tobacco leaves hanging out to dry

The pros and cons of fertiliser price hikes

Fertilisers are essential to maintain yields in intensive farming operations. So they are applied all the time.

I recall a trip to southern Zambia back in the late 1980s. It was just after the first UN Convention on Biological Diversity opened for signature on 5 June 1992 at the United Nations Conference on Environment and Development (the Rio “Earth Summit”). 

I joined a team of newly minted biodiversity scientists who took along an expeditionary force of schoolboys from a Bulawayo boarding school to catalogue the biological diversity of one hectare of miombo woodland. Much harder than it sounds.

Old colonial tobacco farmers managed the small parcel of land we deliberately studied for two weeks. These gents were relics of a time that was clinging on to existence.  

The soils in the region are deep, but they lack nutrients. A profitable yield of any crop required inputs. The farmers had to mortgage their property each year to secure a loan to buy the fertiliser for the next season’s crop. A successful crop meant they returned the money to the bank, but the risk was off the charts.

All the talk was about diversifying the farm. Perhaps to more cattle, maize, and even wildlife as alternatives to tobacco that had been a high input but highly profitable crop for decades.

pod of hippos in a Zambian wetland
Photo by Birger Strahl on Unsplash

When a tobacco farmer considers wildlife as an option, things are getting tough.


Fertiliser prices in Australia.

The prospect of mortgaging the farm might be a little way off in Australia but a combination of supply shortages from export restrictions and increased production costs from high energy prices have led to record high fertiliser prices.

Australia imports almost 80% of its phosphate rock supply and roughly 60% of its ammonium phosphate fertiliser supply. China has restricted exports, and another major supplier, Russia, imposed a quota and, as of February 2022, ceased to be a trading partner. High energy costs also hit fertiliser production, as do higher freight prices and limited container availability.

This combines into a near-perfect storm for farmers reliant on fertiliser.

Since October 2019 when growing 1t of wheat generated revenues sufficient to purchase 1t of phosphate fertiliser, the wheat needed two years later is 2.5t

This doubling of the price applied to DAP (Phosphate and nitrogen), Triple Super Phosphate (Phosphorus) and Urea (Nitrogen) during 2020-21, with Potassium Chloride (KCl) showing little change.

graph of the change in fertiliser prices in Australia from 2011 to 2021
. Source: fertiliser Australia

Before the price spikes in 2021 the fertiliser cost for a typical wheat grower in central NSW generating a yield of  5 t/ha was 40% of the variable costs


What does the farmer do?

The farms we are talking about here are businesses, entities designed to make a profit. 

So when hit with higher costs of production, a farm business can 

  1. Raise the price of its products to compensate for the higher production costs.
  1. Absorb the extra costs or take a hit to yield by reducing fertiliser use, both affecting the bottom line — a year or two of lower profits is bearable, significantly if raising the price of products reduces competitiveness in the market
  1. Shift to the production of another more profitable product or service
  1. Go out of business

Option 1 is rarely available to farmers. They sit at the wrong end of the supply chain and tend to be price takers—they must accept prevailing prices in a market because they lack the market share to influence the market price.

Option 2 is rarely available to farmers.  Most farms operate on tight margins not because they can’t make a profit but because their profit is risky. Good years are interspersed with seasons of no crops planted or crops planted with poor yields but with total crop failure due to drought, frost, flood, pests or diseases. The business of growing food is notoriously precarious.

Option 3 is available to most farmers. They can change crop rotations in favour of crops that produce nitrogen, such as pulses, to improve the health of soils or shift to a crop or variety that requires lower fertiliser use, often at the expense of yield.

Farmers are also adept at making other changes to production such as variable application technology or a simple reduction in fertiliser application per hectare whilst wearing the lower yields that result. 

Option 4 is available as a last resort.

Image by Pascvii from Pixabay

The hidden benefit of lower fertiliser use

When the price of fertiliser goes up, many farmers will decide to reduce fertiliser use. 

This option affects yield but is less of a hit to cash flow—typically the main constraint on farm businesses, as the Zambian farmers can attest—and there is always the chance that commodity prices will offset yield losses.

Reduced fertiliser use is not all bad.

A reduction in chemical inputs can promote a recovery of the soil biology that in turn increases soil carbon, improves soil structure, moisture retention for a collective and often persistent gain in soil health. So there is a long-term gain in soil health likely to translate to more resilient production despite a short-term yield loss.

But there is another hidden benefit that is more about how we see intensive farming.

Here is how Natasha May a reporter on Guardian Australia’s rural network, describes it

A farmer Dianne Haggerty, who does not use artificial fertiliser, believes the high prices are a “reflection of the true cost of using artificial fertilisers”. That is, their impact on the environment such as nitrogen and phosphorus runoff affecting waterways and oceans, as well as the release of nitrous oxide. Haggerty believes any lower yields resulting from avoiding artificial fertiliser would only be a short-term issue as farmers rebuild their soil capacity. She said the advantages of turning away from artificial fertilisers mean over time “you have a more resilient farming system that isn’t requiring artificial inputs”.

Natasha May, Guardian Australia

Maybe the roundabout is a better long term option than the swings.


What sustainably FED suggests

Fertliser use is part of the fossil fuel energy subsidy to humanity. The near free energy extracted from rocks and sediments has increased food production and population since the early 1900s. 

Fossil energy led intensification of agriculture has sent us down a cul-de-sac. We have to grow food in industrial-scale production systems because of the demand from 7.8 billion people, half of whom do not grow their food. 

Modern nitrogen fertiliser is produced from natu­ral gas (methane), with a third of natural gas production used for this purpose. But we can’t rely on fossil energy to power fertiliser production or to provide raw materials. Oil, coal and gas are finite resources and they have nasty externalities when we burn them.

Humanity must recognise the risk in over-reliance on fossil fuels as well as the huge challenge of transition to alternative food production systems.

Price spikes in fertilisers will cause consternation, especially when the cost is passed on to the consumer in more expensive food. However, farmers will need to recognise the true cost of fertiliser use, and there is nothing like some price pain to force such reflection.


Postscript on tobacco in Zambia

The perils of tobacco farming during the late 1980s in Zambia did not last. According to the WHO, agricultural land devoted to the harvesting of tobacco in Zambia increased by over 350% in two decades, from 1993 to 2013. 

Across a similar time period, the export value of tobacco leaves increased from roughly $1.7 million in 1995 to $156.5 million in 2012. Those farmers who persisted still found a market.


Hero image from photo by Tim Stief on Unsplash

Mark

Mark is an ecology nerd who was cursed with an entrepreneurial gene and a big picture view making him a rare beast, uncomfortable in the ivory towers and the disconnected silos of the public service. Despite this he has made it through a 40+ year career as a scientist and for some unknown reason still likes to read scientific papers.

Add comment

Follow us

Don't be shy, get in touch. We love meeting interesting people and making new friends.

Most discussed