#19. Energy-dependent fertilizer
What else can the Russian invasion do for us? A recent note from Doomberg (the tone is in the name), suggests that the invasion and related sanctions will soon cause a food shortage. Why? The cost of synthetic fertilizer is going ☝️ thanks to tightening energy markets. Synthetic fertilizer = ammonia + phosphate. And we use natural gas to produce ammonia and energy to mine for phosphate.
Synthetic fertilizer has helped feed a significant portion of the world’s population. So an increase in its price is a significant factor in global food production. Unlike other inflationary inputs whose costs get passed through to the consumer, agricultural inputs can be different. US farms operate heavily off of debt that’s incurred nearly a year before yields come through. That can mean farmers have a finite amount of purchasing power to convert into sellable crops. So, higher input prices don’t mean higher output prices, they mean less output.
What’s to be done? Regenerative agriculture provides solace for this. What makes agriculture “regenerative” is its use of things like cover crops to manage soil fertility, multi-paddock grazing to improve natural growth, and no-till cropping to improve water filtration. The principle behind regenerative agriculture is that it feeds the soil’s biological cycle to promote growth of organic (as in “living”, not Whole Foods) matter. Regenerative agriculture is not just a one-off impact either. It also improves the health of topsoil with each season, reducing the need for inputs more over time. Regenerative agriculture has been evidenced in peer-reviewed, anecdotal, and state-level projects to improve yields and reduce the need for inputs including fertilizer and water. That means regenerative farms are both more resilient and more profitable than industrial farms.
That sounds great, but it’s important to note, as an agro-economist highlights in his email below, this isn’t a light switch to just turn on.
Neaverson’s email is in response to an MP claiming Britain has enough organic fertilizer to entirely supplant its use of synthetic fertilizer. As Neaverson points out in his very British manner, “please could you advise which of your constituency villages you would prefer me to build an indoor, 30-acre, pig mega farm directly upwind of?”
Regenerative agriculture is pretty easy to implement, but difficult to finance. Transitioning a farm to regenerative agriculture is akin renovating a hotel. It will negatively impact output during the transition period before the farm and soil reaches its stride and blooms. But as my favorite Chinese import goes:
The best time to plant a tree was 20 years ago. The second best time is now.
