Big Ag. entices farmers to join the intensive farming band wagon. A really big tractor is $300,000 or more. How can a farmer afford such a monster machine? Add in a combine and a few big implements are your talking big money that depreciates quickly. Once you start down this road, to keep up, you need to re-invest every year in the lastest "must have" gadget. There is no end.
I have previously Blogged about the huge debt being carried by farmers, primarily by Farm Credit Canada ("FCC") but also all the major banks and Credit Unions too (see Frighening Farm Finances and FCC: The Farm Debt Trafficker and FCC: A Plot to Kill Supply Management? ).
The documentary Food Inc. tells the story of one chicken farmer who got onto Big Ag's debt treadmill and eventually lost her farm (see Blog posting Chicken Factory.
We now have the lowest interest rates in hundreds of years. Europe has now implemented negative interest rates, then came back and made them even more negative in the last month. What's the probability that interest rates will keep dropping more and more? All sane persons are getting themselves ready for rising interest rates. FCC specializes today in FLOC's (Farm Line Of Credit), so that farmers only have to pay the interest on their loans (ie. they can postpone repaying the capital "forever", until FCC suddenly changes their mind, and demands repayment of capital, starting next month). When farmers are up to their eyeballs in debt, barely able to pay just the interest, what will happen when they suddenly have a problem, or FCC suddenly wants repayment of the capital?
Ooops! There goes the farm, just like in the 1930's and again in the 1980's, thousands of bankrupt farms.
Debt is risky. Very risky.
That isn't enough. All that capital requires energy. If you haven't noticed, energy is pretty expensive today. As Peak Oil continues to affect the world, and Shale Gas & Oil is exposed as another Wall St. scam rather than the source of energy independence that it is currently sold as, energy will get more and more expensive and unaffordable. What happens to that $300,000 monster tractor when you have trouble affording to fill it up with diesel fuel?
Chemical fertilizers are made from natural gas for the most part. Shale gas and the 2007 recession helped drop natural gas prices to rock bottom. Again, what's the chance that natural gas is going to get more expensive in the near future, especially as Shale Gas wells rapidly deplete over the first 5 years of their life, unlike traditional gas wells that produce for many decades? As natural gas prices go up in the near future, so will the cost of chemical fertilizers.
Some fertilizers like phosphate and potash are mined. Mining is very energy intensive as well. Just like Peak Oil, there is a growing awareness of Peak Mining. Those mined "essential" minerals for intense agriculture are going to get more and more expensive, so the crops produced via that intense farming method will get less and less affordable.
Is energy really that big of an effect on the price of food? Look here: