A worker spreads fertilizer following potato planting in West Jefferson, North Carolina, highlighting a challenging agricultural environment. Farmers face high fertilizer prices due to the conflict in Iran, compounded by severe weather, tariffs, and rising fuel and labor costs.
When hostilities with Iran began, global concerns centered on oil shipments. However, fertilizer also became a crucial export stuck in the region. According to UN Trade and Development, about one-third of the global fertilizer shipment by sea passed through the Strait of Hormuz. This crucial waterway recently turned into a shipping chokepoint. As a result, fertilizer shipments from the Persian Gulf decreased, leading to worldwide price hikes.
The war additionally caused a global natural gas shortage, crucial for manufacturing nitrogen fertilizer. This added to the burden on U.S. farmers facing high prices and limited supply as they planned the next growing season. Despite this, experts suggest retail fruit and vegetable prices may not spike significantly. Chris Barrett, a Cornell University professor, notes that broader supply chain issues drive food inflation more than fertilizer costs do.
U.S. Farmers’ Dilemma
About one-third of the fertilizer used by U.S. farmers is imported, as per The Fertilizer Institute. While most imports do not cross through the Strait, the global nature of the fertilizer market means disruptions still impact U.S. farmers. Christopher Glen of TFI emphasized that the lack of supply from the Middle East removes tons from the global market.
An American Farm Bureau Federation survey revealed that 70% of farmers couldn’t afford all necessary fertilizer this season. Corn and wheat producers, who heavily depend on fertilizer, can allocate a third of their operating costs for it. Additionally, a National Corn Growers Association survey noted half of the respondents would not fully fertilize their corn crop this year due to increased costs and limited availability.
Farmers often secure fertilizer well in advance, allowing some to dodge immediate price impacts. However, corn growers are significantly concerned about future costs, with many rethinking crop choices. USDA data indicates a decrease in corn planting to 95.3 million acres from last year’s 98.8 million, alongside a rise in soybean acreage, anticipating reduced fertilizer needs.
Limited Impact on Grocery Prices
Should fertilizer costs cause smaller harvests, modest retail price increases might follow. A TD Economics analysis predicts food inflation could rise 0.1-0.5 percentage points in 2027 from a 2-5% production dip in North America. Yet, experts believe farmers will bear the shortage costs. A USDA report highlights that only 12 cents of every dollar spent on food reaches farms, with the rest allocated to other parts of the supply chain.
Rob Vos, an International Food Policy Research Institute senior fellow, points out farmers lack power to secure higher crop prices from wholesalers amid rising costs. Apart from the fertilizer issue, tariffs, weather, and high fuel and labor expenses influence food prices.
For some parts of Africa and Asia, the fertilizer shortage poses a more severe threat. Jorge Moreira da Silva from the UN Office for Project Services warned that limited shipments through the Strait may critically impact developing nations relying on the Persian Gulf for fertilizer.
Fertilizer Industry on the Mend
With the U.S. and Iran agreeing to reopen the Strait, some fertilizer prices have begun to drop. The U.S. addressed this by suspending certain import duties on phosphate, intending to lower costs. It may take weeks or months for full production levels to resume, potentially affecting upcoming planting seasons.
Farmers are contemplating future supply disruptions, exploring alternatives like manure and compost for soil nutrition. This shift mirrors the growing interest in electric vehicles amid rising gas and diesel prices.
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