Today the U.S. Senate passed the Water Resources Development Act, which, if enacted, would pave the way toward fixing some major inland waterway infrastructure problems. Assuming this measure becomes law, it could not come at a better time. A few weeks ago we sat down with several farmer leaders and economists to hear an assessment of the nation's crumbling infrastructure and impact on grain prices. It's not a pretty picture. Here are six take home messages from that meeting:
1. The U.S. Army Corps of Engineers has a project list but little funding. This is the federal group charged with fixing or building river infrastructure. The grain industry needs reliability through infrastructure maintenance. The Corps estimates rehabilitation on major lock and dam structures will begin after 2050 and continue through 2080. That's near 70 years from now! The backlog of projects is $60 billion and counting.
In lieu of a major rehab project, locks and dams must be maintained; but routine maintenance, estimated to cost $560 million, has been deferred, due to inefficient funding. Analysis prepared by Informa Economics and Rivertrends, LLC suggests that going through with those projects will generate savings totaling $1.2 billion over the next 15 years, in improved reliability and buying down risk of catastrophic failure.
RELATED: River Woes Complicated Cash Markets for Corn, Soybeans
The Corps looks at "big M," which is major maintenance, and "little m," which is ongoing work. But their projects have been restricted, creating a backlog of deferred maintenance projects. Meanwhile we're expecting higher and higher amounts of export volumes over the next several years, unless China suddenly discovers millions more acres of cropland. "Little Ms become big Ms," says Ken Erickson, senior partner at Informa.
2. The Mississippi River could become our weak link when the Panama Canal is finally expanded. The Panama government is investing $52 billion to double the capacity of the canal by 2015, allowing more and larger ships to transit. That project will come in under budget and on time. Meanwhile, dredging at the mouth of the Mississippi continues, but there must be room for big ships to turn around. It's going to cost money to make that happen, says Atlanta, Ill., farmer Ron Kindred.
3. Our competitors are slowly catching up. Brazil will export more corn than the United States this year. They still must move long distances by truck, sometimes averaging 1,000 miles a load, while our truck hauls average less than 100 miles.Still, South America is moving less grain by truck and more by rail and barge compared to five years ago (see chart). As the U.S. experiences cost increases as a result of aging infrastructure, you'll see a parity shift around the world.
(RELATED: Brazil Highways are the Country's Achilles' Heel)
4. Infrastructure problems translate to lower farm profits. Sometimes it's hard to connect the dots between a crumbling old lock on a river, and your wallet. But when an antiquated bridge requires a truck to add another 200 miles to its trip, it lowers effective transport capacity; those shrinking capacities lead to higher freight rates. Higher rates mean lower farmer returns, because those costs always back up to the farm gate.
A recent Informa study sponsored by the Illinois Soybean Checkoff shows 15% of Illinois bridges were structurally deficient or obsolete in 2010. (An obsolete bridge is defined as a working bridge but one too narrow or not able to handle heavier loads.) As of this year, 5,193 of the 24,496 bridges in Iowa (21.2%) are considered structurally deficient. From 2010 to 2012, 2,371 Illinois bridges improved, while 3,426 deteriorated. Many were built so long ago that they are too narrow for modern trucks, or the supports can no longer handle the larger loads.
5. Demand factors fuel soy exports, and that starts and begins with China. "They're our number one customer," says Kindred, an at-large director for the Illinois Soybean Association. "I don't think we'll see China grow at the same pace they have the past five or six years, but the demand will continue."
6. Truck weight limits and overweight fees are outdated. According to the 2013 Report Card for America's Infrastructure, nearly half of Iowa’s roads are rated poor or mediocre condition. Meanwhile the state's gas tax of 22 cents per gallon has not been increased in 23 years. Federal truck weight limits, set at 80,000 lbs. per load, were established over 30 years ago. The U.S. House Transportation Committee has delayed a truck weight reform measure for three years until further studies are complete. The most common proposed reforms would allow individual states to increase weight limits to 97,000 pounds GVW (gross vehicle weight). However, overweight fees can be changed at any moment by state, county, city and township governments.
What would higher weight limits do? More volume on trucks means fewer trucks on the road. That would reduce emissions pollution and relieve driver shortages. Increasing road weight limits would improve transport efficiency for agriculture by 20% and save $84 million industry-wide per year.
Tomorrow: A closer look at public-private solutions