Growing Pains: How Fertilizer Costs Are Impacting Food Prices
By the Numbers
The raw materials that are used to make fertilizer include things like ammonia, nitrogen, nitrates, and potash, among other substances. Broadly speaking, the prices of these materials are up 30% since the start of 2022. British commodity consultant CRU says that spike exceeds the one observed during the financial crisis of 2008.
Over the past two years, the price of nitrogen fertilizer has risen four times higher, while phosphate and potash prices are three times higher. Analysts explain farmers in developing countries have been able to offset rising costs throughout that time by charging increasingly higher prices for their crops. But nowow, inflationary pressures and supply-chain problems threaten to weigh down demand, putting those same farmers at risk.
Russia-Ukraine Connection
Analysts say Russia’s invasion of Ukraine has played a significant role in rising fertilizer prices over the past several weeks, given both countries are considered important global producers of food and raw materials. For example, Russia was the world’s top exporter of nitrogen fertilizer in 2021.
In all, Russia produces around 14% of the world’s fertilizer supply, and the country has temporarily suspended exports. Neighboring Belarus, an ally of Russia also facing sanctions, is a major producer of potash. Beyond Eastern Europe, economists say a Chinese export ban and Canadian rail strike are also pushing global fertilizer prices higher.
Added Pressure on Food Prices
As the cost of fertilizer rises, food prices do as well, as producers look to protect their profit margins. This added pressure on prices comes as inflation is already at its highest mark in 40 years, with the rising price of energy and food being two of the main contributors. According to the UN Food and Agricultural Index, food prices are currently at an all-time high.
Plus, rising fertilizer prices are just part of why Americans are paying more at the grocery store and in restaurants. Russia and Ukraine are also major producers of grain and oilseeds. Meanwhile, oil prices have risen during the invasion, causing transportation costs to increase as well. It’s a mixed bag of ingredients, and a not-so-tasty recipe for higher food prices.
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