Biden administration helping drive up food costs

Biden administration helping drive up food costs

The Biden administration is driving up food costs, not just by policies that increase the general inflation rate, but also through policies that increase the cost of fertilizer and agricultural inputs. Baylen Linneken explains:

Now, with food prices on the rise, there’s a danger that hunger will follow.  “I want to say this loud and clear right now, that we risk a very low crop in the next harvest,” Svein Tore Holsether, the CEO and president of fertilizer giant Yara International, warned in November. “I’m afraid we’re going to have a food crisis.” Holsether worried about the rising cost of energy and especially of natural gas, which is needed to make ammonia from which urea, a key fertilizer component, is synthesized. “Prices for the humble chemical — yes, the stuff in urine — are soaring to levels not seen in over a decade,” The New York Times agreed a month later. “People and industries of all kinds are feeling the shocks.”

A combination of always-unpredictable nature, bad policy, and busted supply chains (also largely from policy decisions) dramatically hiked prices for natural gas and its products. Prices for alternatives to urea are also rising because of demand and parallel political decisions….high trade barriers remain in place for fertilizer and its components. The result is that major inputs for producing the food that we eat are becoming increasingly dear when they can be found at all.

“Among farmers and ranchers, very few topics are being discussed as much as the skyrocketing cost of fertilizer and increasing concerns regarding availability,” the American Farm Bureau reports. If that’s frightening for American farmers and the people who consume their products, it’s potentially disastrous for the rest of the world.

“High fertilizer prices could exert inflationary pressures on food prices, compounding food security concerns at a time when the COVID-19 pandemic and climate change are making access to food more difficult,” the World Bank notes….global food prices were already up by an average of 27.3 percent from a year earlier at the end of November…”Higher farm input costs, expensive shipping and good demand provide for a grim combination,” predicts Holland’s agriculture-oriented Rabobank…”We should see these inflationary pressures upstream move along the supply chain to reach consumers in 2022, with uncertain social consequences.”…

“Major fertilizer producers Yara International ASA and CF Industries Holdings Inc. said soaring energy costs are forcing them to halt some output of nutrients crucial for growing crops,” BloombergQuint noted of the effects of Europe’s energy costs…the U.S. suffers self-inflicted wounds from trade barriers on foreign products….”Only 15% of phosphorous imports now come into the U.S. without tariffs.”

These problems have been aggravated by Mother Nature, with low winds hobbling Europe’s heavy reliance on wind energy, and drought curtailing hydropower production in China and elsewhere, resulting in those regions competing for scarce fossil fuels with other parts of the world. “In the fall, soaring electricity demand led the southwestern province of Yunnan, a key phosphate producer, to order drastic production cuts by energy-hungry industries, including fertilizer,” The New York Times reported.

The Biden administration has made things worse by discouraging the production of fossil fuels such as oil and natural gas. The  “consequence is to tighten the supply of materials required for making fertilizer needed to grow food,” notes Linneken.

Many economists have said that Biden’s multitrillion dollar Build Back Better plan would increase the inflation rate if it manages to pass the Senate. “In our assessment, the very front-loaded and relatively progressive nature of Build Back Better means that it is more likely to be inflationary,” the Committee for a Responsible Federal Budget cautioned earlier this month; “it carries undesirable risks of contributing to a possible inflationary spiral in a time of already high inflation.”

Tracy Miller, a George Mason University researcher, agreed about the dangers of money created out of thin air to fund Biden’s Build Back Better plan. “We’re already experiencing the highest rates of inflation in 30 years, and it can be blamed on the expansion of the money supply since the beginning of the pandemic,” Miller said. He warned that the Build Back Better bill’s reliance on debt funded with money created by the Federal Reserve threatens more rapid inflation.

As Nick Gillespie notes,

We’ve seen absolutely massive increases in government spending over the past two years, which have been paid for by printing money and historic boosts in the money supply. When you print money it means that there are more dollars chasing basically the same amounts of goods and services, which causes prices to rise. In just the past three fiscal years, federal spending has swollen to nearly $7 trillion a year, up from about $4.4 trillion in fiscal year 2019. Spending was $6.6 trillion in 2020, and $6.8 trillion in 2021.

As the government borrows more to pay for its spending and the Fed creates money to buy that debt, the central bank’s balance sheet has more than doubled between March 2020 to November 2021. The result is that the supply of dollars has increased by nearly 40 percent over the past 2 years, which is an off-the-charts record. Short of going into recession, the traditional way to squeeze out inflation has been to raise interest rates and restrict the amount of money in circulation by raising taxes or cutting spending. But there’s simply no reason to believe that Biden or anyone else in Washington is committed to the sort of fiscal and monetary discipline that would tame inflation. In fact, the president’s infrastructure bill jacks up the very entitlement spending that is the major driver of long-term spending….Another thing that’s changed over the past 40 years is that the publicly held debt has more than quintupled as a share of gross domestic product. In 2022, the Congressional Budget Office predicts that interest payments on the debt will be 5.7 percent of total spending, more than doubling to 11.6 percent by 2031. And that’s assuming interest rates stay low. Squeezing inflation out of the economy by hiking interest rates is never a popular political stance. Since it will absolutely devastate the government’s balance sheet, it will be even harder now.

LU Staff

LU Staff

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