Impact of the Iran Conflict on Fertilizer Supply and Global Agriculture

On April 24, at Bluff View Farms in West Jefferson, North Carolina, a worker was seen spreading fertilizer after planting potatoes, highlighting the challenges facing farms. The war in Iran has driven up fertilizer prices, impacting farms already strained by severe weather, tariffs, and high fuel and labor costs.

Initially, the slowdown of oil shipments was a primary global economic concern at the war’s onset. However, the disruption of fertilizer exports also significantly affected the international market. Prior to the conflict, approximately one-third of the world’s marine fertilizer transport passed through the Strait of Hormuz. The closure of this crucial waterway caused a plunge in shipments from the Persian Gulf and led to price increases, affecting fertilizer-importing countries worldwide. Additionally, the war created a global shortage of natural gas, essential for nitrogen fertilizer production. This scenario posed significant challenges for U.S. farmers, who faced higher prices and limited availability just as they were making planting decisions for the upcoming season.

Despite rising costs, experts suggest that consumers might not experience substantial increases in fresh produce prices. Chris Barrett, a Cornell University agricultural economics professor, noted that food inflation stems from larger supply chain issues like labor shortages and high fuel costs, not solely fertilizer expenses.

U.S. Farmers Adjusting Plans

The Fertilizer Institute reports that one-third of U.S. farmers’ fertilizer is imported, with minimal amounts transported through the Strait of Hormuz. Nevertheless, the global nature of the fertilizer market means shortages elsewhere affect prices in the U.S. Despite the relatively small direct impact, the reduced availability has led to substantial market pressures.

A survey by the American Farm Bureau Federation highlighted that 70% of respondents could not secure needed fertilizer quantities this season. Corn and wheat farmers, who rely heavily on fertilizer, find up to a third of their operational costs tied to it. Consequently, many are considering altering their crop choices. The USDA projects a decline in corn acreage from 98.8 million acres last year to 95.3 million acres this year, while soybean acreage is anticipated to rise to 85.4 million acres, up from 81.2 million acres.

Effect on Grocery Prices

Fertilizer-induced production shortfalls could modestly elevate retail prices. A TD Economics report suggests a 2-5% drop in North American production could increase food inflation by 0.1-0.5 percentage points in 2027. Nevertheless, farmers bear most costs of the fertilizer shortage.

The USDA indicates that only 12 cents of every dollar spent by U.S. consumers on food reaches farms, with the rest going to transportation companies, processors, and retailers. Fertilizer costs represent about 7% of farms’ budgets, with higher expenses for fertilizer-dependent crops like corn.

Farmers lack leverage to negotiate better prices with wholesalers when operational costs rise. Wholesalers may seek cheaper options from other farmers, according to Rob Vos from the International Food Policy Research Institute.

Multiple factors contribute to food price increases, including tariffs, extreme weather, and rising costs for labor, fuel, and fertilizer. Barrett pointed out that while individual factors might not be burdensome alone, together they create significant strain.

In regions like Africa and Asia, the fertilizer shortage’s effects could be more severe. UN officials warn that reduced shipments through the Strait of Hormuz could severely impact countries like Sudan and Sri Lanka, heavily reliant on Persian Gulf fertilizer.

Recovery and Adaptation in the Fertilizer Industry

Recent developments have led to a slight decline in fertilizer prices, following a U.S.-Iran agreement to reopen the Strait of Hormuz. The U.S. government has also moved to cut costs, temporarily suspending certain phosphate import duties. However, returning to normalcy in the fertilizer sector could take weeks or months.

The ongoing situation has prompted farmers to explore alternative soil nutrient options. Faced with supply disruptions, some are considering manure, compost, and cover crops to replenish soil nutrients, similar to the increasing interest in electric vehicles amidst rising fuel costs.