Trade Articles

There is somehow linkage existed between the agriculture and your daily grocery bill. When crude oil prices are skyrocketed in the international arena, it becomes difficult to keep hold the food price. Add to more, scarcity of food also contributes in rising its price. In today's arena, to produce the sufficient agricultural production for feeding the entire world, it is necessary that the agriculture land should be dosed with the right amount of fertilizers like crude oil and mine based. Apart of the right injection of fertilizers, it is crucial to make use of tractors and other means. All these and many others require use of fossil fuel energy in different forms. Various agricultural energy related inputs like electricity, diesel, fertilizers etc are straightforwardly affected with any price fluctuation of crude oil.

The price of electricity which is not directly got influenced by the upward and downward movement of crude oil prices also shot up with any movement in crude oil price over the long term. In the nitrogen based fertilizers, the natural gas plays an active role. For several months a boom in nitrogen fertilizer price has been recorded. Even more than 50% escalation has been seen in several cases. For manufacturing 1 ton of anhydrous ammonia fertilizer, 33,500 cubic feet natural gas is required. Therefore, when cost of natural gas is $2.50 per thousand cubic feet then the cost of natural gas for producing 1 ton of anhydrous ammonia fertilizer shoots up to $83.75. Similarly if the natural gas cost shoots up to $7.00 per thousand cubic feet, then natural gas cost for producing desired ton of anhydrous ammonia would reach to $234.50. Therefore, any spurt in the natural gas prices influence the ultimate cost of nitrogen based fertilizers.

From last few months, great rise has been recorded in the prices of potassium, phosphate and urea fertilizer, which have increased by 123 per cent, 145 per cent and 66 per cent respectively. Though there are other factors also which are marked as the contributor in the price rise of fertilizers. The agriculture distribution network is actually based on the energy intensive. Thanks to the helical transportation cost, fertilizers cost have also touched to the high mark. Government is required to check the rising prices by purchasing inputs from centralized locations and then further distribute it as per the requirements. The price level of diesel and fertilizers is also on a rising mood in the US, which is also a worldwide largest exporter of grains and proteins. Brazil, leading vegetable oil exporter, is also playing a critical role in increasing the price scale. In Brazil itself cost of diesel has reached to peak and it has become 30 per cent of the soybean price in its Mato Grosso province.

In spite of the high crop prices, there are chances that ethanol producers will get due course of their profit. They will have plenty of resources to outbid others by continuously purchasing corn. But on other hand, poultry and livestock producers will show their high reaction towards by culling their resources. That would more likely to decrease the availably of meat, eggs along with other food items, which simply means an increase in such food prices.

A study conducted by the University of Illinois economists Gary Schnitkey and co-author Anuj Gupta attributes rising corns and soybean production cost to the increasing energy costs. The situation is likely to be more worsen in next year i.e, 2009. Schnitkey says that the current crude oil price is $133 per barrel in comparison of average price $68 per barrel of the previous year. This $65 per barrel difference points that there would be an increase of $98 per acre in cost of corn and similar escalation of $59 would be noticed in soybean cost.

In the era of modernization, where trading has crossed the barriers of territories, economy of one country is greatly influenced by the price structure prevailing in other countries. When benchmark commodities like rice, wheat, soybean, corn etc. become costly for production purposes then major exporting nations stretch up the international price level. This action by other nations prevalently affects the price table in India also. The cooking oil price has shown a rising thrust in marketplace as it is floating at Rs 520/10 kg and refined palmolive oil cost is prevalent somewhere at Rs 415 per 10 kg in the wholesale market.

The price of crude oil affects the food cost by making biofuels more dearly. As per an assessment quarter portion of US maize crop (nearly 11 per cent of global crop) has gone into the biofuel production. Ironically, US is a major maize exporter, with its nearly 60 per cent export. USA is counted in the group of more than 20 nations which are using biofuels for their agricultural purposes, has decided to double up their biofuel production by 2015. It simply outlines that more maize, wheat, palm oil and sugarcane production will go towards the biofuel. Many rich nations are pushing their production for reducing their dependability on the imported crude oil, which in turns has pushed around 30 million people worldwide into dampen. As per the Oxfam, aid agency said that the developed countries has spent around $15 billion previous year for biofuels and thus blocked the cheap Brazilian ethanol, which is far less damageable for the international food situation. There would be an unforeseen outcome of crude oil price which will be visible in relation to the propensity driven demand capacity of food by exporting countries. Crude oil exporting nations will buy the food from net energy importer countries. Their purchasing power will not be influenced by any unprecedented price increase.