IN THE TRENCHES: Skyrocketing oil prices could jolt the produce industry
IN THE TRENCHES: Skyrocketing oil prices could jolt the produce industry
While driving to a store, I noticed that the needle on my vehicles fuel gauge was flirting with empty. After challenging it for a few more miles, I decided to pull into a gas station and force myself to buy some liquid gold in order to continue motoring forward.
Once at the pump, I noticed a receipt sticking out of the slot from the previous customer. He or she probably left it there to avoid the possibility of a sudden heart attack from observing the results.
I pulled the receipt from the slot and saw that it registered 20 gallons of gasoline for a total cost of $50. Being next up at the plate, I shuddered at the thought that the total amount on my receipt would turn out to be just as shocking.
Even though climbing oil prices have pushed gasoline prices at the pumps to an average of around $2.50 per gallon, people are still buying it. Are people driving less or slowing down on the highways? Is there a demand for smaller automobiles to conserve fuel? The answers are no. People are simply ignoring the price.
If we think gasoline is expensive now, we havent seen anything yet. According to some economists, this crisis is just getting started and will worsen in the next couple of years.
The cost of crude oil is up over 40 percent from a year ago with a barrel of oil averaging around $50. This has put the price of a gallon of gasoline at around $2.50. Some experts say that the cost of a barrel of oil could double in two or three years. That would price gasoline at about $5 a gallon or $100 to fill a 20-gallon tank.
We are in need of oil for our economic survival. The earth took 500 million years to produce the hydrocarbon deposits that we are burning away at a rate of 1 million times its natural production. Oil is used on a worldwide basis for food, transportation and heating. Without it, we would be in a state of economic failure. But hydrocarbon deposits are diminishing, and low supply and much higher demand will change our lifestyles immeasurably.
How much will it cost to keep the farm tractors, mechanical harvesters and packing plants operating in the near future? What price will trucking companies have to charge to haul produce from the farms to the stores? Where will supermarkets get the heating fuel to keep customers shopping in comfort?
Everything we do in the food industry is dependent upon oil, especially in the farming system. From planting seeds to cooking food, we need oil for production.
Abundant amounts of energy from oil and gas are used to manufacture materials needed throughout the food industry. Machinery, vehicles, fertilizers, irrigation systems, processing plants, transportation, distribution, packaging material and refrigeration all require energy. Almost everything we use to run a complete produce operation involves oil.
Larry Daniel, president of The Daniel Co. in Springfield, MO, told me, With current diesel fuel prices at record levels, many companies are finding that fuel surcharges are insufficient to cover the 50 cents-a-gallon increase or more over last year. Carriers thought that the driver shortage was troublesome. This fuel price increase is likely to have disastrous effects.
Over 90 percent of transportation fuel originates from oil. Transportation is the backbone of our economy. Without it, we wouldnt be able to buy the goods we desire from retail outlets.
In fact, we wouldnt find nearly the amount of food available in the supermarkets. If the trucks werent able to deliver it, our daily functions and economy would come to a halt.
One produce distributor told me, Out-of-sight fuel costs have increased our trucking rates by 40 percent over last year. This has really put a burden on our operating expenses.
Mr. Daniel added, Looking into the future, its hard to see that oil or diesel fuel prices will decline to any measurable extent. There is just too much demand both domestically and internationally. One thing that is certain is that when commodities as critical to the economy as oil and diesel fuel are in short supply, there may be no limit to the prices that have to be paid to obtain it. Any significant increases in price for it will make industries, agriculture and trucking bear the brunt as both use significant amounts of oil and oil-based products.
Think about it for a minute. How are plastic sign tags made? What about poly packaging bags, clamshell containers, stretch film and plastic shipping crates? Most are derived from oil.
How do forklifts and loaders keep operating in warehouses? How do packaging plants keep conveyor systems, peeling, slicing, shredding and labeling machines working? All require oil.
Many companies are being forced to absorb unexpected higher energy costs, which are eroding bottom line profits. The major challenge today is not in mergers, acquisitions, market share, cutting labor costs or having another food show. Its the high cost of crude oil to keep the business running on a full tank of gas.
These record-setting crude oil prices are a warning signal to us. Its a way of telling us that we should be prepared for the risk levels in a new business era.
When the fuel disaster strikes, will your company have an emergency plan ready?
(Ron Pelger is the owner of RONPROCON, a consulting firm for the produce industry. He can be reached by phone at 775/853-7056, by e-mail at [email protected], or check his web site at www.power-produce.com.)
Once at the pump, I noticed a receipt sticking out of the slot from the previous customer. He or she probably left it there to avoid the possibility of a sudden heart attack from observing the results.
I pulled the receipt from the slot and saw that it registered 20 gallons of gasoline for a total cost of $50. Being next up at the plate, I shuddered at the thought that the total amount on my receipt would turn out to be just as shocking.
Even though climbing oil prices have pushed gasoline prices at the pumps to an average of around $2.50 per gallon, people are still buying it. Are people driving less or slowing down on the highways? Is there a demand for smaller automobiles to conserve fuel? The answers are no. People are simply ignoring the price.
If we think gasoline is expensive now, we havent seen anything yet. According to some economists, this crisis is just getting started and will worsen in the next couple of years.
The cost of crude oil is up over 40 percent from a year ago with a barrel of oil averaging around $50. This has put the price of a gallon of gasoline at around $2.50. Some experts say that the cost of a barrel of oil could double in two or three years. That would price gasoline at about $5 a gallon or $100 to fill a 20-gallon tank.
We are in need of oil for our economic survival. The earth took 500 million years to produce the hydrocarbon deposits that we are burning away at a rate of 1 million times its natural production. Oil is used on a worldwide basis for food, transportation and heating. Without it, we would be in a state of economic failure. But hydrocarbon deposits are diminishing, and low supply and much higher demand will change our lifestyles immeasurably.
How much will it cost to keep the farm tractors, mechanical harvesters and packing plants operating in the near future? What price will trucking companies have to charge to haul produce from the farms to the stores? Where will supermarkets get the heating fuel to keep customers shopping in comfort?
Everything we do in the food industry is dependent upon oil, especially in the farming system. From planting seeds to cooking food, we need oil for production.
Abundant amounts of energy from oil and gas are used to manufacture materials needed throughout the food industry. Machinery, vehicles, fertilizers, irrigation systems, processing plants, transportation, distribution, packaging material and refrigeration all require energy. Almost everything we use to run a complete produce operation involves oil.
Larry Daniel, president of The Daniel Co. in Springfield, MO, told me, With current diesel fuel prices at record levels, many companies are finding that fuel surcharges are insufficient to cover the 50 cents-a-gallon increase or more over last year. Carriers thought that the driver shortage was troublesome. This fuel price increase is likely to have disastrous effects.
Over 90 percent of transportation fuel originates from oil. Transportation is the backbone of our economy. Without it, we wouldnt be able to buy the goods we desire from retail outlets.
In fact, we wouldnt find nearly the amount of food available in the supermarkets. If the trucks werent able to deliver it, our daily functions and economy would come to a halt.
One produce distributor told me, Out-of-sight fuel costs have increased our trucking rates by 40 percent over last year. This has really put a burden on our operating expenses.
Mr. Daniel added, Looking into the future, its hard to see that oil or diesel fuel prices will decline to any measurable extent. There is just too much demand both domestically and internationally. One thing that is certain is that when commodities as critical to the economy as oil and diesel fuel are in short supply, there may be no limit to the prices that have to be paid to obtain it. Any significant increases in price for it will make industries, agriculture and trucking bear the brunt as both use significant amounts of oil and oil-based products.
Think about it for a minute. How are plastic sign tags made? What about poly packaging bags, clamshell containers, stretch film and plastic shipping crates? Most are derived from oil.
How do forklifts and loaders keep operating in warehouses? How do packaging plants keep conveyor systems, peeling, slicing, shredding and labeling machines working? All require oil.
Many companies are being forced to absorb unexpected higher energy costs, which are eroding bottom line profits. The major challenge today is not in mergers, acquisitions, market share, cutting labor costs or having another food show. Its the high cost of crude oil to keep the business running on a full tank of gas.
These record-setting crude oil prices are a warning signal to us. Its a way of telling us that we should be prepared for the risk levels in a new business era.
When the fuel disaster strikes, will your company have an emergency plan ready?
(Ron Pelger is the owner of RONPROCON, a consulting firm for the produce industry. He can be reached by phone at 775/853-7056, by e-mail at [email protected], or check his web site at www.power-produce.com.)
