PANDEMIC, flood and war. The question is, what is next? Famine?

This is unlikely in Australia given we are net food exporters; in fact we produce enough food to feed our domestic population three times over. With 65 per cent of the food we produce being exported, we feed over 60 million people overseas plus the 25 million people in Australia (figures allowing for some wastage).

However, our agricultural supply chains all hinge on some pretty fundamental products we import, the most obvious being diesel.

Diesel 

If anything was to happen to disrupt the flow of diesel into the country, food production would grind to a halt. Solid figures are hard to come by, but the amount of diesel Australia has in reserve is said to be around three weeks’ worth.

Considering we are a nation that relies heavily on road transport, a shortage of diesel could spell disaster for nearly every sector.

Whilst we are yet to get indications that there is an imminent shortage of diesel in the country, the price has sharply risen to record levels. With Russia invading Ukraine, many countries including Australia, have made the decision to boycott Russian products. One of Russia’s major exports is fossil fuels including crude oil, used in diesel production.

Whilst it is no doubt our country’s obligation to send the message that we do not support the Russian invasion in the slightest, there is no doubt Australians will feel the pain of fuel prices all but doubling in a short space of time.

Price increases for the average family won’t be limited to the cost of fuelling up the family car. As the cost of producing, harvesting and distributing food the world over increases, these costs will need to be passed down the line to consumers.

Fertiliser and AdBlue

Fertiliser is another product there is a clear shortage of, and this has pushed prices up considerably. Originally a urea shortage was bought about by a combination of factors; the major ones being tight gas supplies and China banning urea export.

However, just as the urea price had started to soften as international demand reduced slightly, Russia invaded. Given both Russia and Ukraine are major exporters of not only urea, but potassium based fertilisers, this has once again pushed fertiliser prices up.

The urea situation has in turn led to a shortage of AdBlue, with urea being the main ingredient. AdBlue is required by many modern diesel machines to operate. The interesting thing is that physically AdBlue isn’t required by the engine to run, but is used as a product to reduce the pollution excreted by the motor. Many modern trucks, tractors and other machines require it to operate, only because this requirement is written into the software that operates the vehicle. This requirement can be removed from the software, but this removal is illegal, and an operator can face huge fines if caught.

AdBlue sales are being limited across the country, with not all resellers having available stock, and those that do have it limiting purchase amounts. Meanwhile the price of AdBlue has at least doubled per litre in most cases

Wheat and other exports  

The international wheat market has been thrown into chaos, with the world scrambling to fill the void left because there is no wheat from Ukraine and limited Russian wheat on the international market. Whilst Ukraine hasn’t banned the export of wheat, their ports are currently closed. Some of their ports will not be opening any time soon, as they are damaged beyond use. Russia is still selling wheat, but not many countries are buying it.

Whilst the international wheat market futures have jumped up to 40 per cent in the past few weeks, Australia is only experiencing minimal upside with a six to 10 per cent increase, depending upon which port. This lag is likely due to Australia’s limited ability to export, and also the soaring fuel prices making transporting it from Australia expensive.

Inflation and interest rates

Interest rates have been on hold at a record low 0.1 per cent since November 2020. The RBA has warned this is set to increase sooner rather than later, and the war could actually speed this process up. This seems counter intuitive; shouldn’t major international unrest mean the economy needs supporting? In short, no.

Price spikes in food and other products will likely see inflation increase drastically. The RBA will in turn lift rates to dampen inflation. The effect rises to the cash rate will have on agriculture remains to be seen, but surely increases will see the heat come out of the farm land property market.