With rising food prices, it's human nature and not to mention political bent to place blame. Who or what needs to be identified as the true culprit. All too often, the blame lands on the wrong culprit.
Many seem to believe that domestic manufacturers and producers are responsible for rising food prices. While politically convenient, this blame game arrantly targets the wrong party while getting the economics of global supply chains, well, backwards.
One of the key inputs to the American food supply is fertilizer. Its price, like that of other key inputs, is rising. This isn't coming from corporate greed or mismanagement. It's resulting from a combination of global supply chain disruptions, geopolitical instability, and misguided government policies both here and abroad.
A perfect example of one of the most important, even critical components of the global food supply chain is fertilizer. Increased crop yields depend on it. When crop yields fall, food production declines and grocery bills rise. The production of fertilizer depends on the availability of of a complex combination of materials such as sulfur, ammonia, and phosphate rock. These raw materials are sourced from a variety of global sources and rely on international transportation networks. The supply chains involving these raw materials are currently under significant stress.
The current war between Russia and Ukraine continues to disrupt key commodity markets and trade routes. Russia produced 7.5 million metric tons of sulfur last year making it the third largest producer in the world. Russia is an oil-rich country and sulfur is a by-product of oil refining. Lately, Ukrainian drone strikes on Russia's oil and fertilizer infrastructure have dramatically cut Russia's ability to supply sulfur. Russia's ammonia exports have also fallen to approximately 80% of pre-war levels.
Tensions in the Middle East have only added to the uncertainty around energy production and shipping routes. With the closure of the Strait of Hormuz, roughly 16 million tons of fertilizer remain in limbo while geopolitical events remain unresolved. To compound the situation, about half the world's supply of sulfur passes through the strait.
When supplies of critical raw materials shrink and the cost of accessing them rises, prices for consumers will naturally rise. This is completely unrelated to the 'end' market. The market is simply responding to a failure in the supply chain.
Lowering prices will not come from penalizing producers. The solution will come from relieving the pressure created by global uncertainty. This begins with eliminating policies that unnecessarily raise costs for domestic producers and manufacturers. Permitting delays, burdensome regulations, including those restricting energy development and production all make it more difficult to produce fertilizer in the U.S.. America has abundant resources and tremendous production capability. Government legislators should be doing everything possible to make sure American companies can source the raw materials they need domestically.
At the same time, lawmakers need to be acutely aware of misguided trade practices. Raw materials need to be sourced from trusted trade partners, both foreign and domestic. Many foreign producers are facing the same pressures. Countries like China are exacerbating the situation with unfair trade practices of their own. China is the world's largest exporter of fertilizer. However, China has restricted the export of fertilizer and its raw inputs, including sulfuric acid.
American officials must pursue policies that promote a level playing field and supply chains that are not subject to global unrest. This leads not only to lower prices but ensures security of domestic food supplies. If these issues persist through next year's planting season, Americans will be subjected to further price increases than they have this year, as many farmers had already purchased their fertilizer before the current disruptions.
The laws of economics have not changed, nor shall they. If Washington is serious about protecting food supplies and lowering costs, it needs to distance itself from the blame game. Addressing this crisis requires analyzing what the root causes are, then effecting efforts at where the real problem lies.
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