Farmers have always faced uncertainty. It is part of the life—and struggle—of farmers to make ends meet when forces outside of their control, be they natural or man-made, can make or break an entire farming season overnight. But in the last two years, on top of these regular pressures, farmers have faced an unprecedented trade war with resulting tariffs, and now the coronavirus pandemic that has seized any semblance of normalcy in the agricultural sector.
Expectations for farm income, just as the overall economy, have been very volatile this year. Early estimates suggested a softening, but the outlook was for a fairly average year. Like the rest of the economy, COVID-19 threw a major wrench in the works. The Food and Agricultural Policy Research Institute at the University of Missouri now estimates a $20 billion drop in farm income from their February estimate of $93 billion – a 21% drop.
What farmers don't need right now is even more Washington activity wreaking further havoc and upending input supplies and increase prices. Unfortunately, that is what may happen as one company seeks to control even more of the market share of phosphates for fertilizers it already has in the United States.
A sustainable crop farm operation must take care of four things. It must take care of the weeds. It must take care of the bugs. It must take care of the crop's nutrient requirements. And most important, it must pay for itself. Action by the Mosaic Corporation in seeking a Department of Commerce investigation into imports of phosphate from Morocco and Russia go directly at two of these needs – feeding the crop and being able to pay for it all.
For this discussion, let us stay on the crop nutrient and financial needs and leave the weeds and bugs for another time. Farmers employ fertilizers composed of three nutrients—phosphorous, nitrogen, and potassium for crops like soybeans, corn, and cotton. These elements are vital for food production.
While it is the 11th most common element on the planet, ninety percent of phosphate reserves are found in just five countries—Morocco, the United States (which has about 25 years of reserves left that we know of), South Africa, Jordan and China. Morocco has by far the largest reserves of phosphate rock, and while Russia does not make the top 5 list, their reserves are just slightly less than those of the United States.
According to a Global Phosphates Industry market report, phosphates production in the U.S. is estimated at 18.5 Million Metric Tons this year—about 27 percent of global market share. Seventy-five percent of the phosphate rock found in the U.S. is mined from the state of Florida, according to the FL Industrial and Phosphate Research Institute—with the majority of mines owned by The Mosaic Company. Much of the rest of U.S. phosphate fertilizer needs come from Morocco, which controls up to 85 percent of the remaining phosphate rock reserves, according to the Earth Institute at Columbia University.
In early June of this year, The Mosaic Company announced it was filing petitions with the Department of Commerce and the International Trade Commission to request countervailing duty investigations into imports of phosphate fertilizers from Morocco and Russia in order to "remedy the distortions that foreign subsidies are causing in the U.S. market." Within the next month and a half, the ITC will determine if there is a reasonable indication that Moroccan and Russian imports are negatively impacting the U.S. industry.
Mosaic already owns the majority of the phosphate production for fertilizers in the United States. So what is truly at stake here? Why is Mosaic asking the Department of Commerce and the International Trade Commission to investigate only Morocco and Russia? The answer is simple: artificially raise prices for their competitors. These competitor's supply of phosphate rock depends on being able to import that rock at competitive prices. Mosaic will then be able to raise their own prices and – economic theory holding - increase profits. If it smells and walks like crony capitalism….
Farmers are all too familiar with well-intentioned but ill-advised "remedies" by politicians. Measures like anti-dumping safeguards and countervailing duties have often ended up hurting American farmers – and consumers at the cash register – to benefit only a few domestic producers.
The reality is that countervailing duties would ultimately harm the very farmers that this effort ostensibly seeks to "protect" by artificially increasing prices of the phosphate fertilizer they need for their crops. The estimated economic impact of applying countervailing duties of between 30 and 70 percent on phosphate imports would equate to roughly $480 to $640 million added fertilizer bills on U.S. farmers. Let's not use the invisible foot of government to tilt the scales of the market to benefit corporate interests – farmers and consumers have dealt with enough.
Bob Young is the former Chief Economist for the American Farm Bureau Federation, Co-Director of the Food and Agricultural Policy Research Institute and faculty member of the University of Missouri and past Chief Economist for the United States Senate Committee on Agriculture, Nutrition and Forestry.