How Inflation Impacts Agricultural Costs, as Explained by Michael Straumietis

How Inflation Impacts Agricultural Costs, as Explained by Michael Straumietis

During this growing season, access to more cost-effective agricultural products is imperative, especially since the world has seen a dramatic increase in fertilizer prices. Other agricultural materials are also experiencing surges in prices for various reasons.

Why Fertilizer Prices are Rising

According to Michael Straumietis, Founder and CEO of Advanced Nutrients, farmers, growers, and ranchers have been deeply impacted by rising fertilizer costs. It is even said that fertilizer prices are among farmers’ biggest concerns, especially because the 2022 growing season is nearing, and they are about to purchase the nutrients needed for their crops.

Some farmers have reported seeing price hikes of over 300 percent from last year’s. In addition, delivery times have become unpredictable, likely because of the lack of supply.

This is not the first time those working in the agricultural sector have suffered from this big price surge, says Mike Straumietis. It was in 2008 when the recession hit a lot of industries hard. The agriculture industry saw fertilizer prices of up to 100 percent then. It took more than a year for the prices to drop to pre-crisis levels.

The price hike connected domestic and global demand and low fertilizer inventories. Similar factors are affecting the industry again, but this time, several other reasons, including raw material shortages and political conflicts, are contributing to the price rise.

How Inflation is Impacting Agricultural Costs

The current inflation has also been a burden to farmers, says Mike Straumietis. In the U.S., the average annual inflation rate from 2000 to 2020 was 2.1 percent. That number is considered healthy by economists and fiscal policymakers, as it signifies economic growth and helps drive consumption.

But earlier this year, the monthly inflation rate averaged nearly seven percent. Mike Straumietis notes that the U.S. saw a big inflation surge during the 1970s and '80s when the inflation rate reached double digits. That led to a crash in the U.S. farm economy. It is understandable then for prominent players in the industry to be concerned about the present state of the economy.

High inflation rates directly affect farmers because they can increase the prices of agricultural materials, like fertilizer, vitamins, and even agricultural equipment. Cost increases can lower the farmers' and related businesses' profit margins.

Inflation also effectively reduces the purchasing power of producers and consumers. Mike Straumietis explains that purchasing power is the number of goods and services an individual or entity can buy with a unit of currency. The currency decreases in value as inflation increases, leading to lower purchasing power. It, directly and indirectly, affects farmers because the demand for their products lessens, which can also affect their bottom lines.

The rise in prices can also compel some farmers to move away from their current crop selection. For example, those who are planting corn can decide to reduce the acreage or stop producing corn altogether to shift to other commodities that require fewer expenses to produce.

Outlook on Inflation in the Near Future

While farmers may be hoping that the inflation rates will stabilize or even lower soon, financial experts warn against such optimism. Mike Straumietis expounds that the commodity war brewing due to political and economic instability in various regions worldwide may result in higher and more persistent inflation.

Next-Generation Products

Mike Straumietis's company, Advanced Nutrients, comprises a large and diverse team of Ph.D.-level scientists who have developed a broad spectrum of next-generation products designed to nourish each phase of a plant's cycle from seed to senescence.

Growers in over 110 countries have relied on Advanced Nutrients to offer them the means to unlock the true genetic potential of their crops. Mike Straumietis and his team are committed to delivering products that best serve growers' needs worldwide.