I’m not sure how many of my readers have been following the war in Ukraine, but I am sure by now you are all aware of the potential coup that almost happened on Friday evening in Russia.
As those events played out, it was like watching the script of a new blockbuster movie, or perhaps a Tom Clancy novel. Sadly, it is in the real world, and it is easy to forget that people died that night.
The world can change fast, and I think right now we are seeing some of the fastest changes in human history. It feels like it was only yesterday that we were sitting in the middle of a COVID crisis, and then with no warning, an economic boom driven by the over stimulation in response to Covid fear, and now we have an inflation spike that is hanging around like a bad smell.
Why are the Ukraine and Russia important to Australia, our economy and ultimately our property market? If you recall, it was the invasion of Ukraine that triggered the current inflation bubble that ultimately led to high inflation and the RBA’s need to slow it down by increasing the cash rate. The Ukraine War caused record-high energy prices, logistical costs and sanctions and supply disruptions. The inflation disease in global economies impacted the cost of materials. Building prices increased overnight, everything started to increase in cost.
Then there is food! Coles and Woolworths food prices have risen by 9.6 per cent in the past year, outpacing the inflation rate, and driving our cost of living rises. Shouldn’t this be the real inflation measure? Surely grocery bills impact people’s lives more profoundly than the price or iron ore or coal? Perhaps we should be having a senate enquiring into the CEOs of these large companies on why these price increases are warranted.
One of the key impacts on food prices is fertiliser. Yes poop. Well sort of. Russia and Ukraine provide 23 per cent of global ammonia exports, 14 per cent of global urea exports, 10 per cent of processed phosphate exports, and 21 per cent of potash exports. Their main customers are India, South America, and China. Three of the largest populated regions on the planet, and they have added an additional 2 billion people since 1990. These parts of the world have used up their reserves of fertilizer to keep producing food. With these reserves used up, and Russian/Ukraine production down 40 per cent, these regions are facing a food crisis in the next 12 months. In a free trade world, we are all connected to global impacts on costs.
Australian farmers use mostly imported fertiliser, $4.9 billion worth was imported in 2021/2022, mostly from the US and Canada. We also sit on one of the biggest deposits or phosphate in the world and have the potential to produce our own fertilser. We also export more food than we consume, Australia exports around 72 per cent of the total value of agricultural, fisheries and forestry production. We have the capability to not only see out these tough times, but with the right Government intervention, combining with the intuition and investment of the private sector, we could benefit greatly from the turmoil and food crises that will hit many parts of the world in coming years. We could be the world’s saviour.
Fear and safety are huge considerations in today’s global economy. We are so fortunate to live in a relatively safe place, we don’t have angry neighbors with nuclear weapons. Our political system, with the exception of Lidia Thorpe, is mostly stable and democratic. Our economy is well regulated and not hindered by corruption. From an overseas investment perspective (including in property markets) we are a good bet, and we are already seeing this in the agriculture sector. In today’s world, in the study of any market, it is good advice to stay tuned to global events, they can be a guide of what to do, or not do, next.
This article written by Gareth Kent appeared in the Geelong Times on 7th July, 2023.