Energy needs of the various sectors of the food industry are outlined. Also, potential problems in meeting these needs are discussed.Resource /Energy Economics and Policy,

Davis, James A.

English

Research Papers in Economics

ENERGY REQUIREMENTS IN FOOD MARKETING
by
James A. Davis
Acting Director
Emergency Preparedness Division, A.S.C.S.
Energy needs of the various sectors
of the food industry are outlined, Also,
potential problems in meeting these
needs are discussed.
I am going to divide my topic into
four general subdivisions, One I will
call background, the other will be
requirements; that is, the subject of
the discussion before us, but in require-
ments I don’t think you are as interested
in absolute amounts as you may be in
other aspects. Then we will talk about
priorities under the existing petroleum
allocation regulations and the general
area of these problems. We will look
back just a bit to some of these things
that I will say you already know, but
just to bring the whole picture into
perspectivewe know that petroleum fuels
in shortage areas through most of 1973
up until approximately the time of the
Arab oil embargo, were moving along with
about 3 to 4 percent shortages for most
of the petroleum products. That is not
very short, just enough to be real
troublesome. You probably know better
than I some of the troubles that it can
create, roughly for the first three
quarters, about 3 to 4 percent short-
ages overall in the petroleum area. The
last quarter of last year was about a
7 percent overall shortage, part of it
was without the embargo and part of it
with the embargo. These are figures
from the Federal Energy Office. If I
call it FEO a few times you will know
what I am talking about. That office
when the Arab ambargo came along, as
you probably will remember so well,
projected that there would be about a
17 percent petroleum product shortage for
the first quarter of this year, but a little
of the oil leaked through and the last
figures available to us said that there
would be about a 14 percent shortage for
the first quarter of this year unless the
leaks are plugged and we get less, or also
unless there is some kind of resolving of
the situation that would permit oil to
begin to flow to us again from Arab coun-
tries. That was through the first quarter.
The EFO also projected that the
second and third quarter shortages would be
a little greater than 14 percent again if
the embargo continued. That is a quick
look back at where we have been; that is,
the projection of where we might be in the
first quarter that we are now in, the second
and third quarters if the embargo continues.
Let’s take a look at the petroleum
production during the last few weeks and
see how it looks as compared with this
projection. Let’s back up before December
7, to about the first part to the middle
of November, before the Arab boycott came
into effect and at that time the U.S. re-
fineries were operating at approximately
100 percent of capacity. That is their
rated capacity and you know as well as we
do that if it gets 100, 101 or 99 percent
that it is about the maximum we can expect.
With the embargo beginning, the crude runs
to refineries gradually, decreased until
the last weeks work of January 11. It is
a little less than 90 percent of what it
was a few weeks ago. Now, we said earlier
that we had been getting along at a 3 or
4 percent shortage for the first three
quarters, and if we add that 3 or 4 percent
Journal of Food Distribution Research May 74/page 23shortage to a little less than 90 percent,
this would indicate that the overall
petroleum products now would be close to
14 percent short of what had been pro-
jected. Output was higher than last
year until we get to the last two weeks
and at that point it just about equals
last June.
Gasolines - you will notice that
this year’s charts are lower than last
year in all instances and it had been
that way for quite some time. That is
output.
Let’s take a brief look at stocks
of distant fuel oil and gasoline. I
will just lift this at the top and there
you can see that these are weekend stocks
for this period and for some time
before that the stocks were considerably
higher this year than last year. Perhaps
I should have said these are primary
stocks, there is no reasonable way to
get them at all levels. I also should
have said that these are industry fig-
ures. We have all been reading in the
papers in recent weeks about the govern-
ment having to depend upon industry for
its source of information. There are
some hearings beginning on the Hill
today on this very thing, but it is the
best government has, so we are using
them. For gasoline, you will notice,
the reverse is true, that the stocks
throughout this period and for somewhat
earlier are a bit lower than a year ago.
We have the third and last chart which
is residual fuel oil. These, as you
know, are the heavier fuel oil used
primarily in food processing of indus-
tries and as a bunker fuel for ships .
We say that production of residuals
were higher during this period than
they were a year ago. All I really
know about natural gas stocks is what I
read in the paper and that is stocks
production. If you read that too, it
says this year about the same as last,
1973 about the same as 1972. Neither
do we have information readily available
on electric energy. Even though this
subject is energy wide we will just use
the informationwe have readily at hand.
We have this because we have been so
deeply involved in the petroleum fuels
area during the past year or so.
The next area is requirements, and
we will spend only a brief period on them
because as I said I don’t think you want
absolute amounts. But to start with let’s
all recognize that food is a very energy
intensive industry. We have been reading
in the papers, that the co~lntry as a whole
is a very energy intensive country. We
have about 6 percent of the world population
but we use about a third of the energy that
is consumed in the world. Agricultural
production is no different from that and
your food industry is no different, very
energy intensive. What does it really
look like? On an overall basis out of the
1972 census as compared with censuses on
earlier years let’s look at natural gas,
coal, fuel oil, electric energy and then
take a look at the overall energy.
For natural gas - the food processing
industry - now this is food processing, not
your whole marketing system. Natural gas
consumption has just about doubled what it
was 20 years ago. Today it is about 480
billion cubic feet per year. The reverse
is true for coal. Today the food proces-
sing industry is using just about a third
of 20 years ago. The use of fuel oil
during the 20 years has fluctuated, where
now it is just about the same as it was
20 years ago, 20 to 21 millioq barrels a
year. We can say that the food industry,
food processing industry, probably uses
about 1 percent of the total residual
fuel oil in this country.
For electric energy purchased - this
does not fully include what you generate,
I am not sure what that is, but with elec-
tric energy purchased today it is just
about triple what it was 20 years ago. If
you like figures - today it would be about
35 to 36 billion kw-hr per year. As you
get a common denominator for these dif-
ferent kinds of energy you have an overall
increase of about 30 percent in energy con-
sumed by the food processing industry,
during this 20 year period. As we have
mentioned, we do not have readily available
those kind of figures for the transporta-
tion part of food marketing. You know
May 74/page 24 Journal of Food Distribution Researchbetter than we do that there has been a
substantial shift in food transportation
in the trucking industry for the past 30
years according to a panel of experts
that put some of this into writing.
They figure that the energy consumed by
trucks moving food products has increased
about fourfold over the last 30 years.
In the wholesale and retail trades,
again, we do not have very good informa-
tion, but that which is available to us
says that about one half as much energy
is used in the wholesale and retail
trade as there is in processing and
transportation combined. For a rough
estimate of the amount used in tran-
sportation - divide that by half and you
would get approximately the energy
requirement for the wholesale and retail
trade together. This is further broken
down by the retails being about twice as
great as the wholesales. I do not know
how nearly these figures fit your own
individual situations or a situation for
the geographic area that you are repre-
senting but at least say that they are
the best that is available to us at the
time. On the part of shipping we might
say just a word. We do not have any
information on quantities consumed but it
is obvious to all of us that there would
be some fairly direct relationship
between quantities of exports and imports
and quantities of energy necessary.
Moving from requirements to the new
regulations that are in effect - we
would do that under the general heading
of what we call priorities in the four
breakdowns that we gave you in the be-
ginning. As you probably know, these
regulations appeared in the Federal
Register January 15, 1974. They were
effective that day but we also know that
it is going to take several weeks, I’d
say a month or longer in order for them
to become implemented at the place where
the food industry and farmers actually
obtain their fuels. We know that we
have been through quite a period of
turmoil during the past several months
with different kinds of petroleum fuel
programs. Secretary Butz has worked
rather hard with people at his level, he
said just the other day in a meeting at
which I was present, that the President
was working with them in trying to estab-
lish the need for the production and mar-
keting of food throughout the United States
as well as in the World. Primarily through
those efforts we were able to obtain what
we consider a very high priority for the
production and marketing of food. That
priority is set out as you might know as
being 100 percent of current requirements,
for gasoline, middle distillates, residual
fuel oil, propane and butane. We are
wondering what difficulties might be en-
countered in the practical application of
that priority. Incidentally, food is the
only one that has 100 percent without any
reduction factor in it in the event that
there is not enough fuel to go around. A
few categories are sectors of the economy
and can have 100 percent of your require-
ments if there is enough to go around but
if there is not enough then all of you are
scaled down in the same proportion. You
might get 95 percent of your requirements.
We are wondering just how practical this
is going to be to administer. Let’s take
food processing for example, we think that
when the program is really fully implemented
that the food processing industry should
be in reasonably good shape in obtaining
its fuels. That is because we believe
that you purchase fairly directly, that you
use it for food processing purposes, and
some related services, like the production
of containers in some instances - so we
cannot see where you should be encountering
a great big problem in
this regulation.
We will move from
transportation. We do
going to be quite that
the application of
food processing to
not think it is
easy. We know what
the news says about some trucks in the
area today, trying to bring some problems
to the attention of certain people. Take
a truck transporting food from the mid-
west to the northeast. Where does it get
its fuels? Especially the nonregulated
or the independent. It is our under-
standing that they have to depend upon
truck stops. He might be carrying food in
one direction, but different cargo in
another direction. We simply do not know
how well this 100 percent priority is
going to function in those cases. It takes
Journal of Food Distribution Research May 74/page 25many different kinds of carriers, such
as rail that might have mixed cargoes.
We are not sure how it will function
there, Incidentally,maybe I should
have said that for nonfood cargoes,
allocation is 100 percent of what was
used in 1972 by months. Maybe it will
be in effect in February of 1974 and the
allocation to the general rail and sim-
ilar freight modes of transportation
would be 110% over all of February 1972.
That might be about adequate, I do not
know. From what I read it seems that
the transportation requirements now
exceed those of two years ago by more
than 10 percent. Those modes of tran-
sportation fall into the catego~ that
if there is not enough fuel to go
around they will be scaled down.
Wholesale and retail trades - I
don’t think I will try to say how this
might apply. Certainly, we think about
as good as food processing, better than
transportation.
Ocean shipping - for the exports
that are food, again we are supposed to
get 100% of requirements. But we have
been reading about some of the dif-
ficulties there especially on return
trips, foreign countries that will permit
ships to be refueled are charging higher
prices, some are providing only enough
fuel to get from one port to another
port in another country. We understand
that there is a real effort now to try to
work out some of those problems. As far
as the United States is mncerned, the
priority is 100 percent of requirement,
Whether it is our own flag or that of
another country. But in order to get a
100 percent of requirement every such
user might certify to his supplier that
he has a conservation program in effect.
Someone, this mmning, if I heard cor-
rectly, said that we only needed half
the energy we are now using in some part
or all of the food marketing system. If
that is true, it seems that there is real
room for conservation practices to be
put into effect. I am not trying to say
what conservation practices the whole
food marketing industry should try to
use but there is a requirement, as I have
already said, that you must have a con-
servation practice in effect. If we had
any suggestions,whatsoever, it would be
to take that seriously and not just sign
a statement that you do have it.
Just a brief word about some of the
activities we have been involved in. You
might know that our agency now for nearly
a year has been monitoring the fuel situa-
tion in the rural areas, that is where we
have people, at the local level. We do not
have the capability to monitor the fuel
situation in the nonrural areas. I say
that because you can get some idea about
ability or inability to monitor the market-
ing industry problem, but at least in the
rural area we have been and we expect to
continue monitoring. In that process we
pick up primarily former problems, but we
also pick up industry problems to the extent
that they come to our attention there.
Fortunately, thus far, as many foreign
problems as we have had with petroleum pro-
ducts the past year, we have not had lots
of food industry problems to come to our
attention. In the food processing there
are more scattered cases where they have
had shortages that could not be resolved
for one reason or another, not wide spread
at all.
In transportation it is primarily
availability of cars and not fuels. The
rail industry does tell us that their
stocks of diesel fuels are now roughly half
of their normal level but not low enough
yet to cause some genuine problems. Price
might be even more of a problem there than
quantity of fuels available. We have more
problems in the trucking industry than we
have in any other part of the transporta-
tion industry. We are not in a very good
position to pick up problems in the whole-
sale and retail trade. Concerning ocean
shipping, I think I will just merely say
that you read about those and you probably
know just as much about them as we do. It
is primarily the availability of bunker
fuels and of course price across the board
in all of these cases.
May 74/page 26 Journal of Food Distribution Research

ENERGY REQUIREMENTS IN FOOD MARKETING

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