When food prices rise, politicians and activists alike instinctively look for a villain to blame. Amid current instability, many will be tempted to settle on domestic manufacturers as the scapegoat for skyrocketing prices. This narrative might be politically convenient for some, but it gets the economics of global supply chains exactly backwards.
The real reason the price of key inputs in American food supply — like fertilizer — is rising is not corporate greed or mismanagement. It is a combination of global disruptions, geopolitical instability, and misguided government policies both here and abroad. All of these factors have come together to make it harder to produce the inputs on which American agriculture relies.
Fertilizer, for example, is one of the most important building blocks of the global food supply chain. Without it, crop yields fall. When crop yields fall, food production also declines, causing grocery bills to rise. Yet fertilizer does not appear out of thin air. It relies on a complex combination of materials such as sulfur, ammonia and phosphate rock.
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These raw materials are sourced from all corners of the world and rely on international transportation networks. Many of these supply chains are currently under significant stress.
The ongoing war between Russia and Ukraine continues to disrupt key commodity markets and trade routes. Russia produced 7.5 million metric tons of sulfur last year, making it the third-largest producer in the world. This is because Russia is an oil-rich nation, and sulfur is a byproduct of oil refining. Lately, Ukrainian drone strikes on Russia’s oil and fertilizer infrastructure have drastically cut Russia’s ability to supply the world with sulfur. Russia’s ammonia exports have also fallen to roughly 80% below pre-war levels.
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Tensions in the Middle East have only added to the uncertainty around energy production and shipping routes. With the Strait of Hormuz effectively at a standstill, roughly 16 million tons of fertilizer remain in limbo while geopolitical events remain unresolved. Additionally, roughly half of the world’s supply of sulfur transits the strait, adding more stress on key input costs.
When supplies of critical raw materials shrink and the cost of accessing them rises, prices for consumers will also naturally rise. As unfortunate as this is, it is not evidence of a market failure. On the contrary, this is the market responding to scarcity as it would in any other scenario. The bright economic minds of this administration must realize this.
If policymakers want to lower prices for Americans, it would be a mistake to punish producers. The answer is to find ways to increase supply, relieving the pressure created by global uncertainty.
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This starts with eliminating policies that unnecessarily raise costs for domestic manufacturers. Permitting delays, burdensome regulations, and restrictions on energy development all make it more difficult to produce fertilizer in the U.S. America has abundant resources and tremendous production capability. Policymakers should be doing everything possible to ensure American companies can source the raw materials they need right here at home.
At the same time, policymakers need to be clear-eyed about misguided trade practices. Whenever possible, we need to source inputs from a variety of trusted partners, both foreign and domestic, to help meet our domestic demand. Many overseas producers are facing the same squeeze. This would be akin to trying to fill an empty glass with an empty pitcher. The root problem remains.
Meanwhile, countries like China are exacerbating the issue with unfair trade practices of their own. China is the world’s second-largest exporter of fertilizer. However, China has restricted the export of fertilizer and its raw inputs, like sulfuric acid.
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American leaders must pursue a policy that promotes a level playing field and diversified supply chains that are not subject to global unrest. This is not only good economics but wise food security policy. If these issues persist until next year’s planting season, Americans will feel the sting even more than they have this year, when many farmers had already purchased their fertilizer in advance of these disruptions.
The laws of economics have not changed. When supplies are constrained, prices rise. When food production and input supply rise again, prices will fall.
If Washington is serious about lowering food costs and ensuring America stays well fed, it needs to stop searching for scapegoats. Addressing this crisis requires a look at the root causes. A traffic jam can’t be fixed by blaming the car at the back of the line. The obstacles in the road need to be cleared. There is no shortage of obstacles to address. America’s leaders need to fix their gaze there.
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