Farming becomes unaffordable in creaky food chain

The world is on fire when it comes to the availability of raw materials for various sectors. Oil prices break records, which has consequences for the diesel price in the tank in the yard. Electricity prices are going through the roof, changing the way we want to produce electricity as demand for it increases.

The electricity price has now risen above €0,12 per kilowatt, a price that was €0,055 a year ago. Fertilizer has doubled in price within six months, while China still has the phosphate tap closes. Machines cannot be delivered due to lack of microchips.

However, building a shed has now become 40% more expensive due to rising steel prices. Wood prices have also gone through the roof. For example, cubic boxes are 40% more expensive and there is a shortage of means of transport (and drivers). Container rates have increased from €800 to €10.000 per container.

Land prices are rising
Due to the extremely low interest rates, land prices continue to rise. Investors want to get rid of their money, because of penalty interest for holding money at the bank. Moreover, there is a political battle going on for the land of farmers, with the aim of building new houses and creating desirable nature. Lack of labor means that in England shop shelves are empty, harvests are not brought in and slaughterhouses are shut down.

Summarizing all this, I always think of Iraq's communications minister, Mohammed Said al-Sahaf (pictured), who reported that nothing was wrong, while in the background the tanks drove through the image. We continue to discuss a new cabinet in The Hague, we are concerned about nitrogen in nature reserves and whether or not to show a corona passport in a restaurant (but not for vegans).

Imploding commodity markets
They seem to be completely unaware of what is really happening in the world. Namely that we are currently looking at the complete implode of our raw materials market and logistics systems in the world. This has consequences, so that even in Western countries we have to get used to empty store shelves, unaffordable gas bills in the winter and people who have to live with their parents until the age of thirty-five. Farming will also become unaffordable in the new 2022 harvest season. As the English say so beautifully: the proof is in the pudding.

We already know that the cost price for a kilo of potatoes or a liter of milk will rise significantly. Looking at the current fertilizer prices, feed prices and energy prices, farming will become at least 10% to 20% more expensive. Farming is becoming a luxury profession. For those who can still afford it or pre-finance it, it will be a challenge to get things done again for next year. Especially after corona has caused an empty wallet. In fact, there is only one solution. If you can no longer save on your cost price, you have to ensure that the income goes up.

Product prices must be significantly higher
This means that the prices of products must also increase by at least 20%. That seems like a lot, but is actually still too little, because you have only compensated for the higher costs. Ordinary life is also becoming more expensive. The holiday, the car, eating out, clothes, groceries, etc. are all becoming more expensive. Some call this inflation.

But these costs also have to be compensated and so the farmer's income must increase in order to maintain the same standard of living. The food chain is about to burst, but who can afford to remain a farmer?

Keith Maas

Kees Maas is director of the DCA Group. He has more than 25 years of experience in commodities trading, both on the stock exchanges and in the physical market. Maas is a specialist in price risk management and a much sought-after sparring partner for food companies for their sales and purchasing strategy.

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