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Chapter 1: What is the main topic discussed in this episode?
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COVID, Ukraine, now Iran. For years, the food supply chain has faced severe pressure and the cost has been passed on at the supermarket checkout. So how bad is it this time? And when will another round of price hikes really kick in? Today, we speak to an expert in the costs around our food supply and to South Australian grain grower, Louise Flohr, about the increasing pressure on farmers.
I'm Sam Hawley on Gadigal land in Sydney. This is ABC News Daily. Louise, as a farmer, you're very used to uncertainty, but my gosh, this must feel like next level at the moment.
It is, Sam, and it's a lot of decision fatigue at the moment in the grain growing community. We're trying to manage the things that we can and, yeah, just trying to keep an eye on all of the different things that are sort of getting thrown our way at the moment. We're managing high fur prices, high fuel, and we're probably looking at higher interest rates coming at us soon.
So it's a lot to be dealing with at the moment.
Yeah, I bet. And for farmers like yourself, you're having to make decisions without knowing, I guess, what is around the corner, not knowing how long this war is going to last for. So just explain that for me because I know there are farmers who are sort of deciding not to plant crops this year, maybe halving their crops. So what position are you in right at the moment?
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Chapter 2: What impact does the Iran war have on grocery prices?
I mean, a tank of diesel into a tractor might be 200 litres. So, two by, what are we paying now, $3 a litre? Yes, it's enormously expensive. But also, hay production is a big part of our program. So, we're also driving trucks on the road. We can't pass those costs on. So, we've had contracts in place and we can't pass those costs on. Unlike say a Qantas.
Yeah, we just simply can't pass those costs on. So it's, you know, absorb, baby, absorb. We have to absorb these costs.
That comes off your bottom line.
100%. Basically. On the back of our patch has had two quite severe droughts. It's tiring. There's a fair bit of grower burnout in our patch. It's a really tricky time. Farming is always tricky, but this adds a lot of complexity.
And as you said, fertiliser too, right? That's a real problem as well. Are you experiencing any shortfall or is it just that it's costing you more at this point?
At this point, we are experiencing price increases only. We are sorting out our fertilizer in January. We are just experiencing those higher prices. Yeah, look, urea, which is what we use to put on our crops after they're emerged and growing, there may be some shortages with that. I'm not too sure, but we've got urea locked in, so we're feeling okay.
We will be putting a bit less out just simply due to the cost. And I suspect that will be happening around the place a fair bit too.
Yeah. All right. And in your view, how does this compare to, I guess, the last war that you had to deal with, the Ukraine war? Is this worse to that?
Yeah, so far it's worse. Absolutely. Ukraine is a major competitor for growing wheat. They're really good at growing wheat in that Black Sea region. So when their production is disrupted, price tends to go up. And I'm not saying people benefited out of the Ukraine war, but we saw price of fuel go up, but we also saw the price of grain go up. So it's a really, it is a pretty awful situation at the
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Chapter 3: How are farmers coping with rising costs due to the Iran war?
We're controlling what we can control and just take it day at a time.
I'm Stefan Vogel. I'm the general manager of Rabobank's research team in Australia and New Zealand. And it's great to talk today about fuel, fertilizer and everything that the Strait of Hormuz might mean for our farmers and consumers.
Absolutely. All right. Because, of course, the uncertainty over the Strait of Hormuz, Stefan, just continues. And that will have, won't it, an effect on the food supply chain. Just explain that for me.
Absolutely, and it already does have an impact for sure. Right now, a lot of what is happening is more based on fear than real shortage of supply. But if you look at the Strait of Hormuz, it is a really important bottleneck for many, many goods that we need in Australia. 80% of our beef, sheep, grain move to the world market, but we're actually extremely reliant on imports.
So diesel imports, about 80% of the diesel we're using is coming from abroad. But clearly, we are also very heavily importing fertilizers from the world market. More than 90% of the nitrogen fertilizer that we use in the country is coming from abroad. So the whole supply chain is feeling the impact right now.
And the concern clearly for farmers is I need to put a crop in the ground and we're in the planting period right now. Do I have the fertilizer? Do I have the fuel to actually make that crop happen to harvest? Because prices have gone up massively for both fertilizer and fuel on farm.
Okay, why don't we consider how much more we will be paying for things when we do go to the supermarket. Now, Stefan, fresh vegetables and fruit, they're really vulnerable, aren't they?
Yes, the fresh produce sector is definitely a more vulnerable one. Clearly, if you think about the timing, you need to get them off the farm at the time when they're ripe. Fresh produce is maybe more vulnerable in terms of prices and seeing those price changes maybe a bit quicker in the supermarkets.
And it is, first of all, the transport and the fuel costs that are adding in it from a supply chain perspective and from a food perspective, not so much the fertilizer costs.
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Chapter 4: What challenges are farmers facing in the current market?
While on the supermarket side, the transport side will be part of it, the processing side of it will be part of it. We also know that when inflation is high and we probably also see that wages will continue to rise. So with that, also the labour cost will be a part of it.
OK, but we do obviously expect that things will get a lot more expensive, even if the farmers are having to absorb these extra costs.
Absolutely. And if you look at packaging, clearly a lot of products that we're buying in our supermarkets are packaged. And once again, a lot of the raw material is crude oil based or is chemical based. So that is produced in those same refineries that also produce diesel and so on. though a lot of the raw material once again comes out of the Strait of Hormuz.
So if we're looking at the Southeast Asian and Chinese market for PE plastic, so the kind of thin foil that you see a lot wrapped around food or the more sturdy plastic packaging, those prices have risen quite a bit in those origins. And we expect that those costs will also be passed on and will be faced at some point in time by the consumers.
We've had a few shocks, of course, Stefan, in recent history. We had COVID, then we had the Ukraine war and now, of course, this war. So how does this, do you think, stack up in terms of this supply chain and the pressures on it? Is this worse?
I would think it is worse than the shocks we had in the past. because of the reason of the time it might drag on. So if you look at the war in Ukraine, we have seen that grain prices went up very, very quickly, but also fell very, very quickly again because the world market feared that Russia and Ukraine might not be able to export at the time because they are in a war.
very quickly the market learned both sides are able to export, both sides are still producing good crops. So with that actually it normalized relatively quickly the prices and the consumer faced some higher costs on that food side, but not for a prolonged period of time. If you're looking at COVID, it was the disruptions of the supply chain,
containers coming in, ships going out, but also obviously can we produce and transport everything. Once again, COVID took a long time, but the food and egg supply chain were considered essential and very quickly tried to stay at relatively normal pace. With a war here in the Strait of Hormuz, the question really is who can offset the shortfall of supply that comes from that region.
And that is very difficult because it is very big numbers. Nobody knows when the Strait of Hormuz will really be open. By as long as it closed, how long does it take for others to step up and supply more? So with that, Australia is doing one thing right now fairly well. We're trying to get imported goods that we really need from the world market.
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