Abstract

As measured by the consumer price index, inflation grew 8% from April 2021 to April 2022, an annual rate unseen since the 1980s. Price increases are tied to a number of factors including supply chain disruptions, disease outbreaks, global conflicts, sudden demand shifts, and fiscal and monetary stimuli. There have also been concerns over market concentration and market power causing price increases. Agriculture has not been immune to inflationary pressures and, in fact, has faced more significant price increases than the general economy. The price increases have boosted farm revenues, with crop prices leading the charge, but have also added to farm costs, with feed, seed, labor, and land expenses growing.

One cost input that has attracted particular attention is fertilizer. While crop prices have roughly doubled over the past couple of years, fertilizer prices are two to four times higher than they were in September 2020. Energy drives the supply of fertilizer production and food drives the demand for fertilizer use, and the two biggest components of inflation right now are energy and food.

At the request of the Iowa Attorney General’s office, the staff at CARD has compiled this study to examine and discuss the myriad issues impacting fertilizer markets and influencing fertilizer prices. Following are some of our findings:

•If we state as a null hypothesis “Increased production costs and commensurate supply chain issues were the main causes of increased fertilizer prices in 2021/22,” we do not have enough evidence to refute that hypothesis.
•We find statistical evidence for structural changes along the fertilizer marketing chain with the pandemic coinciding with one of those structural changes.
•Statistical analyses of these structural changes point to underlying energy costs, and to a lesser extent farm demand, having more influence on fertilizer prices, although both are important.
•The argument that fertilizer firms may be taking advantage of inflation to raise prices raises more questions than answers at this point. Nevertheless, they are good questions for which we need more data.
•Juxtaposing the fertilizer industry with other food and agricultural industries and other firms shows that in some cases (e.g., net income, stock prices and risk), the fertilizer industry looks little different than other industries, while in other cases (e.g., profit growth before and after COVID-19), the fertilizer industry has performed better than many (but not all) food and agricultural industries.
•A lack of good data on the factors that impacted the marketing chain and costs for fertilizer during the COVID-19 pandemic hampers using statistical methods to discern market power.
•Iowa farmers do have alternative sources of fertilizer (manure); however, market development is not to the point that they can realize imminent relief for high fertilizer prices.