Impacts of Rising Prices of Fuel and Fertilizers on Saskatchewan Agriculture
Date
1986-12
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
ORCID
Type
Degree Level
Doctoral
Abstract
During the past years, particularly after the 1973 oil price shock, prices of fuel and fertilizers in Canada have rapidly increased. Saskatchewan is no exception to this trend. As a result, the cost of energy inputs in farm production has risen for Saskatchewan producers. Continually rising energy prices may have severe implications for Saskatchewan agriculture. The nature and magnitude of the impacts on agriculture of rising energy prices are important to policy makers, producers, and extension workers in Saskatchewan as well as in Canada.
The major purpose of the current study was to estimate the medium-to long-term impacts on Saskatchewan agriculture of rising prices of energy-related inputs (fuel and fertilizers). The purpose was achieved by developing a model, Saskatchewan Energy Use Simulation model (SASKENSIM), using a quadratic programming framework. This model was used for estimating the impacts of rising energy prices.
The objective of the model was to maximize net social benefits, subject to input constraints, under a given set of energy input prices. Impacts of rising energy prices were estimated using the comparative statics approach—that is, increased energy price shocks were given to the model and the model was solved and solution results were compared with the benchmark level.
An aggregate producers or regional (rather than representative farms) approach of modelling agriculture sector was used. Farm products included in the model were wheat, oats, barley, flaxseed, rapeseed, slaughter steers, feeder steers, and market hogs. Two demand regions or markets were specified: (1) the export market, which included sales of Saskatchewan farm products into the international market (outside Canada); and (2) the domestic market of Canada including Saskatchewan. All farm products have both export and domestic markets except oats and livestock, which have only domestic markets.
The province's crop production region was subdivided into three production subregions or soil zones: brown, dark brown, and black. Crop production on both summerfallow and stubble land was included in order to accommodate the yield differences between two types of production practices. Two types of production technology were included: conventional and reduced tillage. The list of inputs included nitrogen, phosphorous, fuel, labor, capital, and total cultivated land. All inputs except land were assumed to have perfectly elastic supply. Land supply was assumed perfectly inelastic and to have zero opportunity cost outside agriculture.
As a result of increased energy prices, decreases in the level of production, demand, energy use, consumer surplus, and net returns over energy-related inputs are predicted. Product prices are estimated to increase. A large decrease in the production of low-value crops (oats and barley) is predicted. The decline in production is attributed to a large decrease in fertilizer consumption. For example, under a doubled energy price regime, fertilizer consumption would decline by about 26.8 percent.
However, the magnitudes of impacts of rising energy prices on production, net returns over energy-related inputs, and other key variables are expected to be large if producers face relatively elastic demand in the market. The reverse is true if they face a more inelastic demand. The magnitude of energy price impacts are not predicted to be altogether different under reduced tillage from those predicted under conventional tillage.
It is predicted that summerfallaw cropping with both conventional and reduced tillage technology would remain an attractive practice in the province under the rising energy price regime. This is because summerfallow crops bring relatively higher yields than stubble crops, and also because crops on summerfallaw require less fertilizer than crops grown on stubble land. No major changes are predicted in terms of location of crops across soil zones.
One major implication of increased summerfallowing may be rising soil erosion and loss of organic matter. This has long-term implications for the capability of the Prairies to produce or provide food. Furthermore, one major implication of reduced Saskatchewan production could be in terms of Canada's role in being the bread-basket of the world. However, it would depend on the comparative advantage that Saskatchewan or Canadian agriculture has over other producing regions of the world under a rising energy price regime. Depending upon the relative energy-intensiveness of agriculture, the Canadian share of world increase or decrease. Nevertheless, the Saskatchewan or Canadian exports and production may level of Canadian exports of agricultural products would be severely hampered, unless a major structural change occurs in the grain demand for Canadian grains or oilseeds due market in terms of increased to other factors such as ncreased income of importing countries, or market promotion by the Canadian Wheat Board. Rising energy prices therefore must be matched by rising product prices or subsidies to producers in order to meet rising production targets. Otherwise, producers may experience a decline in net returns, living standards, and purchasing capacity.
Since agriculture is a large sector in Saskatchewan, non-agricultural sectors may also be affected through inter-sectoral linkages. A reduced level of net returns to producers may therefore have a depressing effect on the entire provincial economy. This may further complicate the already existing unemployment situation.
Like any other study, the current study has certain limitations. It is felt that the current model, SASKENSIM, is inappropriate for predicting short-term changes, particularly if there are structural changes on the demand side. An aggregate farm approach of modelling the agriculture sector generally suffers from some aggregation bias. Since this was the approach undertaken in this study, results shown indicate only aggregate level changes, and shed no light on the distribution aspects of these impacts.
The study incorporates only the half-and-half crop rotations. Since different farms in various soil zones may follow different rotation lengths, the results of the study have obvious limitations. Furthermore, these results are based on data obtained from a combination of secondary sources and expert opinion. Lack of quality on-farm data is a serious limitation of this type of research. The quality of the results can be improved with collection of better quality data. Further work is also needed on estimating the non-economic impacts of rising energy prices on Saskatchewan agriculture. Analysis can also be expanded into a multi-regional framework to address issues related to
the interregional competitiveness of Saskatchewan agriculture.
Description
Keywords
Citation
Degree
Doctor of Philosophy (Ph.D.)
Department
Economics
Program
Agricultural Economics