Diesel tax exemptions in North Dakota and at the federal level have a limited impact: only 5% to 15% of a farm's fuel is used on the road. Diesel averages $6.04 per gallon, $2.52 more than a year ago.
The diesel tax breaks approved in North Dakota and at the federal level by President Donald Trump have a limited effect on producers' wallets, because only 5% to 15% of a typical farm's fuel is used on the road. Matthew Gammans, assistant professor in the Department of Agribusiness and Applied Economics at North Dakota State University, explained that "the issue is that the share of diesel that's actually used on the road relative to what's used in the field is just so small that these policies are just not able to make a big dent."
On Sept. 29, North Dakota announced the expansion of the use of a lower-taxed diesel, dyed red, which is normally only allowed in tractors, combines and other off-road field equipment. Gov. Kelly Armstrong's order allows red diesel for hauling grain on highways and for other on-road farm work. The state charges 23 cents per gallon on regular diesel and only 4 cents on red-dyed fuel, which means a potential saving of 19 cents per gallon until the order expires Nov. 30.
Similarly, on Oct. 5 President Trump issued an order allowing dyed diesel on highways and deferring federal taxes on diesel for the rest of the year; the federal tax is 24 cents per gallon.
Minnesota did not join the federal exemption and kept its ban on dyed diesel on its roadways. Ben Bakko farms at Walcott, in southeast North Dakota, and also on land on the Minnesota side of the Red River. He had finished soybean harvest by early October and had little corn left; he did not want to risk a fine for using dyed diesel on Minnesota highways, so he kept clear diesel in his trucks until he finished his sugarbeets in that state. He then moved on to his beets in North Dakota and only then was able to haul with the cheaper fuel.
Hauling a field of sugarbeets takes more truckloads than corn, so Bakko was grateful for the exemption, though he warned that it comes nowhere near making up for the increase of more than $2 per gallon compared with last fall's harvest. The producer, who burns through about 30,000 gallons of diesel a year, mostly in the fall, was skeptical: "This diesel problem, these prices, are not going to go away by the end of the year. I'm kind of wondering if they're just going to reissue all this again next year."
The average price of diesel in North Dakota on Thursday was $6.04 per gallon, about 22 cents below the national average but about $2.52 more than a year ago, according to AAA. The surge came just as harvest was ramping up, partly because of an attack on a key Mideast pipeline in September; the U.S. war with Iran and other global conflicts have restricted fuel shipments since February.
Gammans estimated in a report that the state's corn and soybean producers could save up to $850,000 this fall thanks to North Dakota's emergency order. Red-dyed diesel is usually delivered in bulk to producers, who fill up large tanks on their farms; some farms do not have the storage capacity to fuel tractors and trucks, which further limits the benefit.
North Dakota Tax Commissioner Brian Kroshus said the exemption provides "a little bit of relief," but added that the price of oil needs to come down to help farms with diesel and other energy-intensive expenses such as fertilizer and farm chemicals. "The real solution to this isn't through executive orders but seeing the price of oil moderate," he said. The state transportation department receives about $5.4 million per month from diesel tax revenue, according to the governor's office; Kroshus said the tax department did not have a forecast for how that revenue might be affected.
Calvin Benson, director of public policy for the North Dakota Farm Bureau, said the exemptions are "not a world-changing thing" but show that the governor and the president are aware of the challenges producers are facing. He said a longer-term solution could come from policies that help bring more diesel refining to the United States and reduce dependence on foreign sources.
The federal exemption applies to all trucks, not just agricultural ones, though it is unclear how many truckers are switching to dyed diesel. Normally, if a truck is inspected and the fuel is red, the operator faces a fine.
The North Dakota Motor Carriers Association advised its members that not all states may honor the federal enforcement exemption. It also noted that dyed diesel is not readily available and that the dye may linger in a truck's fuel system, potentially exposing the vehicle to enforcement of the red-dye ban when the order expires. The association added that, although it is unlikely, any deferred diesel taxes could still be collected.
The price surge prompted another round of aid payments to producers under the Harvest Fuel Relief program. The USDA has made $8 billion available to compensate producers for high diesel prices, but it has not yet announced how that money will be distributed.
Gammans looked at scenarios for calculating the payments and said the USDA could follow a formula similar to the farm bridge payments the Trump administration announced last year, or create a new formula that factors in average fuel consumption for different crops. He warned that a formula more closely tied to fuel use could mean more money for Southern states that grow rice and cotton, and less for wheat states such as North Dakota: "Cotton and rice are extremely fuel intensive, and they're not grown in North Dakota, right? So if you reward proportional to fuel, you're going to send a lot more money to the South." Gammans expects an announcement this month.
