Rail increasingly essential to soy

Rail increasingly essential to soy

- Rail shipments of beans projected to rise 55% by 2020. - Annual rail investment gap of $1.55b projected through 2035. - Soy industry

INFRASTRUCTURE discussions relative to agriculture tend to center on the nation's deteriorating locks and dams and the need for Congress to fund additional investment in the vital inland waterway system.

According to a new study commissioned by the Soy Transportation Coalition, however, trends in soybean production have made the industry more dependent on rail shipment of beans — and, as with the waterway system, more investment is needed now.

The study on agriculture and railroads, performed by TRC Consulting of Alexandria, Va., found that even regions with adequate river access still depend on the rail industry to meet customer demands. As soybean production intensifies in the western Corn Belt and as the Pacific Northwest becomes an increasingly key point of departure for Asian-bound exports, the importance of rail will likely become even more pronounced.

Currently, more than 900 million bu. of soybeans are shipped by rail. By 2020-21, that volume is expected to grow more than 55.5% to reach 1.4 billion bu.

Rail is an extremely capital-intensive mode of transportation. Unlike other mission-critical components of the agricultural infrastructure, rail is privately financed and maintained, with railways spending billions of dollars annually to augment, maintain and, in some cases, expand their networks.

Even with some notable investments in recent years, the TRC study projected a significant funding shortfall in the near future — a gap between what railways might likely invest and what the soybean industry might need to ensure continued success and competitive advantage in the global marketplace. All told, the analysis projects an annual funding gap of $1.55 billion from 2012 to 2035.

"Soybean farmers are increasingly productive. Our customers, both domestic and international, increasingly demand this production," said Pat Knouff, an Ohio soybean farmer serving as chairman of the coalition. "However, we are concerned with our transportation infrastructure's ability to connect supply and demand."

Knouff explained that a great deal of U.S. soybean production occurs more than 1,000 miles from the nation's ports, requiring a sizable volume of soybeans and products to be moved via more efficient modes of long-haul shipment.

"Given the importance of the rail industry to the profitability of the soybean industry, we are concerned when acquainted with the prospect of a future investment shortfall," Knouff said.

Looking at potential solutions to the investment shortfall, the study examined a number of financial investment incentives that might help address the funding gap. Among them was the possibility of a 25% investment tax credit, an accelerated depreciation and "bonus" depreciation of 50% and a general business tax rate reduction on corporate taxes from 35% to 25%.

Keith's analysis suggested that the 25% investment tax credit, along with accelerated depreciation, was most likely to generate the needed investment in the industry.

"One of the reasons an investment tax credit for rail infrastructure is so attractive is that the credit could be designed to benefit soybean and grain shippers, not only the rail companies," said Mike Steenhoek, executive director of the Soy Transportation Coalition. "Given how constructing a single upgraded rail facility capable of loading large unit trains of soybeans and grain can cost a processor or cooperative $20 million, we gravitate toward those proposals like the tax credit that will result in making agriculture an attractive place for rail investment."

While the analysis acknowledges that the tax credit would likely yield an annual loss of tax revenues approaching $981 million, the resulting benefit to the economy would be a net $2.3 billion each year — up to $98 million of which would directly benefit the soybean industry in the form of lower rail rates and higher-speed handling.

Steenhoek said the tax credit and depreciation proposal would yield the greatest economic "bang for our buck" for U.S. taxpayers and investors, based on a very favorable cost/benefit analysis. A rail investment tax credit, he said, will result in an improved agricultural infrastructure and overall economy.

Volume:85 Issue:19

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