The surprise factor driving up your cost of living

The rising price of one key commodity could threaten Australia’s food supply and see the cost of living jump sharply.

Economists are predicting food prices in Australia will increase substantially in coming months, putting upward pressure on the cost of living ahead of the 2022 federal election.

The reason is the continuing rise in the cost of a crucial link in the chain – fertiliser. The price of fertiliser in Australia sits at a shocking $1320 per tonne, causing farmers to ration its use.

Australians are likely to see their grocery bills rise swiftly as farmers pass on the higher cost of production. For Aussies already facing tough economic times as a result of the pandemic, it’s pressure no-one needs.

Read: Supermarkets start a price war and a new player takes aim at the giants

Fertiliser is spread to feed and nourish all types of crops, and the knock-on effects of its price surge will be most keenly felt in the supermarkets. Not only will these increased costs be passed on to consumers, but certain products could be in short supply.

“We’ll see more rationing, as farmers will use less fertiliser because it’s too expensive, which could disrupt the global food supply chains,” says agricultural market analyst Andrew Whitelaw.

“Fertiliser is one of the key components ensuring we’re able to feed the world. If farmers are using less fertiliser, there’s the potential for lower yields and if there’s lower yields there’s less food to go around.”

So why has the price of fertiliser risen so much?

The main reason is the record-high price of gas and oil. Although fertiliser seems like a natural product, it is often partly made with chemical compounds found in natural gas.

Read: Five foods threatened by climate change

At the start of the pandemic, global gas and oil prices plummeted due to a sharp fall in demand as travel ground to a halt. Energy producers lowered their production levels accordingly.

Now that the world is beginning to open up again, demand for oil and gas has rebounded to pre-pandemic levels. But supply has not kept up and the price of oil is approaching $US100 a barrel and the price of gas across Europe has risen more than 800 per cent.

These costs are flowing through to the cost of fertiliser production. China and Russia are the world’s two largest exporters of fertiliser, accounting for around a quarter of the total market.

Both nations have recently introduced export quotas to ensure local farmers have access to supply, driving up the fertiliser price further.

The United Nations recently announced that global food prices are at their highest levels since 1973. Along with fertiliser prices, there are a number of other factors affecting supermarket prices.

Read: What is the Consumer Price Index and how does it work?

Pandemic restrictions, insect and rodent plagues as well as the impact of natural disasters all contribute to current prices.

“In the 30 years I’ve been in the grocery industry, I’ve never seen these kinds of pressures coming through for suppliers,” says Neil Rechlin, of NextGen Partners, a venture capital group that works with supermarket suppliers.

“Suppliers have done a good job over the last 10 years of improving efficiency, of absorbing some of these cost movements… but when you’re seeing increases of 20 to 30 per cent of the ingredients to make these products, there’s no way suppliers can soak that up.

“We’re certainly going to see those costs getting passed on through the retailers and, ultimately, unfortunately to shoppers’ baskets.”

Have you noticed your grocery bill rising? Have you noticed less stock on the shelves? Let us know in the comments section below.

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Written by Brad Lockyer



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