Agronomy Notes: Fertilizer Supply Disruptions and Food Crises
Summary
This is a commentary on fertilizer cost, supply issues and impacts on food security.
An agronomic field study suggests significant adverse impacts on yield and production from inferior fertilizer treatments, with potentially serious implications for worldwide food supplies.
The underlying policy environment contributing to supply disruptions, prices and famine is also discussed in the Appendix.
Fertilizer Costs
The following charts from the American Farm Bureau Federation show a significant rise in fertilizer costs. In the case of anhydrous ammonia and liquid nitrogen the index average price per metric ton has risen 210% and 159%, respectively, since September 2020.
In addition, the organization also states that urea is up 155%, monoammonium phosphate (MAP) has increased 125%, diammonium phosphate (DAP) is up over 100% and potash has risen above 134% (Myers and Nigh 2021). The next section gives an overview of potential consequences on yields and production.
Impacts of Fertilizer Quality Reductions
A first major concern of the rising cost of fertilizers is substitution with inferior quality fertilizers, resulting in reduced yields.
A field study conducted by the author, Interactions among Input Levels, Management Practices and Yield of Transplanted Leaf Lettuce evaluates the effect of two levels of fertility management, organic manure (OM) and chemical* fertilizer (CF), and two levels of tillage, manual (MAN) and mechanical (MECH), on the growth and yield of transplanted leaf lettuce, and on labor use and distribution. (*) chemical refers to NPK fertilizer (nitrogen, phosphorous and potassium).
The following table excerpted from the field study shows the fresh weight yield results by fertilizer and tillage treatment combinations.
Summary Discussion. The results are averaged for tillage types to focus on the fertilizer impacts: Reliance on organic manure (whether mechanically or manually tilled) results in a fresh weight yield that is on average 78% of that of the CF treatments. A similar result is obtained for dry matter accumulation at 77% (not shown above). In terms of economic analysis, the ratio of gross returns to total variable cost (TVC) drops to an average of 68% of the CF treatments for both geographic locations studied. Net returns analysis reveals a second potential threat to domestic production of crops: Negative net returns result with the lower quality fertilizer treatments in the U.S. location. Lack of profitability creates a disincentive to produce, thereby reducing the potential supply from domestic sources.
Conclusion. While lactuca sativa cannot be viewed as representative of other crops, the results provide evidence that reductions in fertilizer quality may not only reduce yields where growing remains profitable, but production and supply may diminish in areas where the net returns are driven too low. On a broad scale this could result in higher food prices and food shortages where price controls are imposed; see the Appendix for important policy considerations.
APPENDIX
Possible Role of Policy in Fertilizer Supply Disruptions
Tariffs. Tariffs imposed by importing nations cause importers of those goods to pay higher costs. In response to recent anti-dumping trade dispute cases, tariffs have been applied to phosphate imports into the U.S. (re: Mosaic, phosphate producer; and CF Industries, urea ammonium nitrate (UAN) producer; re: Myers and Nigh, 2021). Supply constraints may have occurred as importers reportedly delayed booking shipments to avoid the imposition of retroactive duties (Guardian, 2021).
Subsidies can drive up demand for goods beyond normal as their prices are artificially made cheaper by the subsidies. In India, a policy to raise the fertilizer subsidy for farmers is likely to raise domestic (i.e. in India) demand for fertilizer that can adversely impact international supply and push prices higher for overseas buyers.
Export Bans. Countries may adopt policies to ban exports of certain products to increase supplies and reduce prices domestically. This occurred in China in September 2021 with an export ban on phosphate; a similar plan was being considered for urea, as well.
Sanctions. As of 2021, the European Union and the U.S. had both applied sanctions that caused slowdowns and stoppages of potash exports to the EU and U.S.
Price Controls. In response to rising prices, at some point policymakers may opt to impose price controls. Although possibly unintended, the potential for massive economic dislocations and cost in human lives is often underestimated. If the maximum allowable food prices are set too low, severe shortages, and in extreme cases, famine, can result. Re: Kennedy (2017) Lofchie (1975), Rake (1975) and Schultz (1978).
Another possibly overlooked policy is monetary policy which does not necessarily have an immediate and direct impact on all prices uniformly. However, a long-term easy money policy combined with fiscal policies designed to distribute newly created currency to the broader public through stimulus packages and various forms of increased social welfare benefits can feed into higher demand and rising prices over time.
History of Food Crises and Policy
For historical accounts of policies contributing to food crises and famine, see Lofchie (1975), Rake (1975) and Schultz (1978). Theodore Schultz, an agricultural economist, was later awarded the Nobel Prize in Economics in 1991.
These results are shared as a public service; if helpful consider paying it forward by adding something extra to any donations made to reputable charities, preferably with priority given to the most vulnerable, including defenseless animals. Organizational reputations may be researched through sites such as charitynavigator.org.
The author may also hold positions in securities of companies, including through ETFs, which may have been covered herein. The discussion and any visuals may contain significant errors, are subject to revisions and are provided 'as is' solely for informational purposes, not for trading or investment advice. This preliminary analysis is exploratory; no claims are made as to the validity of data, assumptions, theoretical models, and methodologies; results may be based on prior data that do not reflect the most current market or other events.
Acknowledgements
Special thanks to the University of California, Davis Cooperative Extension and College of Agricultural and Environmental Sciences.
References and Resources
Image Credit: iStock photos.
Guardian, The., “North American fertilizer shortage sparks fears of higher food prices,” The Guardian International Edition, Farming section, November 25, 2021.
Kennedy, Raoul., Economic Distortion Dynamics, KDP Amazon Publishing LLC, 2017.
Lofchie, Michael., “Political and Economic Origins of African Hunger,” Journal of Modern African Studies, Vol 13:4, 1975: 551-67.
Myers, Shelby., Nigh, Veronica., “Too Many to Count: Factors Driving Fertilizer Prices Higher and Higher,” Market Intel, American Farm Bureau Federation (www.fb.org), December 13, 2021.
National Bulk Bag., “How is the Fertilizer Shortage Impacting the Agriculture Industry?” Nov/Dec 2021 (accessed 2022). blog.nationalbulkbag.com/produce-packaging/how-is-the-fertilizer-shortage-impacting-the-agriculture-industry
Ohio’s Country Journal, “Concerns of shortages, crippling prices due to tariffs on fertilizers,” Crops section, November 3, 2021. ocj.com/2021/11/concerns-of-shortages-crippling-prices-due-to-tariffs-on-fertilizers/
Rake, Alan., “The Collapse of African Agriculture,” African Development, February 1975.
Schultz, Theodore W., Distortions of Agricultural Incentives, Bloomington: Indiana University Press, 1978.
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