Ukraine war adding massive costs for farmers – and consumers are about to feel it too

As Russia‘s invasion of Ukraine drives consumer prices higher globally, Canadian farmers are feeling the sticker shock, too, as they incur massive costs to continue running their operations and ensure grocery store shelves remain stocked.

“It could easily be into the thousands of dollars a day to increase costs,” said Todd Lewis, second vice-president of the Canadian Federation of Agriculture.

Lewis, a grain and oilseed producer in Gray, Sask., said rising costs as a result of Russia’s invasion of Ukraine, which has limited the exports of wheat, oats and other necessary food supplies, will lead to higher costs for farmers. Both Russia and Ukraine are key grain suppliers to large parts of the world.

But the rising prices don’t stop there, as fertilizer, which is necessary for almost all farmers, became more expensive to purchase since the start of the war on Feb. 24. Fertilizer prices had already skyrocketed in the past year, according to industry experts. Russia is the second-largest producer of ammonia, urea and potash and the fifth-largest producer of processed phosphates.

Additionally, fuel prices are skyrocketing and with most farmers relying on heavy equipment machinery to run their farms, that will have a heavy cost, according to Lewis. He said that farmers have a ‘three Fs’ rule, which stands for food, fertilizer and fuel. He said while food is the most important of the three, they cannot get there without the fertilizer and fuel.

“When it comes to fertilizer we may even be looking at tens of thousands a day in increased cost compared to last year. So we’re going to see a significant cost increase,” said Lewis.

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While some of the increasing commodity prices are helping to make the price pinch initially a little easier to digest, Lewis noted resources getting more expensive “adds risk to farming operations.” He said farmers will be required to provide more capital upfront at a time when growing crops comes with a lot of uncertainty.

During the 2021 farming season, there were significant droughts, especially in the prairies, followed by multiple extreme weather events, like wildfires in British Columbia and other parts of Canada. The unexpected weather coupled with a war affecting prices will put pressure on farmers, according to Katie Ward, president of the National Farmers’ Union.

“There’s a whole lot of interrelated effects that are going to cost farmers out of our bank accounts and out of our available time when we’re already in a time crunch to get crops in the ground in a very small weather window anyways,” Ward said.

Challenges within the global supply chain, ability to access labour, a disrupted shipping industry, climate change throughout a pandemic and now a war could make some farmers reconsider their desire to be in the industry, Ward said.

“I have grave and deep concerns about what it’s going to mean for people in agriculture, should this continue for much longer,” she said.

Ward’s concerns for farmers’ well-being are echoed by Janet Music, research program co-ordinator at the Agri-Food Analytics Lab at Dalhousie University.

“Canadian farmers are not in a vacuum, and so they’re suffering from the same burnout that the rest of us are right, COVID fatigue and the constant uncertainty of our social environment,” she said.

If the war in Ukraine persists even as pandemic restrictions are lifted, it will still affect food prices, according to Music.

People should expect food prices to be inflated five to seven per cent for the next six months — at least — she said.

With a need for heavy machinery and trucks to get products and goods to markets, fuel is an integral part of the food supply market. As gas prices continue to rise, some of that could be built into what consumers will inevitably pay at the till, Music added.

“Everything that we do in the food chain is dependent on fossil fuels. And so things aren’t growing because heavy machinery needs to rely on the price of oil,” she said.

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The increased costs will likely be dumped onto farmers first, but will eventually be passed down to the consumer, Music said.

“A lot of the inputs for fertilizer like nitrates and potash and nickel — those come out of the Ukraine and Russia as well — are used in growing almost all agricultural products. It’s going to have a ripple effect,” said Music.

An increase in costs for consumers doesn’t necessarily mean everyone is making more money, especially farmers, according to Music.

She noted they’re already taking risks to continue farming given the climate changes, and with input prices increasing, it’s unlikely they’re profiting anymore.

“If there’s more revenue or profit to be made, people are going to want to do that, but it remains to be seen if that’s even possible, given the cost of inputs going in and the difficulty in growing,” she said.

As Lewis and his fellow farmers are preparing for the farming season, he noted that people are often looking at the commodity price and innately think it’s positive for farmers, but the rising costs to simply exist in the industry make it a challenge.

“It’s a situation where we see rising commodity prices, but we’re also seeing a big rise in our input price,” he said. “There isn’t a whole lot of money being made on our end.”

But there’s a toughness ingrained in many Canadian farmers who have carried on the last two years despite major challenges related to COVID-19, according to Lewis.

“Farmers are resilient. The producers are optimistic, but by nature, we wouldn’t be in this business if we weren’t,” said Lewis.

Now, as Canadian farmers will likely be needed to fill in some of the gaps left by Ukraine and Russia, Lewis noted they’re prepared to do their best.

“Canadian farmers want to step in, step up and do the best they can to help supply those markets,” he said.

“If we have grain that’s available or would produce it and get it shipped over there, Canadian farmers will welcome the opportunity to do what they can to help out.”