Millions Lost Unless Locks, Dams Updated

March 22, 2002

A study sponsored by an agricultural coalition concludes that unless the lock and dam system on the Upper Mississippi and Illinois Rivers is updated, the nation's farmers are looking at losing hundreds of millions of dollars in the next 20 years. The study's author, Mike Evans, is professor of economics, Department of Managerial Economics and Decision Sciences, Kellogg Graduate School of Management, Northwestern University.

Sponsors of the study are the National Corn Growers Association, the Mississippi Area River Coalition (MARC) 2000, the Illinois Corn Growers Association and the American Soybean Association.

According to the study, the cost of transporting corn on the Mississippi River would increase an average of 17 cents per bushel. Since approximately 80% of corn now is exported through Gulf Coast ports, the average increase in shipping costs for corn exports would rise 13.6 cents per bushel.

"Because of that price increase," said NCGA Production and Stewardship Action Team member Garry Niemeyer, "corn exports would drop by 68 million bushels per year, or 1.75 percent of the estimated exports of the year 2020. In addition, the combination of lower real income, higher prices, and higher interest costs would reduce the federal budget surplus by $1.5 billion per year in 2020."

Niemeyer continued, "Basically, the findings of this report say due to the decline in exports of corn and soybeans, the trade deficit would increase by an additional $245 million in 2020. We can't wait around for that to happen. We have to make the Army Corps of Engineers realize the gravity of this situation and work on fixing this problem now."

Evans' study was commissioned to calculate the economic impact of increased congestion on the Upper Mississippi River - Illinois River waterway. A model of world corn imports, exports, and production constructed for this study was used to calculate the increase in the export price of corn at Gulf ports, the reduction in corn prices received by farmers, and the decline in U.S. corn exports and production for a given increase in Mississippi River barge freight rates for agricultural commodities.

Lower commodity prices aren't the only issue examined in the study. "The increase in food prices caused by the higher transportation costs would reduce disposable income and employment in non-farm states by an additional 5,625 jobs," Niemeyer said. "So the total decline in employment would exceed 20,000 without even taking into account any negative impact of a reduced federal budget surplus or increased deficit."

The study goes on to say if the combination of higher consumer prices, higher interest rates, and a smaller budget surplus reduced real GDP by the same proportion as has occurred historically, employment would decline by an additional 9,375, causing a total reduction of almost 30,000 jobs.

"When you look at it that way," he said, "the loss of non-farm jobs due to higher food prices and a lower level of economic activity would actually be greater than the loss of jobs in farm states."