Hitting the pocketbook from all sides

Fuel Costs Hit Montana’s Major Markets: What’s Next?

By Lucia Stewart, 10-06-08

Transportation issues are bearing down on the economy of Montana. How is this affecting our farmers, industries and how we view our future strategies, policies and approaches?

The Burton K. Wheeler Center, at the Montana State University, hosted a conference on transportation in Billings last week, with the goal to discuss with leaders and legislators how this increase in fuel has forced a shift in our economy and how are we to approach the future.

Representatives from three of Montana’s major industries — tourism, farming and food distribution — discussed how Montana’s markets are being significantly affected by fuel costs.

“Where is tourism at the moment?” asked Norma Nickerson, of the Institute of Tourism and Recreation Research. “High cost of fuel has caused less discretionary income, so either they are not going to travel or they are going to travel differently. In the past it’s been really good, but I don’t think this year it will be this way.”

“Tourism is one of the economic pillars in the state of Montana and we will see the repercussions reverberate through Montana,” said Nickerson. “Most of the places that are down are our small business people, since that is what tourism is made up of in Montana. These smaller businesses are more likely to shut down as they usually can only make it through a two-year slump.”

Travel and Tourism stats in Montana from Jan. ‘08 – Aug. ‘08:
• Airport deboardings is up 3.8 percent.
• Travel to Glacier and Yellowstone National Park is even – “National Parks are anchor stores, if they don’t fill out then rest of state is hurting.”
• Hotel rooms are down 1.1 percent.
• Vacationer daily expenditure is down 15.4 percent, and the length of stay decreased by one night.
• Camping is up, “because hotels and motels are not being used.”
• Non-residents retail purchases down 36 percent.
• Outfitters and guides down by 67 percent.
• Gambling is down 86 percent.

Nickerson went on to explain some specific areas that are being directly changed due to our downward tourism market.

“Travelers are less likely to come if it takes more than 8 hours in a car to get here,” said Nickerson. “Where are we close to in 8 hours? So we are going to see a significant decrease.”

“State park visitors are down five percent, but their revenues are up,” she said “That means people are staying put in the parks, there‘s just not as many people coming in.”

Another significant influence is in funding our critical non-profit organizations in Montana. Donations for non-profits are going down, and many of our statewide attractions are dependant on non-profit donations, such as the open space and mountains people come here for, she added.

“Canadians are flocking down into Montana, but as I talked with folks in Whitefish, they are not quite the vacationers we want,” said Nickerson. “They fill up their car with cheap box stores goods and go home.”

“If our tourism dollars go down, then our bed tax revenues go down which then Montana cannot promote and market itself to get those people in,” said Nickerson “That could be big problems down the way.”

In ending, she did add an upside to the romantic view the United States has towards Montana.

“How often have we heard ‘I’ve always wanted to go to Montana’?” she said. “ Well, the number of first time visitors is up and why does that become a good thing? Because once they’ve been here, they’ll come back.”

McKee Anderson, from the Montana Food Distribution Association, discussed transportation and how it relates to our food prices in Montana.

“I’m going to tell you the bad news right up front,” said Anderson. “Food prices have gone up drastically since March of 2007.”

He went on to explain that this is due to additional transportation costs, fuel prices and speculation.

One of the significant impacts of increased fuel prices is the cost of transporting food to and from the state of Montana.

“The year I was born in 1948, we consumed 90 percent of the local product within the state and we imported less than 10 percent,” said Anderson. “By the end of 2006, we imported 96 percent of our product.”

“We actually grow more than we consume,” and he continued to explain that we export out-of-state for processing due to cost efficiency of volume levels.

We created a food system based on cheap gas, and therefore processing plants are immense distances from the farms, particularly here in Montana, said Anderson.

“Therefore we incur the transportation cost of the farm to the processing plant and then back to our grocery stores,” he explained. “Trips to the grocery is becoming painful.”

But there are winners in the farming industry who continue grow basic foods are the necessary in our world economy:
• Flour is up by 37 percent
• Eggs are up by 34 percent
• Sweet peppers are up by 29 percent
• Milk is up by 23 percent
• Dried beans is up by 21.6 percent

“The America people have grown to the habit of eating out 50 percent of the time and that is changing rapidly,” Anderson said. “When we use to feed our cars 4 percent of our income, and now seeing 12 or more percent, particularly here in Montana, people are making cuts.”

Speculation is also a large reason for our food costs, “but it’s the one item that is a quick fix in reducing this,” said Anderson.

As the demand for food has gone up due to our global economy, end result is more competition for this food in overall dollars, he concluded.

Bing Von Bergen, Vice President of the Montana Grain Growers, shared the perspective of the grain growers across the state, and how transportation costs have hit the pocketbooks of the already stretched thin farmer’s wallets.

High cost of fuel is affecting the farmers the same way as others, but in more factors, said Von Bergen.

“Due to our rural nature, we live out in the country so we have to travel far distances to get to town where we buy our supplies and need to haul our grain,” he said.

Burlington Northern implemented a system where there are few places farmer’s can load their grain on the railcars.

“We are unique industry because we transport the product to the rail line and then give Burlington Northern a chunk of change to freight to the Pacific Northwest,” said Von Bergen. “So every time the price goes up, it hits us twice.”

Von Bergen showed a fairly gloomy picture of the change of costs on his 31,000 crop-acre farm:

“Gas rose from $2.49 per crop-acre in 2001, to $9 per crop-acre in 2008,” he said. “My farm expenses on gas, diesel fuel and fertilizer, went from $80,000 in 2001 to $288,000 in 2008.”

“When I increase the risk to my farm by $200,000 in 8 years, never in my 29 years of farming have I have to bear the burden as I am right now,” Von Bergen said. “If the price of grain were to collapse, we’d be in trouble in the state of Montana.”

“The high input prices have forced farmers to be better marketers than before and we also have to take greater risks then before,” he said. “There is much volatility in our market and marketing tools have changed, but it’s more critical now than ever that we lock in our price [for our grain], but don’t do so more than one year out.”

He explained that the market is so fickle, that by locking in too early, a farmer could potentially loose a great deal of income if the price “rallies up”, then the farmer’s don’t benefit.

It all depends on marketing strategies,” said Von Bergen. “Those who guess right will benefit, but those who guess wrong, will go broke and possibly a large number of farmers will go out of business. There could be an unbelievable financial crisis in the state of Montana.”

There were a significant number of solutions and discussions based around how Montana should proceed through out the two days of the Wheeler Conference. Here are few of the discussion points that were brought up:

• Distance based fees
• Pay-as-you-drive insurance
• Parking management systems
• Providing more effect travel information – routes, weather, work zones, etc.
• Ridesharing
• Flexible work hours
• Pedestrian, cycling and transit improvements and integration
• School trip management
• Compact mixed-use developments
• Regional transit
• Reduce the speed limit to 65 mph
• Truck drivers can take a passenger that will pay them
• Passengers on the freight trains
• Look at performance of the system
• Fuel tax increase, more efficient transport pricing, trip reduction and regulation
• Increase funding for alternative modes
• Increase support for demand management program and associations
• Change to land us planning practices and smart growth policies
• Caps on number of parking space, implementing new alternatives
• Create partnership opportunities
• Smart technology and land use
• Accelerate institutional and policy changes to support travel behavior modification
• Strategize with our largest regional employers: universities, governments and hospitals
• And … Behavior, behavior, behavior

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