Fuel, demand for fertilizer driving up farmers' costs
Hit hard as costs doubling or even tripling
The cost of living has gone up for all Canadians. But for those who produce food on any of the tens of thousands of Canadian farms, they're feeling the pinch, too, with fertilizer and diesel prices skyrocketing in recent months.
Farmers were among the first to see the impacts of Russia's invasion of Ukraine. Because those two nations are among the world's largest wheat producers, the shock to the markets was felt in Canada, with high demand and high prices for Canadian grain.
Both are also among the largest exporters of fertilizers, and the invasion has led to high prices for fertilizers around the world. Buying fertilizer is one of the single largest input costs for farmers each year and not only did they have to worry about prices, there were fears they simply wouldn't be able to get enough needed to produce good yields.
The average Canadian grain farmer — wheat, canola, barley, oats — would have spent $60 to $65 per acre on fertilizer in 2021. This year, costs are more like $130 to $140 per acre, according to estimates from Fertilizer Canada. For the average farm, according to Statistics Canada, of 778 acres, that means an increase of about $56,000.
Tara Sawyer, who farms near Acme, Alta., about 85 kilometres northeast of Calgary, said prices doubled or tripled, depending on when folks were able to buy.
“That was certainly a huge hit this year,” said Sawyer, who's also the chair of Alberta Barley.
It's not just fertilizer, though. Fuel costs, both diesel for tractors and other machinery and natural gas for grain drying, are going to be issues for farmers in the months ahead. It's not just market prices, either — Sawyer pointed to the carbon tax as an additional burden for farmers buying tens of thousands of litres of fuel for seeding and harvest.
“We get hit 10 ways to Sunday,” she said.
Humphrey Banack, a board member of the Alberta Federation of Agriculture, who farms near Camrose, southeast of Edmonton, estimated that his fertilizer bill went from $450,000 to close to $1 million this year.
“We're seeing rising in just about every input across the board for us,” Banack said.
In 2021, his 8,000-acre farm used about 176,000 litres of fuel, Banack said. He purchased new fuel tanks and can now store some 90,000 litres of fuel on his farm, which allows him to shop the market, instead of buying fuel when it's needed at whatever price is on offer.
Still, in 2021, his fuel costs were $142,000. This year, he expects them to be around $258,000, with no change in the amount of fuel used.
Alberta government statistics show that in 2021, diesel fuel cost farmers $1.04 per litre. Now, it's more like $1.49 per litre. It's tricky to extrapolate figures across the country because of variations in fuel prices. But, on average, a Canadian farm uses around 25 litres of fuel to produce food on one acre. A $0.50 increase in fuel prices amounts to $12.50 more per acre; on a 778-acre farm, that's nearly $10,000 more in fuel.
When grain comes off the field, it needs to be dried so that it can be stored and transported. Some operations pay for grain companies to dry their grain, but others have on-site grain dryers, run off natural gas or electricity or propane. As gasoline and diesel prices have gone up, so has natural gas. Banack estimated in recent years they were paying $1.50 or $2 per gigajoule for natural gas to dry their grain. This year, it's probably going to be more like $4 or $5.
Banack said grain drying, in 2021, cost him around $15,000. This year, it's likely to be closer to $30,000.
“That's a huge cost difference. How can we allow Mother Nature maybe to do a little more of this?” he said.
Energy prices differ wildly across the country, and a drought, for example, could lead to lower drying costs.
Other costs, such as crop insurance, have gone up this year, because of higher crop prices, in the same way insurance for a $500,000 house costs more than a $200,000 house. Labour costs are likely to go up too, as workers require more money to pay for goods, because of a 6.8 per cent inflation rate that's pushing up costs.
“The numbers we have penciled in today are static, but it will change over time, and it has to, because as an employer we have to make sure that our employees are viable,” Banack said.
High commodity prices will offset some of the higher input costs. If wheat or barley was selling for a lower, more typical rate, he explained, his farm would be “deep in the red.” Farmers are watching prices closely, hoping they don't collapse when there's still grain to sell.
The situation also raises the question of whether these higher input costs will lead to higher prices in grocery stores. While food prices are expected to increase between five and seven per cent in Canada through 2022, the increases aren't necessarily because of higher farming costs, explained Alfons Weersink, an agriculture economist at the University of Guelph. While it depends on the goods, on average, farm costs only make up about 20 per cent of a grocery item's cost. Rather, what will drive up prices is the same thing that's driving up production costs for farmers: High energy prices.
“Energy is really the major, major cost item. So something that happens at the farm level doesn't necessarily translate into higher food prices directly because there's so much else going on,” said Weersink.