The price of everything needed to produce crops is rising and threatens to fuel global food inflation further.
The production costs of food were already high. The pandemic has disrupted supply chains, making it more difficult – and more expensive – to get parts and supplies essential to growing crops. Then Russia’s invasion of Ukraine took things to another level, lifting markets for fertilizers and the fuels needed to run farm machinery. Inflation is so rampant that even with rising food prices, farmers are facing increasingly tighter margins.
That’s the problem for Eddie Smith, who has been growing mangoes in Australia for 16 years. He estimates that his costs have roughly doubled in that time. To ease the pressure over the years, he has taken steps such as downsizing his trees and reducing diesel consumption. But the current dizzying surge in crude oil is having a pincer-like effect, and for the first time ever, he’s considering closing the company.
“Everyone is doing their best to lower their input costs, but at the same time everything is going up,” he said from his 3,000 nursery in Carnarvon, on Australia’s far west coast. “Fuel goes up, water goes up, fertilizer goes up, labor goes up, and I don’t see an end to that right now.”
The timing couldn’t have been worse. The world was already facing increasing hunger after the blow of the pandemic and drought that dried out crops in key growing regions. Global food costs rose to an all-time high in February, up about 40% from two years ago.
Things are so dire that the planet could be at a “tipping point” when it comes to long-term stability for the United Nations, Beth Bechdol, deputy director general of the Food and Agriculture Organization of the United Nations. global food supply.
The rise in oil prices of more than $100 a barrel has sent diesel futures in Europe and the US to their highest in decades. Rising fuel costs will increase costs for farmers who have to use many heavy machinery for seeding, tillage and harvesting. It will also be more expensive to heat stables with livestock.
The prices for fertilizers, with which almost all crops are grown, have also risen sharply in the past year. A gas supply shortage, increased freight rates, tariffs, extreme weather and sanctions against major producer Belarus all contributed to the rally. And now Russia, the largest exporter of urea and No. 2 for potash, is trying to end fertilizer exports, threatening a global shortage. The Green Markets North American Fertilizer Price Index has doubled in the past 12 months to hit an all-time high.
BloombergSupplies for seeds and other chemicals like pesticides are also “extremely tight,” Corteva Inc. said. Chief Executive Officer Chuck Magro at a recent conference. And prices for tractors from companies like Deere & Co. to rise.
If farmers cannot keep up with increased costs, they could be forced to pull out production, making the global food supply situation even more precarious.
Chris Edgington grows corn and soybeans on 3,000 acres near St. Ansgar, Iowa. During a typical year, he budgets about $700 to $850 per acre for his input costs. This year, he expects that number to reach $1,150. And “a lot of it is borrowed money,” he said. For now, he expects the grain price hike to help offset his increased spending, but warns the situation could get “pretty, pretty tight.”
Farmers in Iowa, the largest US state for corn, are paying three times as much as two years ago for anhydrous ammonia, a commonly used nitrogen fertilizer. Urea is up 143% to nearly $930 a ton, while diesel costs are up 133% to $4.43 a gallon, according to March figures from the U.S. Department of Agriculture.
“None of them individually is a total game-changer, but if you add all of these prices together, we’re going to take on more dollars for the same margin we had a year ago,” Edgington said.
“We are much more at risk. We have invested a lot of dollars. And we’re barely breaking even,” he said.
Agriculture accounts for about a fifth of the economy in India, where nearly 60% of the 1.4 billion people depend directly or indirectly on agriculture for their livelihood. The country is the world’s second largest producer of sugar, wheat, rice and cotton.
Birpal Singh, 49, a farmer in Uttar Pradesh, grows rice and wheat on just over 2 hectares. He uses diesel to power the pumps that water his crops, and it is also used in tillage equipment. According to data from the state-run Indian Oil Corp. fuel prices in the capital New Delhi have risen by more than 30% since 2020. He has to till his land four or five times before it is ready for sowing crops. In addition, he must spend more on fertilizer, if he is lucky enough to find enough supplies.
In Maharashtra, Murlidhar Patil, 75, grows guava, wheat and soybeans with his brother. Since the start of the pandemic, food inflation has reduced demand for the fruit he grows. While prices in the market may be rising, Patil is getting paid less for his crops, which now yield just Rs 25,000 an acre, up from a staggering Rs 60,000 three or four years ago, he said.
“We suffer a lot,” Patil said. “The prices of all our inputs have gone up, but the prices of my products have not increased. At the same time, labor costs have also increased. It’s really painful.”
Many farmers in Brazil, the world’s largest exporter of soybeans, aren’t waiting to see their costs come down. Instead, they are now buying fertilizers and other inputs, rather than taking a gamble.
Such is the case for Eduardo Zorzi, manager for Bavaresco Group, who farms over 20,000 hectares in Sorriso, Mato Grosso. It’s not just concerns about pricing that led to his decision, he said he’s also worried about actually getting the supplies he needs on time.
“With the insane volatility we’re seeing, I decided not to wait any longer and bought my fertilizers for the upcoming soybean harvest,” he said.
Leandro Bianchini took a similar action. Bianchini is the commercial supervisor of Coacen, the largest cooperative in Mato Grosso that plants more than 1 million hectares per year, and he did not want to take any risks for the next soybean crop. So he has already bought all the inputs needed for the planting season, which doesn’t start until mid-September. Now he is even looking ahead to the 2023 winter maize harvest, which will be sown in March next year.
“There is still a lot of uncertainty about those costs and grain prices are not as high as next year’s costs,” Bianchini said.
— With help from Megan Durisin, Sybilla Gross, Michael Hirtzer, Allison Smith, and Marvin G Perez.
This post inflation: Rising prices for everything used to make food causes more inflation
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