Food prices may rise due to fertilizer shortages

The war in Iran could send global food prices soaring, as the conflict disrupts fertilizer shipments along one of the world’s most important trade routes.

While energy markets have focused on oil supply risks, analysts say threats to fertilizer supply chains through the Strait of Hormuz could also lead to long-term economic problems through food price inflation.

“Besides energy, another risk receiving less attention is the potential impact on food prices, as fertilizer shortages drive up agricultural costs,” Stephanie Roth, chief economist at Wolff Research, said in a written note Tuesday.

Roth estimates that this disruption could cause “food at home” inflation to rise by about 2 percentage points, adding about 0.15 percentage points to headline inflation in the United States, on top of an increase of about 0.40 percentage points from energy.

These potential price hikes come as American consumers face a continuing extension of rising food, housing and energy prices. Home food inflation rose 2.4% year over year in February, the Bureau of Labor Statistics said Wednesday.

More than a third of the fertilizer traded globally passes through the Strait of Hormuz, making it a critical artery for agricultural supply chains. Commercial traffic along the route has been largely halted since the war began late last month, disrupting shipments as farmers in the Northern Hemisphere prepare fields for spring planting.

Timing is critical because fertilizers are applied early in the crop cycle and help determine yields later in the year.

“If fertilizer supplies are reduced during this period, farmers may reduce application rates,” Roth said in the note. This could reduce the productivity of crops such as corn, soybeans, wheat and rice and increase agricultural costs.

Economists in the fertilizer industry are also concerned, saying prices are already rising.

Between the weeks ending February 27 and March 6 — which includes the start of the war — the price of a short ton of U.S. urea fertilizer imports jumped 30%, according to data compiled by industry advocacy group The Fertilizer Institute.

Urea – a nitrogen fertilizer widely used to enhance crop yields – is one of the most widely traded fertilizers transported across the region.

Veronica Nigg, chief economist at the Fertilizer Institute, said higher fertilizer prices for farmers and retailers could end up raising food costs for consumers if the trade disruption continues.

“This is a global impact on fertilizer costs,” Nigg said. “I imagine there will be more of these costs passed on to consumers in this scenario, which is something we haven’t seen before.”

The United States is dependent on global fertilizer markets, importing approximately 20% of its total use, although nitrogen fertilizers such as urea come from a wide range of suppliers including Canada, Trinidad and Tobago, Russia and elsewhere.

The ripple effect could extend around the world and beyond commodities. Asia and Africa depend in particular on fertilizer exports from the Gulf region. Countries such as India rely heavily on Gulf supplies, while many African economies depend on imported materials used to produce fertilisers.

While interruptions in fertilizer shipments could result in lower crop yields for farmers and higher costs for households, fertilizer producers may benefit.

CF Industries Shares hit an all-time high on Monday and shares are up nearly 10% over the past week, their biggest multi-day gain since 2022.