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Testimony of Tim Burrack
National Corn Growers Association
Before the Water Resources and Environment Subcommittee,
Transportation & Infrastructure Committee
U.S. House of Representative
March 23, 2000

Good afternoon. My name is Tim Burrack. My brother and I raise corn and soybeans in Arlington, Iowa. I am a member of the National Corn Growers Association's Production and Stewardship Action Team. The National Corn Growers Association (NCGA) represents more than 31,000 direct members and the 300,000 corn farmers throughout the nation who make check-off payments each year. I would like to thank the Transportation & Infrastructure Committee for giving me the opportunity to voice corn growers' concerns about growing congestion on the inland waterway system.

Agricultural commodities, and corn specifically, are the largest bulk products moving on the Upper Mississippi System. Many may not fully understand the nature of farm commodity production. By definition, commodities are largely uniform and interchangeable regardless of where they were produced. For example corn produced on my farm in Iowa is indistinguishable from corn produced in Tennessee, and Minnesota soybeans are indistinguishable from Brazilian or Paraguayan soybeans. Therefore, when Japan, or any other country wants to buy grain it largely comes down to who can provide the product they want, where they want it, when they want it and at the lowest price. The growing congestion on the Mississippi River is hindering our ability to meet global demand, which ultimately costs us markets and drives down grain prices.

As a farmer in eastern Iowa, I have two markets for my grain, the Mississippi River export markets through the Port of New Orleans or local corn processing plants that turn it into ethanol. These two markets are directly related. When prices for corn at the river export grain elevators fall, prices at the processing plants drop as well. The simple fact is that the processors compete against the river export markets for grain. Reduce the competition between these two markets and everybody's prices fall.

As a corn farmer, I am completely dependent upon the United States transportation system. I make my marketing decisions based on the current and projected prices at my two market options. The prices set at these two locations are based off the transportation costs of delivering grain to the final market, be that foreign or domestic. The National Corn Growers Association works to increase corn utilization in both foreign and domestic markets - whether it is animal feed, ethanol, or biodegradable plastics -- but we must also work to ensure that our nation's transportation system can deliver bulk corn and finished products to their final market in the most efficient manner.

The inland waterways of the United States are of vital importance in the transportation of more than 60 percent of our agricultural exports and nearly one-fifth of our agricultural inputs. Barge transportation is the most efficient and economical mode to move bulk agricultural commodities and input supplies. However, the lock and dam system developed nearly 60 years ago is outdated and cannot satisfy today's increased demand to transport goods. Further, a congested rail system is inadequate to step in and fill the bulk commodity transportation capacity.

Quite simply, lock delays reduce the price for corn. The barge industry indicates it costs between $400 and $500 per hour to operate a tow. Every hour that a tow sits and waits to transit a lock, the cost of shipping increases. Who absorbs the higher transportation costs? Farmers. Of course this inefficiency cuts both ways, as higher transportation costs are split between the export market and inland price. Congestion raises the price of corn in New Orleans reducing our competitiveness in world market, at the same time farmers receive less for their grain to compensate for the higher barge rates. Think of it this way, it's just like a taxicab sitting at a red light; the meter is running, and who pays the price, the customer in the back.

Congestion on the Upper Mississippi and Illinois Rivers is the result of the aging 600-foot locks. To maximize their efficiency, towing companies push 15 barge tows, which are 1100 feet long. In order to transit the smaller locks the towboat crew must separate the tow and lock through in two passes. Under ideal conditions this process takes at least 1 ½ hours, compared to roughly 40 minutes at a 1,200 foot lock. Throw in any number of variables (weather, darkness, etc.) and the locking times increase dramatically. While one tow is locking any other tow in the vicinity waits, and as you can imagine these waiting times can grow dramatically resulting in average delays of not just hours but days.

Not only are movements down the river hampered by size of the locks, but we also must figure in delays due to maintenance, floods, droughts and ice. All of these factors create an uncertain, inefficient system that can only add to increasing costs. Locks that are of insufficient size to meet the modern tow size are exacerbating transportation costs and delays.

Every year more than 1.25 billion bushels of our nation's corn crop, and over 300 million bushels of soybeans move on the Upper Mississippi and Illinois Rivers. I can tell you that anything that impacts 1 billion bushels of corn; impacts the entire 10-billion bushel corn industry. The ramifications of the lowering of commodity prices are felt all across the Corn Belt and for growers across the country.

NCGA has commissioned our own study (Texas A&M) regarding the impact to corn, soybean and wheat growers in the Mississippi River Basin if these improvements are not made. I have attached state-specific information, but overall, growers will lose $364 million per year by 2020 if these improvements are not made. These costs are due primarily to continued congestion throughout our barge and rail systems. However, if the improvements are made, the benefits to growers are calculated to be $169 million annually. I should point out that these calculations are based on Army Corps of Engineers data, and generated through an Army Corps of Engineers and USDA routinely use.

Unlike some other approaches this model was built with actual grain flow data. We know that when the price of moving grain increases one of two things will happen, grain will go into a different less optimal market, or it will continue to go the same market but at a much higher cost. This is why States like Nebraska and South Dakota experience such adverse impacts from congestion. Corn from western Iowa or Minnesota, which would normally be drawn to the river, is diverted into markets traditionally served by the Western Cornbelt, causing the corn prices for growers in Nebraska and South Dakota to drop.

Annual Impact on Midwestern Corn, Soybean, and Wheat prices in 2020

Source: NCGA, Texas A&M

As we work to expand the new uses of corn as food, feed, fuel and even fiber for clothing, we see global corn and oilseed demand is increasing; yet United States exports are growing at a much slower rate. The billion-dollar question is why? Quite simply, the reason is transportation. The United States not is the low-cost producer of corn and in the past our competitive advantage was our transportation system. However, the United States competes with two countries for corn exports -- Argentina and China, and two countries for soybean exports -- Brazil and Argentina. Unlike the United States, the Argentines have invested $650 million in their river system, and those investments are now paying dividends. China has just completed a corn transportation network that makes them a more efficient exporter of corn. This system includes rail networks, rail cars, storage depots and a state-of-the-art grain port capable of handling Panamax vessels. We all compete for the same customers in a global marketplace and if foreign countries can transport their corn more cost effectively and rapidly than the United States, they will capture the market.

I have visited foreign investments first-hand and just completed my second trip to the Mato Grasso region of Brazil in February. The changes the Brazilians are making would be simply fascinating, if they were not aimed directly at competing against me. On my first trip, I met a gentlemen name Blario Maggi. At the time, he was the largest soybean grower in the world. Mr. Maggi had over 100,000 acres of soybeans growing in the middle of Brazil, on land that only a few years earlier was completely undeveloped cerrado (tropical savanna). Mr. Maggi realized he could grow soybeans, cotton or several other crops in this area, but the lack of transportation made it unfeasible. However, after extensively studying the Upper Mississippi navigation system, he saw a river system as the answer. He now builds towboats, barges and operates a floating grain elevator capable of loading Panamax vessels on the Amazon River. His challenge was not a congested transportation system, but rather a total lack of one. The result is that he has built a water system that beats our outdated system.

But that was two years ago; today Mr. Maggi is the second-largest soybean grower. Still undaunted, he is paving over 500 miles of road to further reduce transportation costs. Likewise, the Brazilian government is paving a new highway from the Mato Grasso to the Amazon River. This road will connect the expanding gain producing acreage in the middle of Brazil with a second export port. I use the term expanding; by some estimates Brazil has an additional 60-70 million acres of virgin land that can be put into production, which is roughly equivalent to the entire U.S. soybean acreage. The leading impediment to developing this land has been the lack of a transportation infrastructure, but the Brazilians have shown that they are willing to make the necessary investments to move forward.

Earlier I mentioned a study we commissioned through Texas A&M that detailed the impact on farmers in the Midwest, but what are the impacts on the overall United States economy. NCGA is also conducting independent analysis of the future needs of the inland waterway system and the economic impacts of the improvements and/or lack of improvements on the National economy. Preliminary results indicate that without improvements, the average price for shipping corn to New Orleans would increase by 20 cents per bushel. As mentioned earlier, higher transportation rates would increase the cost of corn in New Orleans reducing our exports, and it would also reduce the bid prices of corn in the Midwest. Additionally, higher barge rates reduce the competitive pressure on railroads, allowing rail rates to rise as well. As exports wane and prices received by farmers drop, farm income drops. Lower farm income then ripples through the economy of the Midwest as agricultural employment and tax revenues drop. Local and state governments would respond by either cutting services or raising taxes to meet budgetary shortfalls, leading to further reductions in disposable income. While this occurs in the Midwest, the entire nation is impacted by transportation costs for food, energy, etc. which reduces disposable income. As I mentioned this study is currently ongoing, but we would be happy to brief the Committee when our findings are complete.

There have been several ideas about how to best mitigate the congestion on the inland waterways and I would like to offer some ideas on several of the concepts. First, let me stress that corn moves to market when the marketplace demands it, not when it is convenient to transit locks. When the global market demands corn or soybeans, grain companies and farmers respond by shipping the grain to the ports. But what happens if we ship grain at other times? First, we either lose export sales as our foreign customers go to our competition or we move grain and store it, and this comes at a cost to the farmer.

On my farm, I can store 125,000 bushels of grain. Now ask yourself why do I store grain on my farm? Quite simply, it allows me to hold grain and ship it when the market demands it, and hopefully profit from this storage. But if I ship my corn when the market does not demand it, someone else will have to store it, and that storage comes at a cost, which is reflected in lower prices. Under a congestion mitigation plan of scheduling, grain will be shipped not when the market wants it, but when an inefficient lock dictates easy transit.

Furthermore, how do towing companies schedule for fog, headwinds or ice that closes the Illinois River for five weeks? The analogy has been used that barges should be scheduled like airlines. Sure airlines schedule arrivals and departures, but what happens when there is a storm. We have all experienced the answer. The schedules go out the window and the entire system jams. By the way, who will schedule the recreation boats that share the locks and pools with the barges?

Regarding crew training, all the barge operators I have talked with agree, there is some efficiency that can be gained by a well-trained crew. However, these efficiencies only amount to minimal gains because barge crews, specifically deck hands, are entry-level positions with a high turnover rate.

Finally, I would like to address the concept of trading lockage permits and greater cooperation among barge lines to ease congestion. Who will determine the allocation of lock permits? Will ACBL get more? What about ARTCO if they haul more grain on the Illinois; will they get more than CCI? What happens to some of the smaller firms, if they don't have a permit, are they forbidden passage? The advocates of this plan forget one of the keys to barges' low-cost nature is competition. The locks provide open access to all. If the southbound grain market heats up, companies that may not routinely operate on the Upper Mississippi send towboats and barges there to serve the market -- it's simply supply and demand.

Through our analysis and the first-hand experience of our members, NCGA has determined that reducing congestion and increasing the capacity of the lock and dam system on the Upper Mississippi is vital to future profitability and competitiveness of U.S. agriculture. Changes in agricultural policy have made farmers more aware of international competitiveness and the need to maintain and expand foreign markets for U.S. agricultural products. Without continued investments in our transportation infrastructure, U.S. farmers are placed at a severe disadvantage because foreign countries have increased their commitment to developing their agricultural export markets.

In closing, our competitors have found the fortitude to invest in their transportation systems and these investments are paying off. Congestion at the locks on the Upper Mississippi and Illinois Rivers exists. It is real and every year it gets worse. This growing inefficiency chokes our ability to meet growing global demand, it robs America of foreign trade, it costs Americans jobs, it drives up the cost of energy in the Midwest and costs me and farmers across the country millions of dollars in lost crop revenue. And the worst part, it will only continue to magnify until we fix it, or are completely irrelevant in global agriculture markets. It is time to fix the problem. It is time to invest in the Upper Mississippi and Illinois River locks.

ST. LOUIS OFFICE

WASHINGTON D.C. OFFICE