‘A big burden for farmers’: Gulf shipping crisis threatens food price shock
The global fertiliser supply chain could face significant disruption if the effective closure by Iran of the strait of Hormuz persists, prompting concerns from analysts about crop production and food security.Passage through the waterway, located off Iran’s southern coast, has mostly stopped since the US and Israel launched their attacks at the weekend.Between a quarter and a third of the global trade in the raw materials for fertiliser passes through the strait, as well as a fifth of seaborne crude oil and gas.The de facto closure of the strait is affecting the transport of ammonia and nitrogen, which are key ingredients in many synthetic fertiliser products.Roughly half of global food production depends on synthetic nitrogen and crop yields would fall without fertiliser.
The resulting shortages would push up the prices of household staples such as bread, pasta and potatoes, and make animal feed more costly.The Gulf is home to some of the world’s largest fertiliser factory sites and a prolonged transport shutdown could disrupt production and raise costs.After Russia, Egypt and Saudi Arabia, Iran is the fourth-largest global exporter of urea, which is the most widely used nitrogen fertiliser.The ability to manufacture fertiliser is being affected by the availability of raw materials and the rising cost of the energy used in production.Fossil gas represents between 60% and 80% of the production cost of nitrogen fertiliser.
The global nitrogen supply is expected to be further knocked by shutdowns of fossil gas plants in the Gulf.Qatar closed its largest facility after a drone attack.Fertiliser prices are already up, reviving memories of the surges in the cost of gas and fertiliser seen in early 2022 after Russia’s full-scale invasion of Ukraine.Egyptian urea prices, which are a benchmark, have risen by more than 25%.They have hit $625 (£467) a metric tonne, up from $484-$490 last week, according to CRU Group, a consultancy which tracks commodity prices.
The Middle East is also the source of about 45% of the global trade in sulphur, a key raw material for fertiliser production, as well as of various metals and industrial chemicals, according to Chris Lawson of CRU,He added: “While there are many parallels to 2022, the supply and demand implications of the conflict in the Middle East have the potential to be much more severe and wide ranging, particularly if the strait of Hormuz is restricted for longer than two weeks,”A container ship reported being hit by a projectile in the strait on Wednesday, causing a fire in its engine room, according to UK maritime trade operations,It is the latest vessel to be attacked after incidents in which at least two crew members died,Concerns about fertiliser supply come at a challenging time for farmers in the UK, Europe and North America, who have begun to plant spring crops.
While most producers will have enough fertiliser for the year ahead, they would usually already be looking to buy for next year.The UK is estimated to meet about 40% of its nitrogen fertiliser requirements, with the rest sourced from imports.Any reduction in its availability of fertiliser would mean farmers apply less fertiliser to their crops, which usually translates into lower yields, pushing food prices higher.After Russia’s invasion of Ukraine, the prices of food and non-alcoholic drinks soared by 16.5% in the year to November 2022, according to the Office for National Statistics.
Grocery price inflation rose unexpectedly last month, climbing 4,3% in the four weeks to 22 February, according to Worldpanel by Numerator, a market research company,“We are seeing immediate price volatility but at this stage, it is too early to say how the UK may be impacted in the medium term,” said Tom Bradshaw, president of the National Farmers’ Union,Farms were facing a squeeze on their profitability even before the Middle East conflict sent the price of key inputs such as fertiliser and fuel soaring,“Farmers were already in a challenging situation before this and were struggling with narrow margins,” said Svein Tore Holsether, chief executive of Yara, the world’s second-largest fertiliser producer.
He called on governments to do more to help food producers: “Input prices are increasing but at the same time there hasn’t been much impact to crop prices, so we are putting a very big burden on the shoulders of the farmers now, unless there is a step up in supporting farmers in this challenging time.”
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