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1 INCREASING PRODUCTION COSTS Background USDA forecasts that total farm production expenses rose to $221 billion in 2005, up 5 percent from 2004 and 12.6 percent from 2001. Higher costs from purchased inputs such as fuel, fertilizers, and pesticides exp lain much of the rise in total farm production expenses. The input prices paid for fuel and fertilizer in 2005 spiked 61.5 percent and have tripled in 3 years. These increases are particularly significant to producers of program crops such as corn and wheat with relatively large energy usages. Prices paid and received by farmers have generally outpaced general inflation measures in the U.S. economy since enactment of the 2002 farm bill. Annual indexes compiled by the National Agricultural Statistics Service (NASS) show that prices paid by farmers for all items rose 12.9 percent from 2002 to 2005. This was greater than the finished goods producer price index (PPI), which rose 12.1 percent over the same period. The effect of price increases on profitability varies by enterprise. Productivity increases for some commodities may offset rises in production costs. Prices Paid and Received by Farmers 2002 2005 Index change Index Index value (1990–92 = 100) Percent Prices paid by farmers All farms1/ 124 140 12.9 Supplies /2 132 146 10.6 Fertilizer /2 109 176 61.5 Farm machinery /2 149 172 15.4 Fuel /2 128 256 200.0 Crop farms /2 128 147 14.8 Livestock farms /2 122 140 14.8 Prices received by farmers All farms 1/ 98 116 18.4 Crop farms 2/ 101 101 0.0 Livestock farms 2/ 95 121 27.4 1/ Annual averages. 2/ 4th quarter averages. Source: USDA NASS 2 General Opinions Expressed · Many participants expressed concern over rising costs of fuel, fertilizer, and other energyrelated inputs. They noted these cost increases were having a negative effect on farm profitability and on the competitiveness of U.S. producers in world markets. · Some offered suggestions on how higher energy and energy-related input costs could be minimized throug