The Economist’s front page three weeks ago about “the coming food crisis” has been retweeted countless times. The whole world is concerned about the rise in prices not only of products such as corn and wheat, but also of fertilizers, which threatens to reduce future plantings and harvests. Peru, says the magazine, is one of the countries that will be most affected.
In the face of farmers’ protests in the interior of the country, the government has taken (or tried to take) measures to deal with the crisis. It has announced the purchase of fertilizers for S/348 million and has formed a commission – of high level, of course – to “guarantee the continuity of agricultural production”.
What can be expected from that commission? It seems to us that nothing. The market is an efficient machinery, both in normal times and in times of crisis, to coordinate the production, distribution and consumption of all kinds of products, including agricultural inputs. The rise in the international price of urea, for example, is nothing more than a sign that there is less urea available in the world and that it is necessary – or rather, inevitable – to reduce its consumption. The price increase fulfills the function of concentrating this reduction where it causes less damage to production: in the fields that can most easily substitute urea for another fertilizer or replace their crops with others that require less fertilizer.
There will be some farmers who cannot do either and whose fate would be to stop farming and be left without income. The government could, of course, help them; but the way to help them is not to give them an input that is scarce in the world today so that they can use it in a crop that, given the circumstances, is not economically justified. The best way to help them would be through a direct subsidy that partially – only partially – restores lost income. It is not an easy task because it is susceptible to political patronage and corruption, but the alternative of handing out free urea is too. To avoid that, a commission would serve, especially one that includes people outside the government.
To buy and distribute fertilizers, on the other hand, a government commission is of little use. We have already seen how the government canceled one tender, postponed another and has just chosen a supplier that will deliver 40,000 tons just in five weeks. Meanwhile, the distributors that are in this business have already imported 50,000 tons of urea and potassium chloride, which would be enough for the start of the agricultural campaign that begins in August, according to the manager of the largest of these distributors. It can also be assumed that they have the distribution networks so that the fertilizers reach where they are needed.
How can the global shortage of urea affect Peruvian agriculture? Hard to say. It will depend on the possibilities of substitution of fertilizers and crops. Some can be replaced faster than others. Doomsday predictions based on falling fertilizer imports – 33% between January and April compared to the same period last year – are, however, almost certainly wrong because they ignore farmers’ ability to adapt.
As for consumers, they will surely find less of some products, but more of others (because of crop substitution, precisely). The former will tend to rise in price, but the increases will be moderated by imports, to the extent that we keep our market open. The worst mistake in a time of crisis would be to close off international trade.