Industrial Agriculture Input Costs On The Rise  

Posted by Big Gav in , ,

Grain News has a report on the rising cost of fertiliser, in particular, and agricultural inputs in general, driven by rising oil and gas prices and rising demand from China and India - Nationwide Ag Production Costs On The Rise.

Much attention has focused lately on the run up in the production of agricultural commodities and its effect on food prices. Additionally, key crop input prices are also rising and show no sign of slowing, according to a new Rabobank report, "U.S. Crop Inputs."

"Farmers' use of key crop inputs is reaching record highs, while prices are also at record highs, which is putting the pinch on pocketbooks," said Associate Erin FitzPatrick with Rabobank's Food & Agribusiness Research and Advisory (FAR) department.

One reason for the increase in crop input usage is the economic growth in emerging markets where demand for food is driving the need for production. Additionally, the cost of inputs has increased because of higher price tags on transportation, labor, energy and raw materials as well as the weakened U.S. dollar and regulatory constraints.

During this planting season, farmers have seen a huge increase in the cost of fertilizer -- in some case as much as double. Demand has depleted reserves and strained supplies as 2007 global fertilizer consumption climbed more than 4 percent over 2006.

That may seem small, but individual countries, such as China and India, have increased their fertilizer use 38 percent and 54 percent respectively, putting pressure on prices around the world. "With demand for fertilizers expected to grow and no significant increase in short-term supplies, farmers are likely to continue paying high fertilizer prices," said FitzPatrick.

Jeff Vail also had a post on fertilser a few weeks ago - specifically "fertiliser mercantilism" in North Africa and the tension it is causing between Algeria and Morocco - Algeria & Morocco: Natural Gas Cartels, Fertilizer Mercantilism, and Rising Tensions.
Algeria is one of the world’s most important oil and gas exporters. Morocco has no significant oil and gas production, but has about 2/3 of the world’s rock phosphate reserves, a critical component in global fertilizer supply that increased 300% in price in the past year (.pdf) and may peak alongside global oil production. The two nations have historically been at odds, especially over the phosphate-rich territory of Western Sahara. Now, more than ever, their exports are critical to the energy and food supplies of the world. Alongside increasing importance, tensions between the two are on the rise as the US and Russia provoke the situation with massive opposing arms deals and bi-lateral trade agreements. This article will look at the forces behind these rising tensions and consider issues of fertilizer mercantilism, infrastructure vulnerability, and the potential formation of a natural gas cartel. ...

Recently, the fragile 1991 cease fire agreement with the Western Saharan Polisario Front has become increasingly unstable. Complicating the situation with Western Sahara, French President Sarkozy announced his support to Morocco's decision to postpone indefinitely the self-determination referendum promised in the 1991 accord, along with increased Algerian support to Polisario leadership. All this comes against a backdrop of rising military tensions between Morocco and Algeria. In 2008, the US doubled military aide to Morocco and announced arms deals worth billions of dollars. At the same time, various sources confirmed that Russian concluded a $7.5 billion deal to provide advanced arms to Algeria.

Is there any deeper meaning behind these moves? At least two possibilities must be considered. The first is proxy-mercantilism by the United States to secure control of phosphate supplies. In 2004, the US entered into a bi-lateral free trade agreement with Morocco. This can be explained as a natural extension of the long history of economic and military cooperation between the US and Morocco, but in light of proposed biofuel programs, skyrocketing rock phosphate prices, potentially peaking phosphate production, and mercantilist moves by other great powers, the more nefarious possibilities must be considered. The second possibility is that Russia hopes to leverage increased influence with Algeria to exert greater influence in global natural gas markets. Because Algeria is one of Western Europe's few true alternatives to Russian natural gas supplies, especially given the prospect of sharp increases in Algerian natural gas exports, Algeria represents either a threat to Russian natural gas leverage, or a great enhancement of that leverage by entering a defacto gas cartel. At a minimum, we know that Russia and Algeria are actively engaged in talks on this topic. Also, a recent offer by Gazprom to buy all of Libya's additional oil and gas production supports this suggestions that Russia hopes to control Europe's alternative sources of natural gas.

Both notions of phosphate mercantilism and a gas cartel are merely informed speculation at this point, but the stakes are so high that these possibilities must be considered. While there may be no deeper motive behind recent moves with Morocco and Algeria, at a minimum the stakes and tensions are increasing. Because both Algeria and Morocco are fragile Nation-States, with active Islamist separatist movements, significant internal terrorist threats, and complicated ethnic/territorial problems, the potential for interruption in critical exports of phosphate, oil, and gas is increasing.

2 comments

Anonymous   says 6:59 AM

realy nice article, but (theres always a but) you seems less informed! you talk about the visible part of the iceberg, if you check the UK biggest economy association, says that morocco is the most stable country in the area, his economy is really diversified and there is no ethnical problems as you say!
algeria have some issues regarding the Kabilian area, and his economy depends essencially on gaz, yesterday the Algerian president said that his 10 year plan to make move forward the economy has field.

Well - I don't think I said Morocco was unstable or has ethnic problems - and I'm not sure Jeff did either.

Morocco is one of the few countries in the region I've been to and it seemed pretty placid to me - but that is different to tension over controlling phosphate resources.

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