What is the cause?

The main cost in producing nitrogen fertilizers is natural gas (methane). This is a gaseous fossil fuel, found in oil beds. Along with oil, the price of natural gas is rising at an unprecedented rate. Fertilizers are estimated to account for 50% of the fossil fuel usage in agriculture today. Farmers have seen the price of fertilizer more than double in less than a year which is hitting their margins hard.

What are the causes of high oil prices?

There are many factors at play. The increasing industrialization in Asia, especially China and India has led to rising demand for oil. The demand for bio fuels has meant increased global production of corn requiring greater energy inputs.

The weak US dollar caused by, amongst other things a running deficit in the balance of payments has meant paying more for imported oil. There is speculation in many quarters that easy to get, cheap oil is running out and we are reaching the peak of oil production. Commodity traders speculating in oil are also said to have pushed prices up.

How can you plan for the future?

AVAIL & NutriSphere-N

Fertilizers have been a cheap input that more than paid for themselves with significantly higher yields. That equation has changed. In the short term you should aim to use fertilizer more effectively. Talk with your fertilizer supplier and have soil tests done to find out existing levels of nitrogen. You may find that there are sufficient levels of nitrogen remaining from previous applications especially in relatively dry winters. Only apply what you need. Also check the pH levels, as overly acidic soils reduce the uptake of nitrogen. Apply lime if necessary. Ensuring correct levels of potassium and phosphorous will also improve the utilization of nitrogen fertilizers.

As fertilizer costs rise, it is a good time to do some financial housekeeping on your farm business to see where other cost savings can be made. For instance, servicing and maintenance of farm machinery can reduce running costs. If you are a small farm and you are losing money on one enterprise, then it makes sense to cut back on that enterprise until or unless you can either get a higher premium for your product or you can reduce other costs. In the meantime, increase the enterprises (some may be off farm) that are generating profit. Now is a good time to research alternative enterprises, such as goat production, that are not so fertilizer dependent. Increased shipping costs are seeing renewed interest in local food. Can you market any of your products direct from the farm or via Farmers' Markets?

In any situation there are winners and losers. As reported in USA Today online back in March by James Hannah of Associated Press, the high cost of fertilizer has led to a boom in demand for manure. There are several firms that broker manure, selling it to grain farmers. This is a market opportunity for hog, chicken and cattle farms.

In the longer term it is clear that farms need to be less dependent on fossil fuels. For some, that could be achieved by turning to organic farming which is based on a more balanced system of inputs and outputs. This is most suitable for mixed, extensive farms, less so for very large, intensive, specialized units. In some states there has been financial help towards certification costs which may still be available.

Others put their hopes in technological advances in equipment, plant and livestock genetics or the development of alternative energy sources. Research by John Innes Centre (JIC), Norwich and Washington State University, USA published in Journal Nature June 2006 took us a small step closer to less oil dependent agriculture. Legumes such as clover fix nitrogen in the soil. Scientists replicated nodulization (required to fix nitrogen) in legumes without the presence of the bacteria that are normally required. The longer term aim would be to transfer the process of fixing nitrogen to non leguminous plants such as rice and wheat. This could potentially abolish the need for application of the nitrogen based fertilizer we use today on these crops.

Will the prices ever drop?

Again there is no clear answer. As motor vehicles are the other big user of oil, maybe alternative energy sources can be used for shipping and transportation, so that more oil would be available for agriculture. However bio-fuel production which could power vehicles, is also dependent on fossil fuels. There is no sign of demand for energy slowing in Asia. Some say high oil and food prices are likely to be with us for a decade at least. If countries like Saudi Arabia can produce more oil, the price of oil may drop.

Agriculture has traditionally adapted to changing markets and embraced new technology. The modern industrialization of agriculture has developed on the back of cheap and plentiful supplies of oil. The current high price of fuel and fertilizer may be an opportunity, especially for smaller to medium size farmers to develop lower input forms of agriculture including mixed farming. Alternatively as in the past, scientists and engineers may find solutions to secure our food supplies for the future and help farmers continue to make a living.