“People don’t realize what fixes their injury,” said farmer Lynn “Bagsy” Allen of Texas. “They think it’s hard now, you give it until October. Food prices are going to double.”
The 8.8 percent increase in food prices that Americans have already seen does not take into account the massive cost increases that farmers are now seeing. This is because farmers pay their costs up front and only get them back at the point of sale, months later.
“Usually, what we see on the farm, the consumer doesn’t see for another 18 months,” said John Chester, a corn, wheat and soybean grower in Tennessee. But with the severity of these cost increases, consumers could feel the effects much sooner, particularly if weather becomes a factor.
Lorenda Offerman, a North Carolina farmer who raises pigs and grows corn, soybeans and sweet potatoes, said the sharp rise in fuel costs has worsened her farm this year. “Nothing that consumers pay is going to fill the gap for farmers right now,” she said. “The prices now haven’t made it to groceries yet,” but she expects to start by the end of the summer.
Much of the cost of food depends on the price of oil.
“They don’t have electric trucks moving that food and there are no electric tractors,” Allen said. “It takes diesel to run all of this.”
Together, Chester said, fuel and fertilizer make up 55 percent of its total costs. The price of diesel has more than doubled, from $2.50 a gallon at the end of 2020 to more than $5 a gallon today. Farmers say the cost of oil-derived fertilizers has tripled and in some cases quadrupled.
“When you look at machines that use diesel, it’s farm equipment, railroads, and truck drivers,” said Daniel Turner, CEO of Power the Future, an energy advocacy group. Diesel “transports all our goods, grows our food. From cargo ships coming in from abroad to trucks or trains carrying these goods across the country. All of these things now have added costs that will be sent to the consumer.”
“This rise in food and energy costs is very devastating for American families,” said Joseph LaVorgna, chief economist at European Natixis Bank. “If you have to pay a lot of money for your food, to heat or cool your house, or put gasoline in your car to get to work, there is less money available elsewhere.” Increases in gas and food prices will reduce the money Americans spend on other goods, which will reduce demand and have a detrimental effect on the broader economy.
Economic reports indicate that Americans are already unable to keep pace with inflation. Family savings have fallen to their lowest rate in 14 years, as people struggle to maintain their standard of living. Credit card debt is at record levels, and retailers say they are preparing for more consumers to constrain their spending on “essentials”.
While it is possible that Americans’ loss of purchasing power will help reduce inflation, some economists fear the return of the “stagflation” of the 1970s, rising prices combined with economic stagnation and increasing unemployment. That period of inflation was eventually tamed by the Federal Reserve raising interest rates to nearly 20 per cent.
Unlike the energy crisis of the Carter era, which was triggered by a ban from foreign oil producers at a time when American oil production was declining, today’s energy shortage is largely a result of the policies of the domestic American government, as the Biden administration is trying to force Americans to switch from fossil fuels to energy Wind, solar and electricity. This effort has involved closing pipelines, suspending oil and gas leases, and putting in place regulatory roadblocks—all of which have reduced new investment in US oil and gas production.
Last week, Biden stated that the sharp rise in oil prices was “an amazing transformation that is happening, God willing, when it ends, we will be stronger and the world will be stronger and less dependent on fossil fuels.”
Energy Secretary Jennifer Granholm said last week that rising oil prices were an “exclamation mark” for the need to switch to wind and solar power and to “build clean domestic energy.” Granholm previously stated that “if you drive an electric car, it won’t affect you.”
With natural gas prices now at their highest level in 14 years, Biden’s Department of Energy recently published “Some Tips on How to Prepare Your Home and Office for Safe Mobility in the Event of a Power Outage.”
Samantha Power, president of Biden’s Agency for International Development, said the solution to high fertilizer prices is “natural solutions like manure and compost, and that might speed up transitions that would have been in the farmers’ best interest anyway. Don’t let the crisis go to waste.”
“This is not the real world,” Offerman said. “We are at the highest intensity of hog production in the country and there is not enough pig manure or turkey manure or chicken manure to fertilize our crops. This fall we have tried to lock up some chicken and turkey droppings to spread on our crops and there is nothing to have. There are not enough animals To produce the amount of fertilizer we need.”
“Energy is a capital-intensive business and we are basically at about half the level of maximum energy we had two years ago,” Lavorgna said. “A lot of that has to do with the fact that oil companies are not deaf to what shareholders want, or more importantly what regulators and politicians want.”
“It’s incredibly curious [Biden’s] The speech, I didn’t hear anything along the lines of “we will do everything to increase production in America”. Turner said. “They are comfortable with the current situation because of their green philosophy, and we are just necessary victims.”
Besides the disruption in global supply chains, oil and food prices are a major reason why many economists believe the Fed will have particular difficulty taming inflation. There is a real price risk [of gas] It could hit $6 a gallon by August, Natasha Kaneva, head of global oil and commodities research at JPMorgan Chase, told the press. “US retail price could rise another 37% by August.”
The higher the higher prices, the more aggressive the Fed will need to take to contain inflation.
Economists from Deutsche Bank stated in research: “We believe the risks are skewed toward a much more significant recession, as inflation proves to be more steady than generally expected… Moves from the Fed that markets are currently envisioning will be too slow to rein in inflation.” Report “Why the Next Recession Will Be Worse Than Expected.”
“A mild recession would be a relatively small increase in the unemployment rate,” LaVorgna said. “However, if the Fed feels it needs to put more pressure on demand, we look to a much deeper recession, with the unemployment rate likely to double, if not more.”
A unique feature of the current economic crisis is the extent to which it is driven by government action, rather than market failure. This includes trillions of dollars in federal spending to support an economy reeling from a strict government shutdown that now appears to have had little success in containing the coronavirus. This spending doubled due to the Federal Reserve keeping interest rates near zero while expanding its balance sheet to $9 trillion, flooding America with cash. These problems were then exacerbated by Biden’s management of the economy’s reorganization and antipathy toward the US fossil fuel industry, along with the Western boycott of Russian oil and fertilizer exports following the Russian invasion of Ukraine.
Inflation is caused by too many dollars chasing for too few goods, and in this case, it was a “perfect storm” on both sides of the equation. As the Fed cools demand by raising rates, some economists say the Biden administration should reverse policies it has put in place that undermine productivity and hamper supply.
“If you want to tackle the problem of inflation, you do it through the painful way of doing the Federal Reserve and raising interest rates and borrowing costs,” said Jonathan Williams, chief economist at the US Legislative Exchange Council. But at the same time, it “does it on the supply side, reducing taxes and bringing back productivity across the United States.”
Williams said that given the federal government’s reluctance so far to take the necessary steps, some states have stepped up their own solutions. Since March, four states — Iowa, Mississippi, Georgia and Arizona — have gone from progressive income tax rates of up to 8 percent to flat tax rates in the 2-4 percent range. North Carolina has eliminated business income tax, and nine other states currently have no income tax at all.
On May 17, Senator John Barrasso (R-Wye) and other Republicans introduced the Law of the Sea, which would give states the authority to manage oil and gas production on federal lands within their borders. They simultaneously introduced the Leasing Law Now, which requires the Ministry of Interior to resume the sale of oil and gas leases.
Asked what Biden could do to help farmers, Allen said, “Lower fuel prices. It will save middle-class people. It will help them when it comes to buying food.”