Last week’s announcement by National Flour Mills has prompted many to wonder how their pockets will be affected going into 2022 as increased flour costs has already started a ripple effect of price increases in T&T.
But while the price increase has been seen as detrimental to most, Finance Minister Colm Imbert is smiling all the way to the bank.
You see what we have to understand is that the surge in wheat prices and therefore flour prices is in part due to higher ammonia prices. T&T is a major beneficiary of higher Ammonia prices, and it has helped pour foreign exchange into the country and money into government’s coffers.
In NFM’s release, the company noted, “The increased prices of grain and the rise in supply chain costs are affecting markets worldwide. Generally adverse weather conditions have affected crop yields, supply chain issues have increased the cost of agricultural inputs, like fertilisers; and the overall impact of Covid-19 has caused shipping costs to skyrocket.”
Ammonia is used worldwide as it is considered one of the most important chemicals produced globally with approximately 85 per cent being used as fertiliser for food production. T&T, according to a 2019 estimate is the second largest exporter of Ammonia in the world after Russia and well ahead of Indonesia.
At the Point Lisas Industrial Estate there are 11 ammonia plants that include two ammonia complexes, which house some of the largest ammonia production plants in the world, with a total annual capacity of 5.2 million metric tonnes (MT).
Fertilisers are required as crop growth often depletes soil nutrients. Fertilisers play an important role in providing crops with the nutrients they need to grow for future harvesting of nutritious food. As such fertilisers play a crucial role in food production worldwide.
And 2020 was a bumper year for fertilisers and ammonia as in some cases, prices rose to record highs amid the various challenges pushed forward as a result of the COVID-19 pandemic.
According to the Data Transmission Network’s Progressive Farmer, the average retail price of anhydrous ammonia set a record in the United States at US$1,113/tonnes in November, surging up by 38 per cent from its price in October.
The website stated, “The seven other major fertilisers tracked by DTN for the first week of November saw increases ranging from 9 per cent to 36 per cent as supply disruptions push prices to new highs.”
DTN continued, “Fertiliser prices have increased dramatically over the past year, with prices on major fertiliser products in Illinois increasing by over 50 per cent. High fertiliser prices lead to projections of near record-high fertiliser costs in 2022 for both corn and soybeans, though short of the all-time high levels set in 2008.”
The November surged was similarly noted in the Central Bank’s Monetary Policy report for November as it stated, “During the review period, significant price increases were recorded for ammonia (237.6 per cent)” although in that very report it was also noted that “downtime at the Nutrien complex and the Tringen I ammonia facility contributed to an 8.2 per cent drop in ammonia output.”
The downtime reported were related to plant shutdowns following shortages in natural gas supplies to those plants.
However the report also noted the increased demand for ammonia and other energy products generated in the year helped decompress the local foreign market in 2021.
The Central Bank reported, “Authorised dealers’ purchases of foreign exchange from the public increased by 12.8 per cent over January to October 2021 to US$3,149.8 million relative to the same period a year prior. Higher purchases were facilitated by a 38.0 per cent increase in conversions by energy companies when compared to the same period in 2020. The improved performance is likely due to an up-tick in crude oil and petrochemical production and higher energy prices. As such, purchases from the energy sector accounted for 76.7 per cent of all purchases of foreign currency.”
However despite the surge, there was a sting in the tail as the increased costs incurred by grain farmers across the world meant increased costs for those importing the product. In this wide list, included NFM.
In their release announcing the increase of flour, NFM said, “NFM noted that the price of Spring Wheat moved from as low as USD5.00 per bushel in 2020, to as high as US$10.91 per bushel this year, additionally, the cost of freight has increased more than 110 per cent.”
According to NFM chairman Nigel Romano, the company was hit with the perfect storm.
He said: “It’s an unfortunate analogy, especially given the realities of climate change, but we have been confronted by the perfect storm, 2020 witnessed the lowest wheat yields since 2007, and the supply chain disruptions caused by the pandemic have increased freight costs significantly, further impacting the landed cost of all grain and other material inputs. NFM is a price taker. We have no control over the landed costs of our imported raw materials, which now account for 64 per cent of our production costs.”
To make matters worse, there is no indication that the price of ammonia and fertiliser is set to come down in the near future. However it is not impossible.
According to the Progressive Farmer, “Current higher fertiliser prices will translate into higher fertiliser costs for 2022 production of corn and soybeans. However, exact increases depend on farmer behaviour and how fertiliser prices change from now through the 2022 fertiliser purchasing season.”
The report continued, “Overall, current fertiliser price levels point to above-average fertiliser costs for 2022. The 2022 corn and soybean budgets for high-productivity farmland currently have values at US$193 per acre for corn and US$63 per acre for soybeans, well above the 2009-2020 averages and near the high end of costs for the 2009-2020 period.”
However the Progressive Farmer noted that while fertiliser prices currently are at high levels and represent a substantial increase from years gone by, it has not reached all-time highs.
The report stated, “Fertiliser prices were the highest in 2008, with those prices then declining during the severe phases of the 2008 financial crisis. Fertiliser costs for 2022 likely will be well above average, with much of the overall cost level depending on fertiliser prices moving forward, as well as farmer behaviour. History suggests that fertiliser prices can change rapidly, likely bringing modifications to fertiliser cost projections.
“Further note that several periods of sharp declines have occurred in history.”
