The holiday season is upon us, and Americans everywhere are complaining about the high prices they are encountering at the supermarket and the retail outlets. Many have the notion that they are somehow being treated unfairly by greedy corporate America, and I suspect a majority of people have no idea of how public policy is hurting their pocket books. The public may have been upset with $4-a-gallon gasoline, but most go along blissfully ignorant of how much they pay for the Gordian knot of regulations and restrictions that their faithful servants have imposed on the American economy.
At first glance, one wouldn’t see a connection between a rash of stolen copper pipes from vacant buildings and sky-high prices for food items — say the $70 that a local St. Louis grocer was charging for a single holiday goose — but those connections are there, and they ultimately stem from environmentalist-driven land use policy imposed by the government. It’s difficult to imagine that restrictions in ANWR may be responsible for copper theft, but responsible it is! Ditto food; why would we pay more for our holiday feast because the price of natural gas has risen?
Food prices have been inflating for some time because of the ethanol requirement that George W. Bush mandated and that fans of alternative fuels — and corn growers in the Midwest — love so dearly, but there is another aspect to all of this that is going unnoticed; we have a shortage of ammonia, a critical ingredient in many types of fertilizer.
Ammonia cometh from natural gas.
According to this piece from the USDA Economic Research Service:
Outlook Report No. (WRS-0702) 19 pp, August 2007
The volatile and upward trend in U.S. natural gas prices from 2000-06 has led to a 17-percent decline in the nation’s annual aggregate supply of ammonia. During the period, U.S. ammonia production declined 44 percent, while U.S. ammonia imports increased 115 percent. Also, the share of U.S.-produced ammonia in the U.S. aggregate supply of ammonia dropped from 80 to 55 percent, while the share from imports increased from 15 percent to 42 percent. Meanwhile, ammonia prices paid by farmers increased from $227 per ton in 2000 to $521 per ton in 2006, an increase of 130 percent. Natural gas is the main input used to produce ammonia. Additional increases in U.S. natural gas prices could lead to a further decline in domestic ammonia production and an even greater rise in ammonia imports.
According to this piece at Spero News:
Historically, a ton of ammonia equaled the cost of about eighty bushels of wheat, that is, $2.25 for a wheat bushel against $200 for a ton of ammonia. This ratio held for forty years. Two years ago that long-standing relationship broke down. Today wheat is $4.50 and ammonia is $1,000; over two hundred bushels of wheat are required to purchase a ton of ammonia.
So this dearth of ammonia is putting serious inflationary pressure on grain production, which means that meat production — and ethanol, for that matter — becomes more expensive.