USDA Sponsored Report Examines Impacts of Potential Lock and Dam Closures

Oct 20, 2016

This week the U.S. Department of Agriculture (USDA) released a report on the economic impact of the hypothetical closure of locks on the Upper Mississippi River and the Illinois River. The report titled, Economic Impacts Analysis of Inland Waterways Disruptions on the Transport of Corn and Soybeans, was commissioned by USDA and conducted by the University of Tennessee.

This study examines the economic impacts to corn and soybean stakeholders and the transportation industry if long disruptions were to occur due to lock closures for major repairs.

The study considered hypothetical disruptions if lock closures were to occur at Mississippi River Lock 25 and Illinois River La Grange Lock in the 2024-25 timeframe. These locks were selected because they are representative of the entire system and of significant importance to the agricultural sector. The two locks are analyzed independently and various potential changes in rail rates are incorporated in the disruptions scenarios: (1) no change, (2) an increase of 5 percent, and (3) an increase of 15 percent. The report looked at how traffic is diverted by a lock closure and the revenue shifts between the modes as a result of reduced navigation. Overall economic impacts are measured by combining the transportation sector impacts with the impacts on the corn and soybean sectors.

Changes in economic surplus of the corn and soybean sector consider a loss in profit by the producer and increased purchase costs incurred by the consumer resulting from increased transportation costs.

Some of the conclusions of the study include:

  • Corn and soybean exports at Gulf of Mexico Ports are reduced up to 5 million tons, a 9 percent decrease, when Lock 25 is closed for the fall quarter. The reduction in exports increases up to nearly 8 million tons, or 13 percent, when the closing horizon extends to the whole marketing year. Disruptions at La Grange Lock also lower corn and soybean exports at Gulf ports with relative less scale.
  • Pacific Northwest ports are the major alternative routes to the international markets when Lock 25 or La Grange is closed if rail rates do not increase. Exports from Atlantic Coast emerge as an important substitute port area if rail rates elevate after lock closure.
  • Aggregate economic activity related to grain barge transportation reduce $933 million (or 40 percent decrease) if Lock 25 is closed from September to November. The reduction reaches to nearly $2 billion if the lock is unavailable for the marketing year.
  • Economic activity associated with rail transportation, on the contrary, increases from diverted corn and soybean shipments. The positive economic impacts surpass the loss of economic activity of barge and truck transportation when rail rates are raised.
  • Economic surplus of the corn and soybean sector declines between $171 million for a fall closure and $747 million annually when Lock 25 is inaccessible. Closing La Grange Lock also leads up to $549 million loss per year in economic surplus of the corn and soybean sector.
  • Decline in economics surplus in the corn and soybean sector due to Lock 25 closure could cause a decrease of more than 7,000 jobs, $1.3 billion of labor income, and about $2.4 billion of economic activity (total industry output) annually. Similarly, closing La Grange Lock for one year alone could result in a reduction of 5,500 jobs, $900 million labor income, and $1.8 billion of economic activity annually.

The full report can be viewed here.