South-Westerns' Economic News Summaries
Katrina Packs Her Punch Far North on the Big Muddy
Subject Hurricanes cause government to consider funding new locks on the Mississippi River
Topic Government and the Economy; Production and Costs
Key Words

Mississippi River, agriculture, Hurricane Katrina, Hurricane Rita, locks, transport cost.

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Reference ID: A137506964
News Story

In the wake of Hurricanes Katrina and Rita, agricultural commodity traders are struggling to get their grains and soybeans to port to fulfill export contracts. But they can't place all of the blame on Katrina.

Too few barges north of St. Louis on the Mississippi are in position to meet demand as traders seek to send commodities south for export. Transport costs have skyrocketed with the barge shortage. Further, some of the available barges are too big for the series of locks on the Mississippi; the barges must be broken apart, taken through the series of locks, and then reattached at the other end-clearly increasing costs. But wait-still more adds to the traders' woes. After the hurricanes, droughts developed north of the port of New Orleans, leaving shallow water in the Mississippi--so much so that barges scrape the bottom of the river. In addition, exporters are watching weather patterns for signs of the annual river freezing at most points where grain and other commodities are in ready supply for transport down the river. All of these factors simply add to the cost of transporting the goods for sale. Add the additional costs brought about by the destruction of the Port of New Orleans from the hurricanes, and traders face significantly higher-than-normal transport costs.

As a result, companies and states have asked the government to step in. The U.S. Army Corps of Engineers have been asked to provide "supplemental flows" from the Missouri River into the Mississippi to add water depth. In addition, the government has proposed a series of seven new locks that will allow even the largest barges to go through unbroken-with a price tag of almost $2 billion. Known as the Water Resources Development Act, the Bill is intended to improve transportation of goods on the Mississippi River. With Katrina's effects thrown in, more resources may still be added to the Bill.

Opponents have charged that this Bill represents a misuse of government funds, and is doing nothing more than propping up a declining industry as other nations export grain more cheaply and efficiently. In fact, since 1999, transportation on the Mississippi River fell by 20%, as measured by the number of ships passing through New Orleans to the south.


The Water Resources Development Act is designed to address a public good issue. Why is transport on the Mississippi River considered a public good?

2. As transport costs continue to rise, what will happen to the prices consumers pay for these goods? Illustrate your answer with a graph of supply and demand.
3. Why is it more economical to use larger and larger barges to transport commodities down the river? Wouldn't it make just as much sense to take two barges, each equal to half the size of the larger barge? Explain.
Source "The Nightmare Continues." The Economist. 13 October 2005.
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