“Modern agriculture is the use of land to convert petroleum into food” – Albert Allen Bartlett
How important is oil to the economy? It does not take a genius to answer the question. Oil is one of the most important and crucial commodities, and plays a significant role in the global economy. However, its prices are influenced by global economic foresights. With the unfinished Ukraine and Russian war a clear manifestation of a geopolitical tension that greatly affects the dynamics of supply and demand causes volatility and fluctuations in oil prices – globally.
Let us pose the same question but specific to agriculture. How important is oil to agriculture? Oil has significant implications for agriculture, especially on production, harvest, post-harvest and even food prices. This is a supply chain approach of the oil’s significance to agriculture and agricultural products.
SUPPLY CHAIN IMPACT
No doubt oil is as high and as important with its prices and importance respectively. Agricultural products’ transport cost takes its toll on an impactive hit among producers. At the production level, inputs are being transported to farms, irrigation systems use plenty of oil. During the harvest period the same consumption patterns occur. What is more costly is the food distribution coming from farms to all parts of a geographic area, depending on the distance of the farm to its distribution outlet. The longer the distance and the bulkier the commodities, the bigger the oil consumption. This is now the transport cost pattern. This is particularly relevant for agricultural products that need to be transported over long distances.
According to a World Population review, the top ten consumers of oil account for approximately 60 percent of the world’s total oil consumption, with all other countries combined accounting for about 40 percent. Globally, daily crude oil demand (including biofuels) reached 99.57 million barrels in 2022. At an average daily consumption, the Philippines consumes almost 500 per day.
‘DOMINO EFFECT’
Reduced to agriculture it still has a “domino effect”. For example, oil is a key component of fertilizers, because when oil prices are high fertilizer production cost is directly proportional and also rises. When bought as production input in agriculture as an important component in production it affects crop yields, especially when production decrease is affected by other factors as products prices shoot up. Urea fertilizer produced from natural gas which is nitrogenous which has prices synonymous to oil definitely affects agriculture.
Other significant impacts to agriculture are the farm machinery, equipment, and other transport means. Operating farm machinery and equipment with reduced fuel costs provide convenient and affordable production or harvest processes. It makes farming efficient and less hazardous to the environment. This results in lower food prices among consumers and affordability comes in. The demand for food undertakes a natural pattern of increasing demand due to population’s exponential growth and the bulk of agricultural products with lower oil prices, provides sufficient supply with affordable prices but maintains a steady return to producers or suppliers.
BULLISH OIL AND ITS TRANSITION
Oil and its prices significantly impact agriculture in various ways depending on the interplay of other factors. Simply put, the lower the oil prices, the more efficient and increased production, benefiting consumers, and higher the prices leads to the opposite impact. More importantly, oil is crucial to countries’ GDP around the world where it is around 3-5 percent. Consistently, the oil industry contributes 2-4 percent to our country’s gross domestic product.
The demand for oil globally and domestically continues to increase so that it is crucial in each and every sector we can identify. It is actually bullish that its dynamics can only expand and widen and increase its share of the pie in the economies.
The importance of the oil industry is the transition to renewables as the calls increase for climate-change alternatives. The transition must balance both the environmental impact and its economic cost and the pure but hastened evolution of the global economy. This is a major challenge in the real world and a daunting one at that because major breakthroughs for this proper and timely transition have to affect both benefits.
The Philippines oil industry is privatized and liberalized. These are the existing oil infrastructure and systems that resist renewables as alternatives. Liberalizing and privatizing oil as it is now puts agriculture and the global food system to the level of privilege and inaccessibility.*
