Diesel prices have surged to record highs, sitting at more than $6 per gallon in North Carolina.
And while most people don’t drive a diesel-powered car or operate heavy machinery, those high prices do have a ripple effect for everyday North Carolinians.
WUNC's Will Michaels spoke with Jeffrey Dorfman, distinguished professor of agricultural and resource economics at N.C. State University, about how high diesel prices affect everyone.
This conversation has been lightly edited for clarity and brevity.
Most listeners probably don't buy diesel regularly, but why should they care about high diesel prices?
Well, transportation accounts for about 6% or 7% of the economy. So the increase in diesel and crude oil prices has added about 1% to prices for just everything. Overall in the economy, we're now paying 1% more.
And then on top of that, food production is very energy dependent in terms of being able to drive the tractors and combines through the fields, but also a lot of the fertilizer and chemicals that get spread in the fields are petroleum-based products as well. And so we're also going to pay about 1% more at the grocery store.
Where would I likely see the effects of high diesel prices first?
You're going to see it first in the least processed foods you buy, right?
So if you buy if you buy a box of breakfast cereal, the actual cost of the food in that box of cereal is a pretty small part of the total price of the cereal. But if you buy chicken, if you buy fruits and vegetables, the actual food production cost is a much higher percentage because there's no processing involved. You're just paying for growing the apple in the West Georgia Mountains, and then that apple has to be trucked to the grocery store.
So the the diesel price, both in the field and getting it to the store is just a bigger percentage, so that's where you're going to see the biggest increases.
Correct me if I'm wrong, but it seems like the timing could also be an issue for farmers. What do higher prices mean for farmers, especially this time of year when it's harvest time or will be harvest time very soon?
It means a lot to farmers. There are a lot of farmers right now that are spending an extra $200 or $300 per day in terms of filling up the tanks of their equipment with diesel.
That doesn't make prices go up necessarily because there's a lot of farmers out there who bought their diesel at the start of the year before prices went up. But if you didn't, it's hurting a lot. It's in some cases wiping out their entire profit for the year.
How much do you think businesses — meaning grocery stores, restaurants, somewhere down the supply chain — can absorb higher costs before they have to pass those costs on to the customer?
I think we will see — and are seeing — prices go up because of the energy prices, and then some of it they'll pass on in a few months if diesel prices stay where they are, so they can afford to lose a little bit of money for a short while, but not forever.
We're going to see it when it comes to Thanksgiving. The cost of growing the turkey is definitely up because we feed them corn and soybeans, and the price of those are going to be up because of diesel, but grocery stores may well choose just to eat that as a bigger loss and keep turkey prices low to get us in the store to do our Thanksgiving shopping.
What would have to happen for prices to come back down?
So there's two things that could help. Certainly, if we weren't having wars in the Middle East, that would help. We could get more crude oil out, and that can give us more diesel.
But also, broader than that, Ukraine has been bombing a bunch of refineries in Russia that produce a lot of diesel. So the worldwide supply of diesel has shrunk more, for example, than the supply of gas and refineries have to be sort of specialized, and you can't just take a refinery that turns crude oil and gas and start making diesel very easily.
So we need more diesel refineries, and that's going to take a while.
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