Disruptions to the fertilizer supply chain caused by the Iran conflict could drive global food prices higher as shipments through the Strait of Hormuz face major interruptions, CNBC reported. Economists warn that fertilizer shortages may raise agricultural costs and reduce crop yields, potentially adding to inflation pressures already driven by higher energy prices.
Key highlights
- Fertilizer supply chain disruptions could push global food prices higher
- More than one-third of global fertilizer trade passes through the Strait of Hormuz
- Urea fertilizer import prices in the US jumped 30% within a week
- Economists warn food-at-home inflation could rise by about 2 percentage points
- Fertilizer producer CF Industries shares surge amid supply concerns
Fertilizer shipments through Strait of Hormuz at risk
The ongoing conflict involving Iran could disrupt global fertilizer flows through the Strait of Hormuz, a key shipping route for agricultural inputs.
According to analysts cited by CNBC, more than one-third of globally traded fertilizer passes through the strait, making it a critical artery for agricultural supply chains.
Commercial shipping activity in the route has largely stalled since the war began late last month, threatening deliveries just as farmers across the Northern Hemisphere prepare fields for spring planting.
Economists warn of rising food inflation
Wolfe Research chief economist Stephanie Roth reportedly warned that fertilizer shortages could trigger a knock-on effect on food prices.
“Beyond energy, another risk receiving less attention is the potential knock-on effect on food prices, as fertilizer shortages push agricultural costs higher,” Roth said in a note cited by CNBC.
Roth estimated that the disruption could raise US “food-at-home” inflation by around 2 percentage points, adding roughly 0.15 percentage points to headline inflation, on top of about 0.40 percentage point from higher energy costs.
Timing threatens crop yields for major staples
The disruption comes at a critical time for global agriculture.
Fertilizers are typically applied early in the crop cycle and help determine crop yields later in the year.
If supplies tighten during this period, farmers could reduce fertilizer usage, which may lead to lower production of major crops such as corn, soybeans, wheat and rice, according to Roth.
Fertilizer prices already rising
Industry economists say fertilizer prices have already started to climb.
Data compiled by The Fertilizer Institute, cited by CNBC, showed the price of urea fertilizer imports into the United States jumped about 30% between the weeks ending Feb. 27 and March 6, which included the start of the conflict.
Urea, a nitrogen-based fertilizer widely used to boost crop yields, is among the most heavily traded fertilizers shipped through the Gulf region.
Veronica Nigh, chief economist at The Fertilizer Institute, reportedly said the impact could eventually reach consumers.
“This is a global impact on fertilizer costs,” Nigh told CNBC, adding that higher costs are likely to be passed on to consumers if disruptions persist.
Global ripple effects expected
The impact of fertilizer supply disruptions could extend far beyond the United States.
Asia and Africa are particularly dependent on fertilizer exports from the Gulf region.
Countries such as India rely heavily on Gulf supplies, while several African economies depend on imported raw materials used to produce fertilizers.
The United States also relies on global fertilizer markets, importing about 20% of its fertilizer needs, with nitrogen fertilizers sourced from countries including Canada, Trinidad and Tobago, and Russia.
Fertilizer producers gain from supply shock
While farmers and consumers could face higher costs, fertilizer producers may benefit from the supply shock.
Shares of CF Industries reached an all-time high earlier this week and have gained nearly 10% over the past week, marking the company’s largest multiday advance since 2022, CNBC reported.
FAQs
Q1: Why could food prices rise due to the Iran conflict?
The conflict is disrupting fertilizer shipments through the Strait of Hormuz, which may increase agricultural costs and reduce crop yields.
Q2: How much fertilizer trade moves through the Strait of Hormuz?
More than one-third of globally traded fertilizer passes through the shipping route.
Q3: How much have fertilizer prices risen so far?
Urea fertilizer import prices in the United States jumped around 30% within a week following the start of the conflict.
Q4: Who could benefit from the disruption?
Fertilizer producers such as CF Industries may benefit from higher fertilizer prices.
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