Midwest Agriculture, Freight Investment, and Long-term Export Goals

by Steve Wagner on August 23, 2011

The Obama Administration’s National Export Initiative (NEI) aims to double US exports by 2015 and support the creation of 2 million new jobs. The NEI creates a Cabinet-level focus on US exports, expands export financing, prioritizes government advocacy on behalf of US exporters, provides new resources to exporters, and seeks to ensure a level playing field for US exporters in global markets.

The USDA projects a $44 billion surplus in agricultural trade for the 2011 fiscal year (1). The USDA also projects continued growth in agricultural exports–soybeans and corn in particular–in the coming decade (2). The export of agricultural commodities form a substantial part of the US economy–and the economy of the Midwest in particular.

Approximately 60 percent of US agricultural exports originate in the Midwestern United States (4). Grains–wheat, corn, and soybeans–make up the bulk of these exports. More than 90 percent of the grain exported from the Midwest reaches port via the inland waterways (64.4 percent) or by rail (26.4 percent) (5).

At the same time, overseas markets for Midwest grain continue to expand. For example, the 2007 Corn Refiner’s Association Annual Report projects that the markets for corn products in South America, Eastern Europe, and especially Asia will continue to grow (8). Markets for higher-value containerized agricultural commodities such as identity-preserved grains, oilseeds, and food-grade soybeans are also gaining popularity in Asian markets (9).

While agricultural exports have continued to increase and are projected to increase in the coming years, investment in the transportation infrastructure required to move these commodities from farm to market has lagged. By 2007, US investment in transportation infrastructure dropped to 2.4 percent of GDP, leaving the United States behind Europe (5 percent) and China (9 percent) (3). This hamstrings our ability to use our transportation system for competitive advantage in the marketplace. Other countries are expanding their transportation infrastructure. Brazil–our biggest competitor in agricultural markets–is investing billions to model their inland river systems after ours.

The US inland waterway system, which carries the bulk of Midwestern grain to port, is in particular need of increased investment. The average age of all federally owned and operated locks is 60 years: 92 of these locks are more than 60 years old, and 30 were built in the 1800s. All of these locks are past their planned designed life (6). Estimates for the investment needed to repair, maintain, and modernize the inland waterway system range from $7.6 billion to $18 billion over the next 20 years (7). A failure of any one of these locks could seriously hamper the ability to ship grain from Midwest producers to ports on the Gulf of Mexico, increasing the cost of shipping and stressing the capacity of both the rail and highway modes as cargos are shifted to compensate.

Yearly shortfalls of $20 million dollars in the USACE dredging in the lower Mississippi are causing a recurring dredging problem in this part of the river and making it difficult to maintain the 45-foot channel depth (7). This also increases the cost of shipping by limiting the size of the ships that can reach upstream ports on the Lower Mississippi. With the expansion of the Panama Canal, deeper drafts will become even more valuable for US agricultural exports.

The efficient movement of freight is the foundation of the US economy in general and crucial to the agricultural economy of the Midwest. Without increased investment in the maritime, rail, highway, and intermodal facilities that move agricultural commodities from Midwest farms to the world market, the United States will be hard pressed to excel in the world economy and meet the goals of the National Export Initiative. Unfortunately, the NEI pays little attention to the aspects of the export system that move goods from their points of origin to US ports for export to foreign markets. Freight infrastructure plainly falls into this area of omission.

References

  1. USDA, FAS, Quarterly Trade Projections (05/11).
  2. USDA, Agricultural Projections to 2020.
  3. Congressional Budget Office, Public Spending on Transportation and Water Infrastructure.
  4. Tim Baird, Jason Bittner, Robert Gollnik, and Spencer Gardner, Understanding the Consequences of the Panama Canal Expansion on Midwest Grain and Agricultural Exports, 2011, pg. 7.
  5. Tim Baird, Jason Bittner, Robert Gollnik, and Spencer Gardner, Understanding the Consequences of the Panama Canal Expansion on Midwest Grain and Agricultural Exports, 2011, page 28.
  6. American Society of Civil Engineers, Report Card for America’s Infrastructure.
  7. Stas Margaronis, RBTUS, Cutbacks May Hamper Mississippi Shipping & Shut Down Inland Waterway Projects in Pennsylvania, Tennessee, Kentucky in 2012.
  8. Corn Refiner’s Association, Corn: Part of a Global Economy, 2007.
  9. US Grains Council, Grain News December 2007.
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