Global Cartels, Food Prices and Poverty: What's a Bit of Dirt Worth to You?

Are you one of those people who worries about mass conspiracies when it comes to our food prices and ready access? Do you eye your tomatoes suspiciously when the vine-ripened fruit jumps in price? Do you catch yourself in the vegetable aisle muttering under your breath that some day you will figure out how to get to the bottom of all these price hikes?

Well, good news -- we think. Two researchers did the dirty work themselves and figured out why global vegetable and fruit prices -- actually, the prices of everything that is grown in soil -- have the suspicious habit of jumping when you least expect it. The research was funded by the German and Polish science foundations.

Hinnerk Gnutzmann of the University of Hannover, Germany, and Piotr Śpiewanowski, of the Polish Academy of Sciences tracked the price of fertilizer during a particularly unstable period in food prices, 2007 to 2008. What they found suggested the food price spikes during that time weren't connected to OPEC oil prices as initially suspected, but the one ingredient that makes it possible to grow food (apart from air and water, of course): fertilizer.

The authors point out in their abstract that the price of fertilizer is directly associated with the price of natural gas, which is used to make fertilizer. Therefore when natural gas prices drop, so should fertilizer prices. But that isn't what happened during the food crisis of 2007 and 2008.

"Fertilizer account[ed] for 44 percent of food commodity cost, far exceeding the importance of direct energy," the researchers wrote. In other words, during the food shortage crisis, fertilizer prices increased noticeably while fuel prices remained relatively weak, leading the researchers to conclude, "Shocks to fertilizer markets may thus have a far wider economic and social impact than so far acknowledged."

The researchers tracked the disparity between oil and gas prices and compared it against that of food and fertilizer. They were then able to determine that it was the price of fertilizers that caused long-term hikes in food prices in both 2008 and 1974, a previous period when the tripling of fertilizer prices coincided with sharp increases in food shortages.

The end result, the researchers speculate, was devastating food shortages and unmitigated price hikes, which drove some 44 million people into poverty and caused endemic food crises in many developing nations in 2008.

Gnutzmann and Spiewanowki pointed out that while many markets are determined by competition as well as supply and demand, the price of fertilizer on the global markets is ruled by a kind of gentleman's agreement, or cooperation between providers. So there generally isn't the kind of tension between competitors that there is, say, in the oil market. Nor is there any kind of consistent oversight when it comes to ensuring against unforeseen price hikes.

"Fertilizer is known to have 'changed the world," say the researchers, "by making rapid population growth possible, but its economic role for food prices has scarcely been acknowledged." Having a better understanding of the fertilizer market and possibly establishing some "regulatory intervention against cartelization" may be necessary to avert another food crisis in years to come.

Images: 1) Flickr/Soil Science; 2) Flickr/SuSanA Secretariat; 3) Flickr/Manhhai