The conflict in Ukraine and sanctions on Russia are expected to put further pressure on farm costs even as Australian agriculture is set to declare one of its most profitable years.
Key points:
- Farmers are facing huge cropping costs with the price of chemicals and fertilisers “skyrocketing”
- Power shortages in China and reported shutdowns to cut pollution ahead of the Winter Olympics are the main cause of the problem
- Russia is a major supplier of low-cost fertiliser and the second-largest manufacturer of potash
It has been a rocky time for the supply chain with major price hikes for fertiliser already felt by farmers and shortages in products like weed chemical glyphosate and diesel fuel component urea.
Russia is a major supplier of low-cost fertiliser globally and is the second-largest manufacturer of potash, a key nutrient for crops and produce.
And while eastern Australian farmers are preparing for another big winter crop, thanks to better weather, the cost of planting has almost never been higher.
“It’s everything from chemicals to fuel to fertiliser are just skyrocketing,” southern Queensland grain grower James Coggan said.
About 400 kilometres west of Brisbane, the Coggans just had one of the best wheat harvests in a long time, but they may soon be eating into last year’s profits.
“Glyphosate this year since January 2021, it’s almost tripled in price. If not, it’s probably in some cases gone up even more,” Mr Coggan said.
Toowoomba-based chemical retailer Cameron Bragg said, just 12 months ago, the average retail price of the widely used herbicide, glyphosate or RoundUp, was around $3 per litre.
“At the moment they’re facing upwards of $11, $12 even higher per litre,” he said.
Senior agriculture analyst at Rabobank Wes Lefroy said fertiliser costs were up 90 per cent.
“And also agrochemical costs increased around 30 per cent as well, so [a] big increase in cost for farmers across the country,” he said.
What’s driving it?
Mr Lefroy said the rising cost of the nitrogen-boosting fertiliser urea was initially being driven by strong international prices for wheat, corn and soybeans, but then there was a “supply crunch”.
“We saw a big restriction on Chinese exports, we saw an EU natural gas crisis where prices of natural gas went through the roof over there as well, which impacted urea production,” he said.
When it comes to the supply of glyphosate, Mr Lefroy said the world was heavily reliant on China.
“But in the US, they actually get a lot of their raw materials from China.”
In addition to the recent energy crisis in China, the Chinese government had also been reportedly shutting down industry to help reduce smog levels for the Winter Olympics.
“We saw it again in 2008 [for the Beijing Olympics] where China can dial back industrial production in order to reduce the smog levels,” Mr Lefroy said.
When will prices peak?
At Cameron Bragg’s chemical warehouse in Toowoomba, it is still unclear when supply chains might return to normal.
“We actually honestly don’t know,” he said.
“Some suppliers are saying sit tight for a month or six weeks and things will change, others are saying this might not change until our winter crop is ready to go.”
This is where the unfolding Ukraine conflict becomes critical.
Stefan Vogel, head of RaboResearch, said it was likely food prices would increase with both Russia and Ukraine critical to global supplies of barley, wheat, corn and sunflower oil.
“In the last few weeks we’ve already seen prices moving higher,” he said.
“Russia and Ukraine are massive powerhouses [for] global wheat supplies.”
While most crops are grown in the central areas of Ukraine, the most critical region for exporting are the ports in the south.
Whether the conflict moves south through the country will determine to what extent exports are affected and the flow on for food prices.
“The big question is, ‘Do we see this situation dragging on for several more months?’ Mr Vogel said.
“If it drags on to July or August this year then I think we’ll see the markets really on fire.”
Farming differently
As farming costs soar, Toowoomba agronomist Ian Moss has been taking more calls than usual from growers looking to reduce their reliance on chemicals and synthetic fertilisers.
“We help work with a lot of people on rotations, and sequences and ground cover and different things we can do to help minimise the need for herbicides as well,” he said.
Instead of spraying constantly to control weeds, Mr Moss and his team discuss options like planting a multi-species cover crop to help improve the natural soil nutrients and introducing livestock into traditional grain growing operations.
“It’s somewhat bringing us a step closer to how nature used to be. We’re seeing people have forage or pasture rotations as part of their grain rotation.”
Mr Moss said industrial agricultural practices had exhausted some soils. But changing methods, which have been honed over generations, was also a challenge.
“It’s not easy, and it takes a lot, and sometimes you’ve got to step back and look at the big picture,” he said.
Mr Moss said, by moving away from monocultural operations and improving organic matter in the soil, grain growers would save money in the long term.
“You increase the fertility of the soil, you have less reliance and need for inputs, fertiliser inputs, as your plants and as the soils are healthier,” Mr Moss said.
“It’s real, it’s happening, Farmers are growing crops, the yields are similar to everyone else, but their cost of production is less, they’re making more money.”
