By Stuart Smyth
Editor’s note: Stuart Smyth is an associate professor with the University of Saskatchewan’s College of Agriculture and Bioresources, where he holds the Agri-Food Innovation and Sustainability Enhancement Chair. He can be contacted at stuart.smyth@usask.ca.
The farther we tread into 2022, it would appear this year is positioning itself to be one of the worst on record for producers and consumers, who are facing higher input costs, driven by supply shortages, that are threatening farmers’ livelihoods, food security and food pricing globally.
In addition to reduced availability of food, feed grains and fertilizer, political volatility and transportation disruptions have made the past year particularly bumpy. These factors are reflected in producers’ expenses and consumers’ ability to access affordable food.
War in Ukraine pauses production and export
Ukraine and Russia are leaders when it comes to crop production and export, and Russia’s invasion of Ukraine has added another dimension to supply chain woes.
Ukraine is the world’s leading exporter of sunflower oil, fourth-leading exporter of wheat and corn, and ranks seventh in rapeseed exports. Russia, on the other hand, is second in wheat, rapeseed and sunflower oil; fourth in barley; and sixth in corn. And both countries are facing trade dilemmas, for different reasons.
This spring, much of Ukraine’s arable land may go unseeded, due to the inability to safely deliver seed, fertilizer and fuel to farms, in addition to difficulties related to transporting existing stocks to export points, such as maritime ports on the Black Sea, from where container ships set sail across the world. Conversely, Russia faces trade restrictions and sanctions, which could be extended to commodity exports, as well as transportation access to port facilities.
Further compounding the problem in crop markets was the March 2022 announcement that Argentina has halted its export of soybean oil and meal. As the world’s leading exporter of both – accounting for 41 per cent of total global soybean meal exports and 46 per cent of soybean oil – these restrictions will negatively impact meal- and oil-importing countries that rely on Argentina, as they will now have to pay higher prices to import from other exporting countries.
Fertilizer prices are also considerably higher than last year. In the spring of 2021, urea prices were just over USD $500 per tonne, and by February 2022, the price rose to USD $900 per tonne, an increase of 45 per cent, according to data analyst firm DTN. Production delays at chemical plants have reduced the availability of some plant protection products heading into the 2022 crop year.
Crop farmers who still have commodities on-farm are fortunate, as they can still take advantage of receiving higher prices for last year’s yield. While farmers may benefit from the currently high commodity prices – whether in crops or livestock – input costs have also increased. Farmers will need to ensure their pencils are sharp and that they are able to improve their profitability in the face of rising input and commodity prices.
Canadian transportation faces disruptions
Inflation in February 2022 rose to 5.7 per cent year-over-year, the highest since the early 1990s. The rising price of crude oil throughout 2021 and into 2022 has contributed to increasing the cost of transporting food into and across Canada. Furthering this problem are challenges to transportation corridors – be it the flooding of highways and railways in B.C. and disruptions to key trade routes with the U.S., such as highways and bridges at international border crossings.
A large part of the challenge facing agricultural commodity and food product supply chains is the increased competition for rail line access, most notably with the energy industry. Canada has a proven, safe network of oil and gas pipelines that, with some line expansion, could facilitate the transportation of tens of thousands of additional barrels of petroleum products per day. Because pipeline construction has been delayed or, in some instances, outright cancelled, agricultural commodities and food products must compete with the more profitable oil and gas exports for rail access, raising transportation costs even more.
As governments have been slow to recognize the significance of transportation as a key part of food security, officials are becoming more aware just how vital transportation is within agri-food. As consumers continue to express their concerns over food pricing, we may see greater emphasis placed on the movement of food products within Canada, by finding ways to overcome constraints.
Very quickly, governments in Canada need to decide whether to move oil by rail or food by rail, as the current approach of moving significant volumes of oil by rail needlessly contributes to higher food prices.
Sticker shock for shoppers
If 2020 and 2021 had been ‘normal’ years, the rise in food prices would not have been as dramatic as we are currently witnessing. The COVID-19 pandemic has impacted food processing and distribution, resulting in shortages of some products and higher prices for most products. After being subject to shortages, price increases and shrinking product sizes for the past two years, consumers are becoming wary of pushing their carts down grocery store aisles, as they are unsure of just what price increase is going to jump out at them next.
Consumers faced a constant barrage of food price increases throughout 2021 that show no sign of easing up this year, according to Canada’s Food Price Report for 2022. Last year, meat prices rose by nearly 10 per cent, dairy products were up by five per cent and bakery, fruits and vegetables were up by three per cent. Restaurant prices also rose by three per cent. On average, in 2021, food prices rose by four per cent and are projected to rise by as much as seven per cent in 2022.
In the fall of 2021, media reports indicated that consumers were foregoing some purchases, as the price of some products was beyond what consumers felt was reasonable. This may have been more noticeable at specific times of the year when families tend to gather to celebrate holidays or special occasions.
While some consumers have been able to absorb the increased costs without much trouble, a growing number of Canadians are being priced out of the equation altogether, relying on food banks to meet their needs. This trend suggests not only frustration with the higher cost of living but also a crisis for public health, which is tied to nutrition.
Food insecurity grows in step with conflict
When we think of the food supply chain, Canadians should also consider parts of the world that are much less fortunate than ours. The United Nations’ World Food Programme (WFP) uses food assistance to build a pathway to peace and prosperity for people recovering from conflict and disasters.
Anticipated lower production and export of Ukrainian wheat will put significant pressure on the WFP, which buys 50 per cent of its wheat requirements from Ukraine. Much of this wheat is distributed to many food-insecure northern African countries. The lost access to this wheat would mean the WFP would need to buy the same amount of wheat at a higher price – or more worryingly – the amount of wheat purchased would decline due to a price increase, potentially resulting in more people becoming food-insecure.
In late 2007 and early 2008, economic and political conditions resulted in a food pricing crisis for many countries globally. At the time, several Asian countries had enacted bans on rice exports, resulting in even higher rice prices, exacerbating the problem. Export restrictions compound issues related to supply and pricing, and they are not viable solutions to complex situations, such as the sanctioning of Russia. Should Russia be hit with export bans, the net effect could be largely negative for everyone.
Are brighter days ahead?
While the future appears rather dark and ominous, rays of sunshine have poked through, providing some optimism. For example, if sufficient moisture is received during the coming growing and pasture season, grain supply could improve.
COVID-19’s impact on the agri-food sector is rapidly diminishing, indicating that processing and manufacturing will begin returning to full capacity. These capacity increases will help ensure that livestock producers can market their animals and that grocery store shelves will once again be fully stocked.
With farmers’ bottom lines and consumers’ pocketbooks feeling the pinch, we can only hope the worst of 2022 is now behind us and the remainder of the year is considerably brighter.
