Rising food prices will become the norm as signals suggest eurozone inflation is likely to continue

Rising fertilizer costs have rocked European agriculture to a state where production could be limited for the coming year.

On the farm, the lack of availability or the simple cost of inputs will result in limited inputs and, therefore, may impact production. Securing international fertilizer supplies seems to be as much of a problem as the real price. It is not an Irish problem but at European level and beyond.

Questioning the EU’s response to rising fertilizer prices, Polish EU Commissioner Krzysztof Jurgiel pointed out that several simultaneous factors have caused this situation:

1. The EU ban on the import and transit of potash from Belarus, which is the world’s largest producer of this agricultural nutrient;

2. The Commission’s decision to impose anti-dumping duties on fertilizers from the United States, Russia and Trinidad and Tobago;

3. And record gas prices (a staggering 595% annual increase) accounted for 60-80% of the industry’s operating costs.

Some relief had come from skyrocketing gas prices in October as the second major pipeline from Russia, Nord Stream 2, was due to be accelerated, along with statements by Russian President Vladimir Putin suggesting that stocks of European gases would be replenished. .

The geopolitics of the situation are as bad as a heart attack. You wouldn’t have to be a big conspiracy theorist to say that gas only arrived from Russia pending approval and certification of the Nord Stream 2 pipeline to allow direct gas supply from Russia. in the heart of Europe. via the underwater gas pipeline under construction in the Baltic Sea.

Putting pressure on gas prices by cutting supplies could, as theory suggests, accelerate Europe’s interest in commissioning the new pipeline.

Looking a little further from an economic point of view, the short-term difficulty for Russia to curb supplies would help if, in the longer term, multiple supply flows to Europe opened up, allowing greater gas sales in Europe.

Looking even further, Nord Stream 2 is seen as critical infrastructure on the Russian side, as current gas supplies must pass through Ukraine and Belarus, providing these countries with a layer of protection against Europe and Russia. . With Nord Stream 2 operational, these intermediate countries are losing their political power somewhat.

We farmers are just pawns in the game between Europe and Russia. Yet in reality, the rising cost of gas and its derivatives, including electricity and fertilizers, has already translated into increased producer-level inflation and is flooding rather than spilling over into the economy. consumers.

Eurostat’s indicator shows how inflation has skyrocketed over the past month, reaching 4.1% on an annual basis in October in the euro area. Over the 30 years from 1991 to 2021, EU inflation rates have been relatively stable, peaking at 5% in 1991, with a more recent peak of 4.5% in 2008.

The current trajectory of inflation rates suggests that these records could easily be broken as the curve rises rapidly rather than peaking in recent months.

Material shortages from the Covid disruption, supply chain issues, rising global energy prices and high gas prices are conspiring to cause inflationary pressures on the supply side.

Meanwhile, as consumers emerge from national lockdowns, a combination of consumer exuberance and pent-up demand exacerbates inflationary pressures on the demand side. For us farmers, it is heartwarming to understand the external factors that are affecting and will affect agriculture in these turbulent times.

Knowing that these externalities are beyond our control leads to greater acceptance and takes some of the frustration away. Of course, we would like to have access to cheap inputs and maximize profits at a time when commodity prices are high, but in this state of flux, it is better to focus on weathering the storm. As a nation of mostly breeders, the ability to convert cheaply produced grass for the coming season will protect us from the worst of woes.

In the absence of any sadism, a period of food price inflation may in fact bring attention back to one of the founding principles of the European Economic Community as it was in the postwar era. – the importance of food security. Likewise, a re-discovery of the importance of food production at EU level could temper expectations about the role of farmers as climate change demands emerge.

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