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The Effects of Natural Gas Decontrol on Fertilizer Demand, Production Costs, and Income in Agriculture

Under the provisions of the Natural Gas Policy Act of 1978 (NGPA), about 50 percent of natural gas production will be decontrolled in 1985. Whether natural gas is decontrolled under the provisions of NGPA or new decontrol legislation is enacted, real natural gas prices are likely to increase during the next few years. Rising natural gas prices will directly affect agriculture by increasing crop drying and irrigation costs. However, the largest effects will occur indirectly through increases in nitrogenous fertilizer prices; natural gas represents 60 to 70 percent of fertilizer production costs (Lutton and Andrilenas 1983). Because farm production expenses have increased nearly $100 billion from 1970 through 1981 (U.S. Department of Agriculture 1982b) and real farm income has decreased 70 percent during the same period, the decontrol of natural gas is viewed with concern by the agricultural community.

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Energy Specializations: Natural Gas – Policy and Regulation

JEL Codes: Q16: Agricultural R&D; Agricultural Technology; Biofuels; Agricultural Extension Services, Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, Q35: Hydrocarbon Resources

Keywords: Natural gas deregulation, Fertilizer demand, Agricultural sector, Gas prices

DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No1-10

Published in Volume 6, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.