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Why Are Food Prices Still Rising? Look No Further Than Fertilizer

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John Ross, president and CEO of IGA Inc.

Fertilizer isn’t a glamorous topic. Far from it. But it’s a key player in the game of rising food costs.

Plants need nitrogen, potassium and other nutrients to grow. Add more nutrients in the soil and plants grow bigger, vegetable and fruit yields skyrocket and, in turn, land becomes more productive and profitable. Reverse it and farmers risk going out of business.

That’s why fertilizer is a such a big deal. Mass-produced chemical fertilizers revolutionized modern farming. Along with improvements in pest control, crop disease, water management and other modern inventions, we have seen meteoric improvements in grain and corn yields. 

And other improvements have continued. Satellite technology tracks water needs by half acre. Automated irrigation systems maximize water distribution when and where needed. We’ve made improvements in disease- and insect-resistant crops. 

But technology is expensive. And if the cost of any critical ingredient of running a farm – water, fuel or fertilizer – accelerates, so does the cost of food. We are seeing that with fertilizer.

Fertilizer costs are rising

Compared to 2019, the cost of fertilizer for a typical American farm has tripled, according to USDA data. Alongside the cost of labor and fuel, production costs are skyrocketing in a commodity marketplace. In simple terms, costs are going up faster than prices. 

The only thing farmers can do to keep up is cut operations costs, which means using less fertilizer. And when they do that, they cut crop yields. 

Globally, we are seeing 2022 fertilizer prices up 30 percent on top of 2021’s 80 percent surge in prices, according to the World Bank. Farmers are cutting back applications, using less because of availability or because they can’t afford to use what they need. I’ve been told they expect yield will drop by 20 percent or more. 

With the war in Ukraine wreaking havoc in so many areas of global food supply, exports of critical ingredients for fertilizer are shut off. Together Russia and Ukraine export 28 percent of fertilizers made from nitrogen, phosphorous and potassium, according to Morgan Stanley.

Restricted availability of produced fertilizers and fertilizer components like potash has other countries that used to be big exporters (China) stockpiling for domestic use, adding to the shortage and price hikes.

Then there is climate change. In all, worldwide experts fear a drop in crop yields by 10-30 percent. Hardest hit? Developing nations. It is hard to imagine how profound an effect this could be. Just look at rice: if key fertilizer supplies force farmers to cut back use, global rice production is predicted to drop by 36 million tons. That is the equivalent of feeding more than 500 million people. 

Fertilizer innovation on horizon

It isn’t all bad news. Over the long term, crises like these force innovation. There are new slower release fertilizers that allow less waste and more precise applications. 

We will see a shift from high fertilizer need crops to those that need less, which is good for the environment. And expect to see start-ups launching new products like compost- and biofuel-based products that become economically viable as prices of traditional chemical fertilizers rise. 

Ironically, data is one the best tools we have to combat rising fertilizer costs. Soil monitoring allows farmers to know when and where to apply, so they use less. Plot-by-plot satellite monitoring allows farmers to customize their application to reduce costs and the environmental risks of fertilizer caused by product runoffs.

And if the conflict in Ukraine continues, American farmers will be able to bring fallow fields online, which will drive export revenue nationally and directly improve local communities’ tax revenues. 

Need for better communication

As retailers, the only current weapon is communication. Shoppers won’t know technical details about why their food bill is going up. And when they don’t know why, they tend to blame us.

But it turns out, shoppers really do want to know. Supply chain is a hot topic at the dinner table and the water cooler. Everyone is trying to make sense of rising costs. 

In store, in aisle, online and in advertising, we should think about how we can educate shoppers. At the Independent Grocers Alliance, we are releasing a series of online content blocks and in-store messaging that retailers can use to tell shoppers why prices are rising – and to make suggestions on how to lower food costs by shopping smarter.

Things are likely to get worse before they get better. Now is the time to decide how we will help customers understand and navigate a higher cost world.

For more information, visit iga.com.

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