil prices or rising taxes. The real explanation for high fuel prices and accompanying record company profits is the tremendous market power and the low level of competition enjoyed by these corporations." It's worse now. Four fertilizer companies control 94 per cent of the Canadian market, says Darrin Qualman, NFU's director of research.
So what can farmers do? The strategy of preordering and prepaying for diesel in the fall for spring delivery is helpful, says John Molenhuis, OMAFRA's business analysis and cost of production lead. Farmers may have to factor in other costs, such as interest for the money they put up front and storage if they have to take ownership in the fall.
Interest cost "is the other creeper," Cowan notes. Interest on loans cost Ontario's farmers $526 million in 2004, down from 2001 and 2002. "People seem to be paying their debts down," Cowan says." But (interest) is still one dollar in 16.....and rates are on their way up."
Fuel is second only to labour as a cost for greenhouse growers Ken and Karen Tigchelaar and by 2004 it threatened to become their largest cost. They took the plunge and became pioneers in using new technology.
They had used light oil to heat two acres of greenhouses since there's no natural gas available in the Rockton area, where they grow plants and flowers. When they started greenhouse growing in 1991, light oil cost 17 cents a litre but suppliers in the winter of 2004 quoted prices nearly four times that. "From 2003 to 2004, it was going to double," Ken says, adding that they use about 300,000 to 400,000 litres a year. Their yearly fuel bill threatened to increase from around $100,000 to more than $200,000.
At a greenhouse grower's conference in Toronto in the fall of 2004, they came across a multi-fuel boiler called Decker, manufactured by Decker Manufacturing Ltd. of Decker Man., near Brandon. There were none in use in Ontario, so Ken and Karen flew to Winnipeg to see how the boiler worked on farms.
"What we were looking for was a piece of equipment that ran without maintenance," Ken says. They saw operations with no mess around the boilers and no one hovering nearby either.
Since turning on their system in February 2005, Ken says he has fuelled it with corn kernels, coal, wood pellets, shredded and pelletized food-grade waxed cardboard and even canola. More than $100,000 in fuel costs was saved in one heating season. The multi-fuel boiler heats their 80,000 square foot greenhouse until temperatures fall to -3 C. Then the oil heaters are needed.
Now Ken Tigchelaar sells the boilers to other producers and says that burning corn from local growers is "a win-win because it gives guys in our neighbourhood another market for their corn."
Moreover, the boiler is much more reliable than sawdust burning systems that require constant attention. Ken and Karen were comfortable going on a 10-day vacation in November with no one watching the boiler at night. "It just ran on its own," he says.
No-tilling and woodcutting
You don't have to convince John Katerberg of the benefits of planting without tillage. Four years ago, he started no-tilling wheat and soybeans on the 450-acre farm he runs in partnership with his wife Jennifer north of Listowel. The goal was to reduce erosion on rolling fields. Reduced fuel costs have proved to be another benefit.
But no-till is not a complete fit with the 245-sow farrow-to-finish operation which does require tillage because pig manure must be incorporated into the corn field. But "most of our fields get less than one tillage pass per year (when you average it over a three-year crop rotation)," he notes.
At the farmstead, propane is still used as a backup in some areas. But an outdoor wood furnace heats both the house and rooms in the barn, where weaner pigs are raised. The Katerbergs cut wood for the furnace from a 30-acre woodlot.
Some farmers pay $1.50 or more per pig on propane to heat the nursery barn. But John says he spends less than 50 cents per weaner pig.
The only good thing about high fuel costs is it may help in the marketing of local products, says John Kikkert, president of the Christian Farmers Federation of Ontario. Products from Florida and California will now cost more to truck than local produce.
| Energy costs |
| |
2003 |
2004 |
| Electricity |
$198 million |
$201 million |
| Heating fuel |
$211 million |
$204 million |
| Machinery fuel |
$278 million |
$313 million |
| Fertilizer |
$443 million |
$447 million |
| Pesticides |
$274 million |
$289 million |
| Source: Statistics Canada. Information is collected by consulting with administrative sources such as utility providers and input suppliers as well as some surveys of farmers. |
So what do these rising costs mean for Ontario's cash croppers?
According to the 2001 census of agriculture, 52 per cent of cultivated land in the province was prepared for seeding using conventional tillage. Another 22 per cent was reduced-tilled and 27 per cent was no-tilled. OMAFRA's John Molenhuis says "anecdotal estimates" put no-till at five per cent of the total corn acreage, soybeans at 40 to 50 per cent and most wheat as being no-tilled. Some farmers believe the 2001 statistics are already far out of date.
Jack Rigby pioneered no-till in the Blenheim area to reduce soil erosion in the 1980s. He isn't surprised that no-till corn growers remain a rare breed. It took him three years to figure corn out, he says, while a lot of other farmers gave up and went back to conventional tillage on corn. Rigby began no-tilling to cut soil erosion but found that diesel fuel costs were cut by two-thirds, he says, so perhaps more farmers will give no-till a try again.
But maybe not. Even no-tilling won't cut costs enough to turn a profit at current prices, Rigby says.
If you have already gone to no-till, there isn't much you can do, says Alliston-area cash cropper Barry Newcombe. He doesn't think growing a short-season corn to cut drying charges is the answer. "I don't think there are any data to prove that you can stay alive with a short-season crop. Generally, if you go short-season you don't get as much yield."
As for switching crops, "lots of that is going on," Newcombe observes, as farmers appear to have already taken the advice of economist Weersink.
Ontario wheat board marketing manager Dana Omland says 800,000 acres of winter wheat were harvested in 2005. Estimates put last fall's planting at 1.2 million acres, a 50 per cent increase over 2004. The near-record crop planting likely has as much to do with poor corn returns and stressed cash flows as it does with the need to cut energy costs. Growers "are buying less certified seed to save a buck. They might also be insuring less acres to save a buck."
Farmers can steer away from cash crops and into something else, but alternatives also have pitfalls. Lanark County farmer John Miller, another no-till pioneer in the early 1980s for energy and labour-saving reasons, shifted to beef after a dairy barn burned in the 1990s. Most of his acreage now grows forage for 220 cows.
In theory, cattle are supposed to be the ultimate energy savers because they can feed themselves, but BSE shut off export markets and no compensation was provided to cover purebred operators' losses. The genetic market hasn't come back, even though the borders opened to beef sales, Miller says. "Nobody has that much money to spend any more." On top of all that drought struck his area hard this summer and his cows have been eating stored feed since mid-July. With other local farmers in the same predicament, he's trucking in hay from wherever he can get it. Like other farmers in Ontario, Miller is facing a bleak and energy costly New Year in 2006, with no respite in sight. BF
Clarke is looking for as many as 65 farms to sign up for an energy audit. The project is a joint effort of Hydro One, Ontario Power Generation, the Ontario Federation of Agriculture and the provincial ministries of energy and agriculture. A trained auditor will scan your farm and farmstead, recording when and how electrical energy is used. This will be compared to the monthly hydro bill and scaled up to a yearly value.
Ian Campbell, senior planner for strategy and conservation for Hydro One, which distributes electricity in the province, says incentives to adopt new technologies that will cut hydro use may be in the future for farmers. The incentives are supposed to shorten the payback time for farmers to adopt energy-saving technologies. The goal is to reduce demand at peak hours for regular consumers as well as farmers.
Hydro One estimates that it has 1.2 million customers, 90,000 in the "farm" category, and it aims to cut electrical demand by the equivalent of the usage by 850,000 homes.
Last year, Hydro One performed electrical use audits on 20 dairy farms, six poultry operations and seven swine farms in both eastern and western Ontario. Poultry operations seem to have the most potential for savings: a total of $8.1 million a year at a rate of 10 cents a kW, achievable by using dimmer switches, fluorescent light fixtures, dual ventilation and refined control systems, as well as high-efficiency exhaust and circulation fans. Savings on swine operations could be $3.1 million using mostly more efficient ways to warm baby pigs and also higher efficiency ventilation fans.
It's harder to squeeze savings from dairy operations because the demand for electricity is all at once. The audit found possibilities of saving $270,000 a year from all the province's dairy operations, using high-tech ways to cool milk while reclaiming the heat for washing, as well as modern wash vacuum and milk pumps. Hydro One wants to do a bigger audit, and also to look at the greenhouse industry.
The reasons are two-fold, says Campbell. Conservation offers more immediate and cheaper returns than building new power stations, which have huge capital costs, take years to build and often run into hefty cost overruns.BF
Based on a five-year average, Ontario farmers generally pay about 10 per cent more for diesel than do competitors in the United States, according to McEwan's survey.
Fertilizer costs are "a mixed bag" when compared to the United States. The survey found that Canadian farmers pay 3.5 per cent less for urea, one per cent more for anhydrous ammonia, and eight per cent more for phosphate.
The prices for nitrogen-based fertilizers were up in 2005, compared to 2004. Anhydrous ammonia (82 per cent nitrogen) increased by nine per cent, while urea (46 per cent nitrogen) went up by eight per cent.
Changes in the exchange rate have actually been good for Ontario farmers if they are buying fertilizers from the United States, McEwan says. BF