Inflation has touched all parts of the economy, and higher costs throughout the food supply chain are hitting both farmers and consumers, according to Blake Hurst, a farmer and former president of the Missouri Farm Bureau.
“What we are seeing now is not only we’re having increased farm prices, but of course, the price of transportation, processing, and marketing of that food is also facing high inflation,” Hurst said. “And that’s why it’s hitting the consumer’s pocketbook quite so hard. So it’s a really serious situation.”
Data from the U.S. Department of Agriculture (USDA) published in February 2022 showed that farm sector production expenses were projected to increase by $20.1 billion, or 5.1%, to reach $411.6 billion in 2022.
“This follows a 9.4% increase in nominal expenses in 2021,” the USDA report stated. “If these forecasts are realized, 2022 production expenses would be the highest since 2015 yet still 11.1% below the 2014 peak in inflation-adjusted terms.”
The Russia-Ukraine war has had a significant impact on American farmers. Russia is the world’s largest exporter of fertilizer, which is a key resource needed to grow crops. Anhydrous ammonia, used to create nitrogen fertilizer, has seen a 122% spike in the price per ton, while potash, a source of potassium for fertilizers, is experiencing a 103% spike, according to DTN.
“There have been shortages,” Hurst said. “We were able to get the chemicals we need, but we did some switching around, some difference in our formulations that we use. And of course, the prices are two to three times higher than what we were paying a year ago.”
He estimated that about half of inputs, particularly fertilizer chemicals, have been “directly affected” by price increases of 100% or more.
“So we’re looking at a 25-50% increase in the cost of doing business,” Hurst said, adding that in some instances, it's influencing farmers' crop decisions.
“Planting intention showed a shift to an increase of soybeans, a decrease in corn acres,” Hurst said. “Not coincidentally, corn takes much more fertilizer than soybeans. So people are responding to those increasing fertilizer prices.”
'We need to remove those tariffs'
The price increases for farmers trickle down to American consumers at the grocery store, though that only makes up a small part of overall food inflation.
The Consumer Price Index (CPI) increased by 1.1% from April 2022 to May 2022 and was up 8.6% year over year. Food prices were up 10.1% from May 2021.
“Obviously we’re price takers and don’t make the price,” Hurst said. “And typically, when we have a short crop like we did in 2012 and you see an increase in the farm gate prices for corn, wheat, and soybeans, the consumer may not notice because, in the process, food that she buys, so much of the cost is added after the farm.”
But in an inflationary environment, all the factors driving cost increases add up.
According to USDA, “in 2022, food-at-home prices are predicted to increase between 8.5 and 9.5%, and food-away-from-home prices are predicted to increase between 6.0 and 7.0%. Price increases for food at home and food away from home are expected to exceed historical averages and the inflation rate in 2021.”
While Hurst doesn’t have a clear solution for how to improve overall food inflation, he did suggest how things can be fixed for the agricultural sector.
“The government seems to be working at cross-purposes,” he said. “The USDA is looking into price gouging in the fertilizer market, but at the same time, the Federal Trade Commission has found that some of the companies that import fertilizer in the U.S. are dumping at a time when prices have tripled and have actually put tariffs on the importation of fertilizer.”
“Much of our fertilizer is imported,” he continued. “So it seems like on one hand, we’re doing one thing. On the other hand, we’re doing exactly the opposite. We need to remove those tariffs and get farmers the access to fertilizer from where it’s produced.”