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Higher Food Prices Aren’t Making Farmers Richer

For American consumers wondering who’s profiting from the run-up in food prices, it’s instructive to spend a few hours at Rob Tate’s Minnesota farm. Because he wants everyone to know that it sure isn’t him.

Tate is paying twice as much as he used to for the diesel that powers his equipment. And the upsurge in fertilizer cost, which accounts for roughly 25% to 30% of his expenses in an average year, is even more extreme: he’s paying as much as 242% more this year than last for key nutrients. “That’s a lot to take,” he said last week when I visited his cornfields about an hour south of Minneapolis.

He’s not alone. In January, researchers at Texas A&M University predicted that fertilizer costs would increase as much as 80% nationally in 2022, slapping the average American feed grain operation with an additional $128,000 bill.

That will eat into profit no matter how much corn prices soar. In February, the U.S. Department of Agriculture predicted a 7.9% decline in farm income for 2022, mostly due to rising input costs. Even before Russia invaded Ukraine on Feb. 24, imperiling global supplies of key agricultural supplies, farmers were edgy. Purdue University’s most recent monthly survey of farm sentiment found 47% of surveyed farmers citing “higher input costs” — including fertilizer — as their top concern.

The concerns and costs will be passed along. On Friday, the United Nations’ Food and Agricultural Organization reported that food prices could surge as much as 22% worldwide thanks to the invasion. If they rise even a fraction of that amount, recent calls for American policy makers to do something about the problem, from imposing price controls to eliminating farmland conservation programs, will grow louder.

But in farm country, at least, it’s not policy that’s going to bring down the prices. Innovation and adaptation will, led by the very farmers now struggling with unexpected costs. “Farmers will respond to the market,” Tate said. “We will produce more.”

For farmers, like everyone else, inflation has been building since the onset of the Covid-19 pandemic two years ago. The reasons range from supply-chain disruptions that are driving up the price of equipment to surging commodities. Natural gas, which rose steadily in price during 2021, is a key ingredient for the production of fertilizers. Between July 2020 and July 2021, the price of anhydrous ammonia — a widely-used nitrogen fertilizer — increased 53%, from $487 to $746 per ton. The war in Ukraine has driven prices even higher, in part because Russia and its ally Belarus are major fertilizer exporters that now can’t supply global markets. In early March, anhydrous ammonia approached $1,500 per ton.

With spring planting just weeks away in Minnesota, it’s too late for most farmers to switch to less fertilizer-intensive crops like soybeans and wheat. Instead they’re seeking ways to fight back against the high costs they’re going to carry in 2022.

Thom Pederson, Minnesota’s Commissioner of Agriculture, sees that as a reason to be optimistic. “We’re seeing innovation,” he said in a call from his farm in Pine City. Some of that innovation lies in investment in a collection of technological tools known as precision agriculture. For example, a farmer equipped with a GPS, a detailed soil map of his farm and more advanced fertilizer equipment will use less fertilizer on his farm. “A lot of farmers are turning to it,” Pederson said.

Age-old practices, such as the use of cover crops — plants that are grown to build and maintain fertility in the soil rather than leave it bare — are enjoying new interest. Similarly, no-till farming, which leaves the soil (and nutrients) largely undisturbed, is generating adherents, and not just because it preserves nitrogen in the soil. “A farmer with less tillage may need a smaller tractor,” Pederson explained. “That’s a potential savings of thousands of dollars.”

In Minnesota, informational sessions on these and other techniques, sometimes led by researchers from the University of Minnesota, are drawing “big crowds,” according to Pederson. “People want to know how I can maximize with the least amount of dollars.”

It’s a bold approach, and one that farmers and policy makers have little choice but to embrace so close to planting. But even the confident Pederson cautioned that technology won’t necessarily overcome the surging prices of the supplies farmers need to grow their crops.

“We’ll see how these businesses are doing at the end of the year,” he said. “If the Ukrainian situation drags on, the greater the impact on next year’s crop.” The potential outcomes could include distressed farmers and lower yields, just as the world needs rely upon American agriculture more than ever.

Policy makers are often tempted to try to fight rising prices with government controls. That’s something the administration of President Joe Biden should resist. But it can encourage the development of innovative fertilizer technology and companies. On Friday, the Agriculture Department announced $250 million in grants to do just that, and if the program is successful, more support is warranted.

To provide more immediate relief to farmers, the administration should oppose pending anti-dumping duties on imported fertilizer from Trinidad and Tobago, and support efforts by farm groups to roll back duties on fertilizer imports from Morocco. Both sets of duties are supported by U.S. fertilizer manufacturers.

Both approaches would suit Rob Tate. When I dropped in at the office above the machine shop where he services his farm equipment, he was studying a colorful spreadsheet tracking his expenses. The numbers were headed the wrong way. But he’s a fifth-generation farmer, he reminded me, and his family has prospered through other volatile periods.

“I think we have the ability to supply the world with corn,” he said. “It’s ingrained in farmers. We’re gonna produce.”

More From Other Writers at Bloomberg Opinion:

• No More Steak? American Consumers Try to Beat Inflation: Andrea Felsted

• Soaring Food Prices Can Pay for a More Secure Future: Amanda  Little

• Why Central Banks Are Getting Inflation So Wrong: Javier Blas and Marcus Ashworth

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Adam Minter is a Bloomberg Opinion columnist. He is the author of “Junkyard Planet: Travels in the Billion-Dollar Trash Trade” and “Secondhand: Travels in the New Global Garage Sale.”

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