Inputs Monitor Editor Davis Michaelsen adds his perspective into the happenings of the inputs markets.
The Butter is the Gun
Sep 18, 2012
Guns and butter. We all need a little of both to get by. This is a model straight out of macroeconomics 101. Guns and butter refers to the balancing act we all perform between security and food - things that gain value and things that are consumed. It can be a delicate balance and when that balance is upset, the real world ramifications affect nations and people on their most base level. Guns and butter share an inversely proportional relationship so that when one increases, the other decreases by roughly the same amount. In order to focus on one, the other will suffer.
World War II gave us a good example when stateside auto manufacturers switched to making munitions and heavy armaments, rather than cars. Ford had its B-24 Liberator Bombers; GM produced TBM Avenger fighter planes. With munitions to produce and a generation of young men overseas, the heavy labor of building B-17 Superfortresses and tanks fell to women who traded their aprons and mixing bowls for welding torches and axle grease.
These changes through the 1940's were necessary adjustments to make certain our military effort was well supplied. We traded some of our butter for guns and put our mothers and sisters to work in industrial plants...temporarily. When the war ended, American society regained her former balance. Ford started making family cars again, and women were freed from making bombs and fighter planes for more domestic pursuits.
In the present day, farmers in Pakistan are facing the guns and butter dichotomy daily. In 2010 the government of Pakistan, in cooperation with Allied forces, placed a ban on ammonium nitrate fertilizer. Ammonium nitrate fertilizer is the nutrient of choice for local growers. Most are small scale, subsistence farmers with small tracts of cropland, feeding their families and livestock with what they grow, selling what they can spare for scant profit.
Ammonium nitrate fertilizer is also the nutrient choice for bomb makers. Urea-nitrate fertilizer was used in the 1993 bombing of the North Tower of the World Trade Center in NYC. Timothy McVeigh detonated a van loaded with fertilizer and fuel in Oklahoma City in the spring of 1995, killing 168 and injuring 800 people. More recently, a fertilizer bomb was detonated in downtown Nairobi that blew the roof off of an office building. Ammonium nitrate makes a deadly cocktail, and terror organizations around the world covet the substance for IEDs and other incendiary devices.
But the ban on ammonium nitrate fertilizer has ballooned into a total ban on all fertilizers, leaving Pakistani growers with nothing to replace nutrients in their soil. Yields are declining exponentially as each crop leeches precious nutria out of the already sandy ground. Farmers are having a hard time making ends meet. Fertilizer is, of course, available on the black market, but at six times the retail price. With sentiment souring quickly, farmers are forced to cavort with smugglers and black marketeers, often finding themselves recruited into the racquet. Either they purchase fertilizer from illegal sources at inflated prices or, in more cases than not, growers fall in with the fertilizer pirates to make a quick buck.
Guns and butter have bad actors and terrorists at odds with farmers. No Pakistani has been convicted of smuggling outlawed fertilizer as of yet, and when the soil cannot support corn and wheat, farmers peer over the fence for some way of making a living. Local authorities are reportedly willing to look the other way for the right price, and with children and livestock to feed, a Pakistani man's gotta do what a man's gotta do.
Guns and butter have collided in Pakistan. Farmers have seen their fertilizer demonized, weaponized and driven over the border into Afghanistan in the dead of night. Yields are on a slippery slope of decline as each growing season inches the soil toward infertility. With no butter to be had, the people are turning to guns, but in this case, the butter is the gun.