global food price shock looms. Who will be hit?
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Conflict in the Middle East has disrupted trade across the Strait of Hormuz, and its impact could extend far beyond energy markets, risking a rise in global food prices.
The Bosphorus is an important artery not only for oil and gas shipments, but also for fertilizers that are critical for global agriculture. The disruptions could lead to higher farming costs, reduced crop yields and ultimately more expensive food, analysts told CNBC.
According to the International Food Policy Research Institute (IFPRI), “Higher energy and input costs risk reigniting global food inflation, just as retail food prices have returned to more historic levels in many countries.”
Raj Patel, a research professor at the University of Texas, also warned that conflict-related fertilizer shortages could increase global food pressures through several channels simultaneously.
“The short answer is: It’s significant, and it’s faster than people think,” Patel said. he said. “The Strait of Hormuz is a fertilizer transit point. Qatar, Saudi Arabia, Oman and Iran together provide a significant portion of the world’s traded urea and phosphate, and almost all of it passes through Hormuz.”
Industry observers said countries that depend on direct food imports and depend on fertilizer could face rising costs within weeks, especially during key planting periods.
Gulf countries face: immediate risk
The first region likely to feel the impact includes the countries closest to the conflict.
“Regionally, consumers in the Gulf Cooperation Council are most exposed to short-term food price increases due to their heavy dependence on seaborne imports passing through the Strait of Hormuz,” said BMI commodity analyst Bin Hui Ong.
Persian Gulf economies such as Qatar, Bahrain, Kuwait and Saudi Arabia are largely dependent on food imports via the Strait of Hormuz. If shipments remain restricted, supplies will have to be rerouted through alternative corridors or transported overland at much higher costs, analysts said.
“In the case of short-term shortages, all countries around the Persian Gulf west of Hormuz will have difficulty providing food imports,” Mera said. “These countries will need to find alternative routes.”
He noted that richer states such as Qatar, Bahrain, Saudi Arabia and Kuwait have the financial resources to import food by air or land if necessary, but poorer neighbors may face greater difficulties.
“Iraq may suffer. Iran itself will face famine,” Mera added.
Sub-Saharan Africa: most vulnerable
Beyond the Gulf region, the biggest risks may lie in parts of sub-Saharan Africa, where farmers rely heavily on imported fertilizer and spend a large share of household income on food.
“Sub-Saharan Africa is the most vulnerable region,” Patel said. Data from the University of Texas at Austin shows that more than 90% of the fertilizer consumed in sub-Saharan Africa is imported, mostly from outside the continent.
Other experts have highlighted that nitrogen-intensive crops such as maize, an important staple across the region, are particularly vulnerable to fertilizer shortages, increasing the risk of declining yields and rising food prices.
“The poorest and most densely populated areas will probably suffer the most,” Rabobank’s Mera said, including parts of sub-Saharan Africa.
Asia’s concerns
South and Southeast Asia may also face increasing cost pressures.
Major agricultural economies such as India, Bangladesh, Thailand and Indonesia depend heavily on fertilizers imported from the Gulf. A sustained outage could increase farmers’ costs during key planting seasons.
“A farmer in Thailand, which is 90 percent dependent on imports, simultaneously faces a cost shock of all sizes when purchasing urea produced from gas, shipped via Hormuz and priced in the dollar, which has strengthened due to geopolitical risk,” Patel said.
Staple crops in the region, including rice and corn, are among the most fertilizer-intensive crops.
Mera singled out Indonesia and Bangladesh among the countries likely to be worst affected by the region.
Longer term view
If farmers respond to high fertilizer prices by reducing their use, crop yields may decrease and cause food prices to rise.
Brazil, one of the world’s largest agricultural exporters, could face rising costs if fertilizer markets shrink, analysts said. Brazil imports about 85% of its fertilizer, making soybean and corn production heavily dependent on global supply chains.
A prolonged disruption in Brazil’s key fertilizer import season could ripple through global crop markets, eventually affecting food prices.
Even if crop production remains relatively stable in the near term, rising energy costs alone could push global food inflation higher, experts said.
Energy plays an important role throughout the food supply chain, from powering agricultural machinery and producing fertilizer to transporting crops and processing them into food products.
“The biggest impact on consumer prices will not be the impact on agricultural commodities, but the fact that energy accounts for a large share of the total retail food bill,” said Joseph Glauber, senior research fellow at the International Food Policy Research Institute.
The size of any price shock will depend largely on how long transportation disruptions last, said Chris Barrett, an agricultural economist at Cornell University.
