It is now two weeks since Hurricane Katrina ripped through the Gulf states in Southern America and the extent of the damage to the country’s food industry is only just beginning to be understood. Who will pick up the tab? David Robertson investigates.
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The American Farm Bureau Federation estimated last week that the cost to agriculture would be about US$2bn – half from direct damage to crops and livestock and the rest from higher fuel and infrastructure costs.
That figure of $2bn, however, is already looking out of date as every day brings more information on the damage caused by Katrina’s 155mph winds and the subsequent flooding. For example, Mississippi is now forecasting $1.2bn in lost forestry plantations alone and Louisiana has lost a further $500m in timber.
The damage done to dairy and sugarcane producers mounts with every farmer contacted.
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By GlobalDataIt is too early to predict how this will work through to supermarket checkout prices but with farm aid from the Federal Government likely to add billions to the Katrina bill, Americans will pay for the damage one way or another.
Of longer-term concern is how the shutdown of the Gulf region will affect US agricultural exports. Last year, about 27% of US farm produce was exported and it is possible that overseas markets will seek supplies from other sources because of the disruption caused by Katrina.
This is particularly relevant to the export of corn, wheat and soybeans – much of which departs the US from the port of New Orleans. About one billion bushels of grain, or 60% of grain exports, are shipped down the Mississippi River on barges from the breadbasket states and then transferred to ships at New Orleans. Because of the Hurricane, the Mississippi has not been navigable and barges are lined up along the river’s length like an LA freeway.
Switching to trucks and trains so the grain can reach other ports would add substantially to transport costs and reduce the competitiveness of American produce.
There are also problems in New Orleans itself. Power cuts and building damage has shut down many of the grain elevators, which transfer the grain from barge to ship, but the US Government is now reporting that at least 63% are working again.
However, they may not be able to operate at full capacity as virtually all the workers have been evacuated. And those that remain are subject to a curfew while the police and National Guard restore order – this means the facilities cannot operate 24/7 to clear the backlog.
(Corn and soybeans are the crops worst affected by the New Orleans shutdown as most wheat goes through ports in Texas – only 22% of wheat exports leave by way of New Orleans.)
If speedy, two-way navigation of the Mississippi is not restored soon, and if people are not found to operate the grain elevators, America risks losing export markets.
Terry Francl, the American Farm Bureau Federation’s senior economist, says: “There is mounting concern that the shutdown will compel international buyers to look to other sources, such as China for corn, or South America for soybeans.” This could translate into a further $500m loss for US agriculture, says Francl.
Timing couldn’t be worse
This could not come at a worse time for corn growers in Iowa, Illinois, Nebraska and Missouri, who are already struggling.
Just days away from the start of the harvesting season spot prices in Illinois are around $1.60 per bushel, down from $2.15 last year. A loss of export markets would likely push domestic prices even lower and many farmers are reported to be planning to store their stock until next year in the hope of better prices.
But any benefit the food industry might get from these lower grain prices is likely to be offset by higher sugar costs.
Louisiana is one of the main sugarcane growing areas in the US (it is worth $2bn a year to the state) and early estimates show that 20% of the crop has already gone – or 3.5% of a national crop that is already stretched to meet current demand.
Sugarcane under long-term threat
The sugar cane growing areas are primarily in the southern parts of Louisiana – those worst affected by the hurricane – and producers face the loss of not only this year’s crop but also the seedlings for next year.
Sugarcane growers were about 20 days from the start of their harvesting season when Katrina hit and normally at that time they would have been adding a ripening agent to their crops. Most have been unable to do this and the delay will mean a later harvest.
Also, because sugarcane grows very tall it is easily devastated by high winds.
Mike Danna, a spokesman for the Louisiana Farm Bureau Federation, says: “When Katrina hit the sugarcane was standing about 12-15ft tall. I saw it the day after the hurricane and the fields were flat like a carpet. The good news is that we’ve had a lot of sunshine since and that sugarcane is beginning to stand up again. We now have to move fast to start the harvest but many farmers can’t get enough fuel to do so. We could lose a lot of the crop to winter frosts at the back end of the harvest.”
Dairy farmers face massive spoilage
Dairy farmers in the hurricane-hit region are estimating that 35 million pounds of milk will be lost per month as processing facilities have no power – and even if there was power, farmers have no fuel to transport their product. This should not have an impact on milk prices beyond the South as the milk processed there is sold for local consumption – and most of the “locals” have been evacuated.
Cattle farmers are also predicting big losses as much of their stock is currently standing in two feet of water with no food. Estimates vary from 10,000 to 100,000 cattle fatalities, depending on how many are lost to disease once the water recedes.
In economic terms, this is relatively minor compared with the threat of lost export markets but, obviously, for the farmers affected it is devastating – and this is likely to be the most serious, and lasting, damage done to the US food industry by Katrina.
“Man, you should have seen it,” an emotional Mike Danna explains. “I was down there in those areas hit by the hurricane and it’s worse than you’ve seen on TV. Farm buildings have been destroyed and I saw machinery wrapped around trees. When that infrastructure goes you can be the greatest farmer in the world but you can’t do anything other than try to survive.”
