There was no shortage of things to talk about at Balmoral Show this week. The sun came out for the start of the Show and that always brightens spirits – but new season potatoes, hit by an early frost, have slipped back in terms of harvest by a few weeks.
Grass and grain crops look healthy, but lack soil temperatures for growth, while there was the inevitable talk of the impact on prices of the weak euro against sterling.
While this has helped keep some input prices down one of the mysteries that frustrates farmers is why fertiliser prices remain so stubbornly high. For years we have been told they are linked to energy costs, and to the cost of natural gas in particular. But despite a massive drop in all energy prices over the past year or so the cost of fertiliser has not moved to reflect that change – indeed if anything it has gone the opposite way.
There does not seem to be a ready explanation for this, and farmers are rightly suspicious that things are being done to prevent the market reflecting the plunge in production costs. This is underlined by the welcome drop in the price of diesel, which makes the price of fertiliser all the more frustrating. Whether or not it comes off the Irish Farmers Association, backed by the Ulster Farmers’ Union in its endeavours, deserves credit for pressing the European Commission to investigate the fertiliser market.
This might seem a simple demand, but any decision to act will have to be based on hard facts. An investigation is not about simply saying fertiliser prices are unreasonably high. What the Commission would have to investigate is whether steps are being taken by the industry to prevent the market operating properly. The case for an investigation was first raised by the farm Commissioner, Phil Hogan, who has said he cannot understand why fertiliser prices are not reflecting what has happened with energy costs.
This was part of a wider message about farmers being exploited as the weakest players in the food chain, although any investigation of fertiliser prices is not within his powers. If this is to happen the EU’s competition Commissioner, Margrethe Vestager, would have to take his concerns on board. She would have to be convinced that attempts are being made to manipulate the market. Much as farmers may believe that to be the case the opposite view will be put forward with equal conviction by the fertiliser industry.
At this stage, a decision on whether or not to have an investigation is still some way off, with the Commission still at the early stages of collecting data. Even if an investigation is triggered success is far from assured. This would not mean there was no cause for suspicion – but simply that it could not be proved that something was preventing a free market operating. According to the Irish Farmers Association back in 1995 it took a tonne of grain to buy a tonne of calcium ammonia nitrate (CAN). Today, despite the recent plunge in energy costs, it takes 2.6 tonnes of grain to buy that tonne of fertiliser. That statistic is skewed by the fact that grain prices have fallen, but the other side of that argument is that fertiliser alone has failed to follow other commodity prices downwards.
Gas accounts for around 75 per cent of the cost of producing ammonia. Gas prices have fallen by around a third over the past year, yet the price of fertiliser is still at best flat and possibly even rising slightly. Compelling as those figures may be they are not sufficient to trigger an EU investigation. What Brussels needs is evidence that the market is not operating properly, because of deliberate attempts to prevent that happening. That is very different to farmers resenting the profitability of businesses exploiting supply and demand for their product.
Like the agrochemical and veterinary industries the number of fertiliser businesses has shrunk dramatically because of mergers over a number of years. Controversial as these were they were all approved by competition regulators. This tight global sector creates the conditions for market manipulation, but there is a big difference between circumstantial and real evidence, and if the Commission is to act it is real evidence that will be needed. That would have to show a deliberate attempt to interfere with the market, and proving that is a major challenge.