Middle East tensions could trigger food price shock, warns fertiliser boss

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.The top of one of many world’s largest fertiliser firms has warned that heightened tensions within the Center East might set off a contemporary meals value shock by straining world provide chains for crop vitamins and vitality.Svein Tore Holsether, chief government of Norwegian group Yara, mentioned fertiliser teams and clients had been “monitoring carefully” the dangers across the Strait of Hormuz, by which 40 per cent of the world’s urea and 20 per cent of world LNG flows, warning that any disruption might ripple by world meals manufacturing. Fertiliser markets have “been extraordinarily risky within the final two weeks, and it exhibits how related the whole lot is”, he informed the Monetary Instances.Holsether pointed to the current shutdown of Israeli gasfields, which disrupted fertiliser manufacturing in Egypt, as an indication of how rapidly regional tensions can ripple by provide chains.Tensions between Iran and Israel escalated sharply this month pushing up Brent crude above $80 per barrel earlier than falling again to the excessive $60s after a ceasefire was brokered earlier this week.Trade analysts have warned that greater than a fifth of the world’s urea output had stopped as a result of battle and provide disruptions. “Iran has shut all ammonia vegetation for safety causes, whereas Egypt stays offline as a result of halted Israeli fuel flows,” mentioned Sylvia Traganida, senior ammonia editor at consultancy ICIS. Consultancy CRU warned Israel’s strikes on Iran and the retaliatory assaults “fed into main disruption to nitrogen markets” inside just a few days of the occasions and posed “ongoing threats to phosphate, potash and sulphur provide from the area”. Virtually a 3rd of urea exports, 44 per cent of sulphur exports and practically a fifth of ammonia exports transfer by or are produced in international locations west of the Strait of Hormuz, in accordance with information from CRU. “The meals system is fragile,” mentioned Holsether. “If [energy prices] keep excessive over time, that may even spill into the meals system, prefer it did in 2021 and into 2022 as effectively with the outbreak of the struggle [in Ukraine].” The final main disruption to fertiliser markets got here in 2022, when Russia’s full-scale invasion of Ukraine despatched pure fuel costs hovering and triggered a pointy rise in fertiliser prices, contributing to a worldwide meals value disaster. Since then, crop nutrient costs had eased because the pure fuel market had declined, however Europe’s fertiliser business remained beneath strain as Russian imports took an even bigger share of the market, Holsether mentioned, as he returned from his first go to to Ukraine since Russia’s full-scale invasion in February 2022. Whereas sanctions have curbed exports of Russian pure fuel, a crucial enter in nitrogen fertiliser, meals and crop vitamins have remained exempt, permitting Moscow to redirect its fuel by fertiliser manufacturing. Holesther welcomed the EU’s current transfer to impose tariffs on Russian fertiliser however known as it overdue. He mentioned Europe wanted to keep away from “repeating errors” made in vitality imports with meals.  The Yara chief accused Moscow of weaponising meals and fertiliser, each by increasing fertiliser exports to extend world dependency on its provide and by focusing on Ukraine’s civilian agriculture in a marketing campaign to destroy the nation’s function as one of many world’s agricultural powerhouses.Beneficial“There’s the navy combat, however there’s additionally a combat the place meals is getting used as a weapon,” Holsether mentioned, including that greater than 20 per cent of Ukraine’s farmland was now mined, occupied or unusable.Earlier than the struggle, Ukraine’s meals exports, which included as much as 50mn tonnes of cereals, fed about 400mn individuals a yr. The nation’s grain and oilseed manufacturing fell from 78mn tonnes in 2023 to 72.9mn tonnes this yr, Holsether mentioned, reflecting the mounting impression of struggle on the nation’s agricultural output.