the collapse of the fertilizer trade

If they have something wars like the one in Iran (or Ukraine) is that they remind us of the enormous fragility of some of the pillars that support the world economy. And that is something that is beginning to worry farmers. In addition to being a key channel for oil trafficthe Strait of Hormuz is a strategic piece in the world trade in nitrogen fertilizers. The UN estimates that before the war it passed through there one third of global maritime traffic of an input that, in turn, influences performance of the crops.

After more than two months with maritime traffic blocked or at least conditionedmore and more voices warn that alterations in the supply of fertilizers may end up leading to a food crisis draft.

The alarms go off. Warnings about how the Iran war could affect fertilizer trafficking may not have been raised as early as those in the oil marketbut that does not mean that the topic is not generate concern almost from the beginning. In early March, shortly after the US and Israel attacked Tehran, some analysts They were already raising their voices to warn of the risks that the conflict would alter the global distribution of urea, a nitrogen fertilizer in which the Persian Gulf plays a fundamental role.

How fundamental? The International Food Policy Research Institute (IFPRI) calculate that around 36% of global urea exports between 2023 and 2025 came from Persian Gulf countries, especially Iran, Qatar and Saudi Arabia. Not bad if we take into account two pieces of information that underlines the institute itself. First, urea is the nitrogen fertilizer most used, which gives an idea of ​​its relevance for crops. Second, how distributed the flow is. Its main importers are India, Brazil, Australia, Thailand, the USA and Türkiye.

On that map Tehran plays an essential role. Both because of its weight as a producer and exporter, and because of the control it exercises over the Strait of Hormuz, which channels a good part of the world’s fertilizer trade. The UN estimates that around one third of all merchandise moved by sea, which is equivalent to 16 million tons.

It is understandable if you take into account that one of the largest plants of urea on the planet (QAFCO) is in Qatar, a facility that, by the way, saw blocked its production at the beginning of the war due to alterations in the supply of natural gas. The reason? Again the interconnection of the global economy. LNG is a essential input in the production of fertilizers such as urea or ammonia.

A sinking traffic. The problem is that, after several months of war in the Middle East, the global fertilizer supply chain is beginning to show signs of suffering. The latest signal has been issued by the OECD. And clearly. According to his observations (advanced by the EFE agency), the organization has detected that in April the movement of goods by sea plummeted to its lowest level since January 2019. And that at a minimum, since OECD statistics do not allow us to go back further.

The OECD has also detected a decrease in the flow of oil and liquefied natural gas (LNG) through Hormuz, but the data on urea are especially alarming. To begin with, because the organization has confirmed the great weight of the Gulf in its traffic, with 18 specialized berths.

The OECD warning also comes just when some countries are beginning to feel the disruption of the supply chain. A clear case is in Nepal: its volume of reserves is well below what is necessary (171,000 t compared to 250,000), which has already led the Government to purchase 80,000 t of emergency chemical fertilizer thanks to an agreement with India.

Is it the only indicator? No. The OECD warning is one more stroke in a much broader picture in which not only the flows of merchandise are altered. Another key indicator is the prices of fertilizers. At the end of April Reuters echoed already from the rise in the value of urea. And although in recent weeks its price has been softenedgo on far above of the one noted on February 27, before the war broke out. It’s not just about the traffic disruptions in Hormuz. LNG also influences the cost of fertilizer.

The situation has reached such a point that Fertiglobe, a major fertilizer company, has started operating its plants in the United Arab Emirates at full capacity and then transport the fertilizer in trucks to other ports far from Hormuz, its natural outlet. The operation raises costs so much that under other circumstances it would not be profitable. After the price increase that has changed. “As long as we manage to overcome the logistical obstacles, the price more than makes up for it,” explains a manager from the company to Financial Times. “The market is desperate.”

The alarms go off. The big question is what to expect from now on. Although the UN recognize Since not all countries are equally exposed to interruptions in the supply of fertilizers and not all regions of the world harvests follow the same calendar, there are organizations that have already raised their voices to warn of the impact that war can have.

There are several factors at play: the problems of transporting fertilizer and the fact that its cost ends up skyrocketing so much that farmers do without it or look for alternativessomething that could affect crop yields. Another question is whether this will be felt in food prices.

Déjà vu in the fields. The photo is partly reminiscent of what was experienced at the beginning of the Ukrainian war, although with nuances. “In 2022 much of the fertilizer was finally distributed,” explains to Reuters Shwan Arita, of the Agricultural Risk Policy Center at North Dakota State University. “The supply shortages we’re seeing now are much more severe.” Another handicap is that, unlike what happened a few years ago, cereal prices after several campaigns with generous harvests leave farmers with no margin to compensate for the rise in urea prices.

Millions of dishes. A few days ago Svein Tore Holsether, director of Yara, a Norwegian company dedicated to the distribution of fertilizers, warned on the BBC that supply chain problems resulting from war could cost the world up to 10 billion meals a week, a figure that would be felt especially in the poorest countries.

“Right now, there are half a million tons of nitrogen fertilizers that are not being produced in the world due to the situation we find ourselves in,” reflect. The problem, he insists, is that without this help he calculates that there are crops that could see their yields fall by up to 50% in the first season.

Is it the only warning? No. The British Grosvenor Group has warned also of the consequences of a shortage of fertilizers. Even in the UN there are voices that have been quick to highlight the importance of the issue, such as Jorge Moreira da Silva, executive director of UNOPS, who this week issued a warning to sailors in an interview with Agence France-Presse (AFP): “We have a few weeks ahead of us to avoid what will likely be a massive humanitarian crisis. We could witness a crisis that will condemn 45 million more people to hunger and starvation.”

The supply of fertilizer even has its geopolitical drift. Former World Bank President David Malpass has claimed China to stop hoarding food and fertilizers: “It has the largest reserves in the world. It can stop hoarding.” His request comes on the eve of the summit between Donald Trump and Xi Jinping and after Beijing strengthen your controls border precisely to monitor the export of fertilizer in an attempt to protect their farmers. Despite these restrictions, exports recorded a 27.6% increase.

Image | Darla Hueske (Unsplash)

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