Senator HENRY M. JACKSON, THE FERTILIZER INSTITUTE, Washington, D.C., February 18, 1975. Chairman, Senate Committee on Interior and Insular Affairs, New Senate Office Building, Washington, D.C. DEAR MR. CHAIRMAN: We respectfully ask this letter be made a part of the record arising out of your Committee's inquiries into President Ford's proposals relating to energy. We are well aware of the urgency of time both as to oil and gas supplies as well as the political exigencies. Should your Committee later have time in which to hear additional witnesses I should like very much to appear. There is no doubt that the number one issue today in the energy-economy crunch is the high price of food. Whether one is employed or among the growing group not at work, our elderly-the list is well nigh endless, but the concern is food prices. All, I think, will agree on this premise for it is readily understood. In response to this concern and clamour our government policy is clear-full all-out food production in an attempt to stem or slow the consumer disaster at the supermarket checkout stand. However, the energy proposals of the Administration if adopted as proposed would have a very serious opposite result. Consider that nearly everyone concerned believes the Administration proposals (as a package and, on an annualized basis) will cause the cost of fuel to rise 8-10 cents a gallon. Our farmers substituting energy in lieu of manpower use about 8 billion gallons of fuel a year. Therefore, we can easily see the farmers fuel bill rising from $600,000,000 to $800,000,000 on an annual basis. President Ford has proposed a 37 cent per thousand cubic foot tax on natural gas. This gas is the feedstock for over 95 percent of all nitrogen fertilizer manufactured in this country. There is no substitute unless we completely replace every plant in the country and use oil. Such a program is infeasible and impractical. Based on this 37 cents per mcf proposal the following obtains: 1 Potash and sulfur uses are drying, boi er fuel, etc. Phosphate use is the same except for plants manfaucturing anima' feed where the process to defluorinate requires gas. In addition, our direct use oil "tax" would increase our costs another $25 million. Thus, the direct additional cost to manufacture fertilizer would be $240.7 million. Additionally, all pesticides and herbicides are based on petrochemical feedstock so that their prices could be expected to rise. Were this not enough the fertilizer industry is a substantially user of electric power particularly in phosphate mining. Based on the dramatic increased electric charges passed on this past year we would anticipate further rising costs with the energy proposals. We are very large users of transport, particularly rail. It is estimated that for every $25 the rail lines gross, $1 comes from fertilizer transportation. The oil carriers estimate their fuel bill will rise about $580,000,000 and they will obviously ask for higher rates. It requires little imagination, therefore, to see that our farmers are going to be faced with very large increased costs-well over a billion dollars easily (693) calculated. Now, the farmer is in the vise of a program of soaring input costs, declining grain, cotton and livestock prices. He is in one hell of a dilemma! Our farmers, of course, can refuse to use the modern chemicals and reduce his fuel costs by cutting his acreage back, thereby defeating the goal of all-out food production. That in our judgment is the most unwanted result. Much has been made of the tax effect-the refunds or a change in corporate rate "will make you whole” argument. As originally proposed this simply won't pan out. First, much of the U.S. fertilizer is produced and marketed by cooperatives whose tax structure doesn't faintly resemble the regular corporate structure. Second, the limitation on refunds would bypass all but our smallest farmers. It should be borne in mind that only 200,000 farm units feed over 200,000,000 people with nearly 25% left over for exports. It is these exports earning over $20 billion a year that in large measure are paying our energy import bill. If our farm production costs soar, our competitiors such as Canada, Australia, Brazil, etc., will push us out of these markets. Again the Administration program self-defeats. Only on February 11, 1975, when this glaring error in the "comprehensive" program was detected did the Administration announce that the Federal Energy Administration was undertaking a crash study to see if some farmer equity could be worked out. We wish them well for the damage otherwise would be great to every eater or consumer in the country. We have neither the knowledge or the staff to come up with full scale recommendations. We do, however, urge a serious consideration of exempting feedstocks from the excise taxes as well as farmers fuel. Agriculture is separately treated by the Federal Energy Administration in its rules and regulations for reasons which are self-evident. Consistency on energy charges for all uses is not a virtue, quite the contrary. It is the end use to which the fuel is put that should be determinative. 27.14 cents per gallon of fuel oil based. 91% gallons of fuel oil per barrel of crude oil. STATEMENT OF THE COALITION TO SAVE NEW YORK, INC. The Coalition to Save New York, Inc. appreciates the opportunity afforded by the Committee to submit this statement for the record of the Committee's hearings on the energy crisis and President Ford's proposed energy program. The Coalition is a non-profit organization including leaders of New York's real estate and construction industries who have banded together in a last-ditch effort to stop the wholesale deterioration of New York City's housing stock and massive abandonment of privately-owned rental housing to an already financially desperate City government. It is apparent that the high price of energy in the form of heating oil and oil-produced electricity is a major contributor to the New York crisis and that an amelioration of this price, together with an elimination or easing of unrealistic rent control restrictions to permit a fair pass-through of unavoidable energy cost increases, is urgently required to stave off disaster. Confronted with these consequences of present oil prices, the Coalition members simply cannot understand the premises underlying the Administration's program to substantially escalate present fuel prices through increased import license fees, decontrol of "old" domestic crude oil prices, and an excise tax on all domestic crude. New York City housing simply cannot afford higher fuel oil prices, and we suspect that the same situation exists in other cities. Previously profitable buildings are now operating at a loss and the rate of building abandonments is accelerating at a frightening pace. Further fuel oil price increases would push more buildings over the brink. Attempts to reduce U.S. oil consumption through higher prices will take a very expensive toll on New York's existing housing stock. Moreover, forcing New York landlords to pay these prices cannot result in any contribution to achievement of the President's goal of a consumption reduction of one million barrels per day. State ambient temperature laws require the residential buildings provide heat up to certain levels regardless of the price of fuel oil, and tenants protected by rent control laws have no incentive to reduce their consumption. Therefore higher fuel oil prices for residential property owners cannot achieve the desired objective. No reduced consumption will occur unless a building is actually abandoned and the tenants forced out on the street. In general the Coalition opposes the Administration's energy program as both recessionary and inflationary. However, even if high prices appear to be the only reasonable means of achieving reduced consumption, the Coalition suggests that rather than a blunderbuss, across-the-board approach, high prices should be directed to products and areas of consumption where the desired impact is most likely to be achieved. More generally, we would suggest that such high pices should be directed to areas where wasteful consumption occurs, rather than to areas where reduced consumption will have pronounced recessionary or hardship impact. The Federal Energy Administration has recognized that gasoline is the product for which demand is most price elastic, and gasoline also involves the most wasteful usage. In sum, we suggest that the appropriate goal is conservation, not reduced consumption. In conclusion, the Coalition u ges the Committee, and indeed the Congress as a whole, to give broad gauged consideration to the fundamental aspects of this Nation's energy situation in the context of our present over-all economic condition, and to think carefully about all possible approaches to the problem. Our economic condition, in the Coalition's judgment, does not permit consideration solely of the foreign policy ramifications of U.S. import dependence. And while we agree that the energy problem is serious, the Coalition urges that no program be adopted which is worse than no program at all. We have regretfully concluded that the Administration's high-price strategy would cause severe economic problems for many sectors of our society, and for New York City housing in particular, while offering no assurance of alleviating any other problems. Thank you again for the opportunity to present the Coalition's position on these issues. |