Cover story 6 OVER THE PASTtwo years, there has been a considerable disruption in the global economy and agricultural markets. High costs of production, supply-chain challenges, inflation, geopolitics, and volatility in the markets continue to impact Ontario grain farmers. Throughout this growing season and into next year, grain farmers will be watching three key areas: high-input costs and shrinking margins, price volatility related to global grain supply and political instability, and commodity prices and interest rates. HIGH INPUT COSTS Input costs were rising before the pandemic and have shown no sign of slowing down. Shrinking margins despite high grain commodity prices are a function of the fixed costs required to run grain farms and the drastic increase in fuel and fertilizers. According to the Ontario Ministry of Agriculture, Food and Rural Affairs, the overall cost of production has increased by 21.4 per cent for corn and 23 per cent for soybean growers since last year. Since the COVID-19 crisis began, the average cost of farm inputs has increased by 14 per cent, according to Statistics Canada's Farm Input Price Index, with fuel and fertilizers being the primary drivers. These increases do not incorporate the indirect cost of the federal carbon tax, which increased by 102 per cent between 2019 and 2022, adding an additional $54 per acre. Fuel prices, which had fallen at the start of the pandemic, have nearly doubled since then. Initially, the increase was driven by the easing of pandemic-related lockdowns and restrictions. Recent increases are driven by sanctions on Russia, and their inability to sell oil abroad is causing a global supply shortage. Fertilizer prices in Canada, on average, have increased by 117 per cent since April 2021 and 42 per cent since the Russia-Ukraine war began. Increased global demand, energy costs (especially natural gas), and supply chain disruptions have contributed to increased prices. Additionally, China has slowed down or stopped production at many fertilizer plants to conserve electricity due to rolling blackouts and has blocked phosphate exports to protect local users from high global prices. Canada has also imposed a 35 per cent tariff on fertilizer from Russia and Belarus and has barred Russian ships from docking at Canadian ports. These sanctions created supply challenges to spring fertilizer supplies in Ontario, Quebec and Atlantic Canada. Farmers were faced with uncertainty, not knowing fertilizer prices or if they could secure fertilizer supplies before planting began. Discussions are underway in Canada to find alternative sources for key fertilizers. Solutions to sourcing alternatives will need to keep the economics in mind and the speed at which they can service the demand that has traditionally relied on Russia due to its lower energy costs. While commodity prices for corn, soybeans, and wheat were higher going into planting season, profit margins will be affected by the substantial fuel and fertilizer costs, accounting for 38 per cent of costs. Looming concerns persist from farmers about the potential for input prices remaining high even after commodity prices have declined. FOOD PRICE INFLATION Global food prices increased 30 per cent in the first two years of the pandemic and an additional 30 per cent in the first quarter of 2022. Prices are rising and have exceeded the prices seen in the global food crisis of 2011, which led to widespread political instability in the hardest-hit nations. Price changes are often a function of short-term market forces adjusting to prevailing demand and supply conditions. In the early phase of the COVID-19 pandemic, food price increases were driven by global retail and food processing worker shortages. However, they continued to increase in 2021 and spiked in the first threemonths of 2022 despite labour shortages subsiding. Increased energy costs, shipping disruptions due to supply chain bottlenecks and container shortages, and reduced agriculture production from droughts in Brazil and Canada have also contributed to soaring prices. Global economic challenges WAR IN UKRAINE CAUSES FURTHER DISRUPTION Sankalp Sharma continued on page 8 • The global COVID-19 pandemic has caused significant rise in input costs including fuel and fertilizer over the past two years. • The issue has been further exacerbated by the Russian invasion of Ukraine in February of 2022, causing fertilizer and fuel shortages and skyrocketing prices. • Global food prices have increased by 30 per cent in the first quarter of 2022, after increasing 30 per cent during the pandemic. Rising food inflation is causing an increase in global food insecurity. • Grain Farmers of Ontario continues to advocate for government support to help mitigate the risk that farmers face due to global economic and political pressure. WHAT YOU NEED TO KNOW
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