Food price inflation driven by input costs

Posted by James Ferre on 20th May 2008

Rising farm input costs are threatening to make food prices soar higher, according to Queensland rural lobby group AgForce.

AgForce Grains president, Lyndon Pfeffer, claimed that the past two weeks have seen a 40 per cent increase in nitrogen fertiliser prices, which will have major flow-on impacts on the price of grain for human and animal consumption – distressing news for many Australian food retailers.

“Food prices are often blamed for high inflation across Australia, but farmers know it is the increased cost of three inputs – fuel, fertiliser and chemicals – that is driving inflation,” Mr Pfeffer said. “AgForce identified a significant effect on returns a month ago when the price of phosphate fertiliser and glyphosate had risen dramatically. Now the price of urea and other nitrogen fertilisers is increasing even more rapidly, and this has coincided with a 30 per cent or $100/tonne drop in the price of wheat at the farm gate over the same period.”

“Fertiliser now represents about 50 per cent of the cost of production for grain in Queensland, whereas in the past fertiliser represented about 25-30 per cent of the input cost with the rest taken up by fuel, labour, weed control agents, seed and machinery.

The Senate Select Committee for Agriculture and Other Related Matters has a wide-ranging scope to investigate the implications on farmers of world supply and pricing arrangements for fertiliser and chemicals, while the Australian Competition and Consumer Commission is also currently undertaking an inquiry into the price of fertiliser.

“With a company like Incitec Pivot holding a virtual monopoly over the fertiliser market, farmers need help from the ACCC and the Senate to ensure we are paying a fair price,” Mr Pfeffer said.

Global wheat prices have been falling from the heights of earlier in the year, with prices last week at eight month lows. The fall of 40 per cent from the high in February has been attributed to bullish reports about supplies this year. Despite this, prices are still almost 70 per cent higher than 12 months ago due to adverse weather conditions limiting last year’s supplies.