When the Strait of Hormuz is disrupted, the shock travels from Gulf shipping lanes to European farms – and then to supermarket shelves
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Do you like lentils? I only ask because lentils require less fertiliser than most crops and therefore shouldn’t rise in price due to the Iran crisis, unlike many of our other food staples.
There’s a lot of bull talked about the Strait of Hormuz, but not enough about fertiliser.
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Urea is a vital fertiliser. Who knew? Answer – fertiliser producers, shipping companies, farmers, and probably the commanders of the Islamic Revolutionary Guard in Iran. Closing the strait to shipping not only cuts off 20 per cent of the world’s oil and gas needs, but up to 30 per cent of its fertiliser requirements.
Almost half of global food production relies on artificial nitrogen-based fertiliser. This combines hydrogen from natural gas with nitrogen to make ammonia, which then produces ammonium nitrate or urea. The latter is the most widely used nitrogen fertiliser around the world. Last year, more than 30 per cent of global supply came from Bahrain, Qatar, Saudi Arabia, the UAE and Iran, and was transported through the Strait of Hormuz. This year, urea ‘futures’ – contracts to buy at a specific price at a future date – have risen 70 per cent.
We already know about the rise in our fuel costs, but food costs are likely to follow, and we may see this in our supermarket bills by the autumn. How much the price of food goes up depends partially on the price of fertilisers which, as we’ve seen, is directly linked to the situation in the Persian Gulf, and to regional planting seasons.
The UK and other northern hemisphere countries have finished their latest round of planting. However, in the summer, arable farmers in Europe order the fertilisers required for autumn sowing. They know the prices are going to be significantly higher than last year. This, combined with rising diesel costs for their tractors, will inform decisions on how much, and what, to plant.
The UK does have a shrinking domestic fertiliser industry but about 60 per cent of its needs are imported, mostly from suppliers in Egypt, the Netherlands and Russia, whose costs have also risen due to the Iran crisis. So, while food shortages in the UK and the rest of Europe are unlikely, price rises are almost certain.
The situation is worse for South Asian and African countries, which have year-round planting seasons. For example, India’s supply of rice for the winter is planted in June, while wheat is planted in October.
African nations are more dependent on imported fertilisers than most countries. Many governments on the continent subsidise supplies to help farmers, but they may struggle to finance this if fertiliser prices keep rising. If so, as in other parts of the world, farmers could choose to plant fewer crops, which in turn would lead to more competition for products and thus higher prices in shops.
The Gulf countries can try to find alternative routes out, for example sending supplies by road to the ports in Oman and the Red Sea, but this could not match the volumes required. Supplies from other regions can also be accessed but this too would not be enough to meet demand. Russia and China are major exporters of fertilisers, but both have already imposed export controls on items required to make the product, although these could be relaxed once their major sowing seasons are over.
There’s another problem. Any country that makes its own fertiliser requires supplies of natural gas and oil. They are not only feedstocks for producing ammonia, but also for phosphate fertiliser. For that you need sulphuric acid, which comes from sulphur, which is a by-product of refining gas and oil. High gas and oil prices = higher fertiliser production costs = higher food prices.
Covid-19 brought a major shock to the fertiliser market. Another is upon us. The longer the strait is closed, the greater will be the shock to us when we look at our food bills, and the greater the pressure on our politicians to get a handle on the cost of living. Economists differ on their predictions, but many see food prices going up by between five and ten per cent.
Which brings us back to lentils. Like other pulses, these clever legumes pull nitrogen from the air, take it into the ground and convert it into ammonium. This reduces the need for artificial fertilisers, enriches the soil for the next crop and keeps prices down. Enjoy.
