A University of Nebraska agricultural economist's research is offering a glimpse at the potential economic losses caused by Hurricane Katrina's disruption of grain exports.

Dennis Conley, an agricultural economist in the university's Institute of Agriculture and Natural Resources, studied the economic impact of a terrorist attack that would disrupt the nation's grain marketing infrastructure. His analysis looked at what might happen if grain handling capacity at the Port of New Orleans was reduced as much as 25 percent.

The study, finished this summer as part of an ongoing multi-state research project, shows a 25 percent reduction in capacity could be significant.

"A moderate to medium disruption of exports at this critical 'eye of the needle' supply chain point in the U.S. is estimated to conservatively result in a loss of U.S. export value of $600 to $900 million a year" in lost exports and other costs, he said.

Researchers wanted to know the economic ramifications of a terrorist event that destroyed the marketing infrastructure of the grain industry, Conley said. He focused on what would happen if something destroyed bridges, rail lines, waterways or damaged the Port of New Orleans.

"When we came to work last week, we realized that the devastation from Hurricane Katrina would have some of the same effects on the nation's export markets as our study," he said. The port was shut down just after the hurricane's wake and reopened on a limited basis just recently.

Conley said the actual impact of this disruption is hard to predict. If the port isn't running at full capacity for two of the critical upcoming four to five months, losses could be similar to the $600 million annual figure in the study, he said.

That's because 50 percent to 60 percent of the port's total annual corn exports need to move through during and after harvest.

Between 70 percent and 75 percent of U.S. corn exports go through New Orleans.

"The amount of corn that goes through other ports is nominal compared to New Orleans," he said. "New Orleans really is the major pipeline for corn leaving the U.S."

In the study, Conley and colleagues devised a database that allowed them to project economic impacts of terrorist attack scenarios that reduced the Port of New Orleans' capacity by 10 percent, 15 percent and 25 percent for a year. The analysis was based on three-year average cash corn prices and grain movements from 1997 through 1999.

A 10 percent reduction in capacity would result in little loss in export sales, the study found. The database showed no change in the U.S. export market from the 10 percent reduction and only a little grain would be diverted from the Mississippi River and shipped to Pacific Northwest ports. A 15 percent disruption would result in about a 1 percent drop is U.S. corn exports, which Conley called insignificant.

"There was a little more change, more rerouting or diversion of grain, but not much," he said.

The real change came when Conley looked at what would happen if the ports in New Orleans lost 25 percent capacity.

Such a reduction would cost the nation $600 million per year in lost exports, the study found.

"Anything more than a 25 percent reduction in grain-handling capacity would not work with our models without a major change in the world's corn markets," he said.

The U.S. is the world's leading corn exporter. Reducing corn exports by more than 25 percent would force world markets that depend on the U.S. for corn to look elsewhere, such as Argentina. Ultimately, world demand for corn probably couldn't be met if U.S. exports dropped by more than 25 percent, he explained.

Some corn would be diverted for export through the Pacific Northwest, he said. However, it would be too costly for eastern Cornbelt states, such as Indiana, Iowa and Illinois, to ship their corn anywhere but New Orleans.

"States like Nebraska that export most of their corn to California and through the Pacific Northwest don't need to worry about getting their export markets out," he said.

However, as inventory of grain builds, it will lower prices nationwide.

"This is a very timely and important area of research," he said, given heightened national security concerns since Sept. 11.

This research is funded by a grant from the U.S. Department of Agriculture in cooperation with IANR's Agricultural Research Division.

Date: 9/22/05

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