Fuel prices plunged by more than 15 per cent after US President Donald Trump proclaimed a ceasefire with Iran.
Fertiliser prices, however, did not.
Even if the confused ceasefire holds, analysts warn that a food price – and supply – shock is all but inevitable.
Especially in Southeast Asia.
“A quicker-than-expected recovery for energy markets is possible,” Lowy Institute economic analyst Robert Walker says of the ceasefire’s global reception.
“Fertiliser prices did not fall on this news, however. That is concerning.
“Markets do not expect a Trump backdown over Iran will ease the fertiliser shock in the same way.”
Fuel prices peaked at 50 per cent higher than pre-war prices. Fertiliser spiked more than 85 per cent.
That leaves many farmers with an impossible choice.
Should they cut back or abandon fertilising fields and accept lower yields?
Should they switch to a less productive but more resilient crop?
Should they shelve the whole thing and wait for better times?
Their decisions are time-sensitive. As are their deliveries.
And they must juggle a multitude of other impacts, including new tariffs, shipping disruptions and shareholder returns.
“Faced with the price hikes, some farmers might decide that it is simply not worth planting if crop prices won’t cover their costs,” warns Foreign Policyanalyst Joseph Rachman.
And the weather also gets a vote.
Famine: the forgotten crisis
The United Nations’ World Food Program (WFP) warns that the number of people experiencing food insecurity (hunger) in Asia and the Pacific is set to soar 24 per cent in the coming months.
That’s the worst outcome for any region of the world.
It’s not just because of the Strait of Hormuz’s impact on fuel and fertiliser supplies.
The broad region is gripped by an unrelenting heatwave. And that’s already cut crop and livestock yields in Malaysia, Thailand and Myanmar.
President Trump’s Hormuz fallout will be felt next.
“Timing could not be worse, since the main Asian rice planting season is about to begin,” says Rachman.
“Effects will be felt toward October or November, with analysts ballparking the reduction in crop yields at somewhere between 10 per cent and 15 per cent.”
That’s the difference between having just enough to eat and a surplus to export.
Nations that must import rice, grains and other staples will soon feel the pain.
The WFP says Myanmar, wracked by civil war, earthquake and drought, will soon have 12 million people suffering acute hunger. Food prices there spiked 9 per cent in March alone.
The impact elsewhere, however, will be delayed.
“Farmers who had purchased fertilisers before the onset of war may continue with planting as previously planned,” says Centre for Strategic and International Studies (CSIS) food analyst Caitlin Welsh.
“Countries that keep national reserves of fertilisers, like China, may draw on those reserves to provide fertiliser to farmers, insulating them from high fertiliser prices.”
Australia does not hold a strategic fertiliser stockpile.
Nor does it have meaningful fuel reserves.
So the unfolding experience of India and Thailand may be a sign of things to come.
About 40 per cent of India’s and 30 per cent of Thailand’s fertiliser imports come from the Middle East. That’s where Australia sources two-thirds (66 per cent) of its supply.
Thailand and India supply most of the world’s top 10 biggest rice importers. That’s Indonesia, the Philippines, Vietnam and Malaysia.
“Should a global food crisis prompt big producers such as India to once again curtail exports, they will be hit hard,” Welsh warns.
And hungry people are angry people.
“Rising food and fuel prices could even lead to political instability in the region,” warns Rachman.
“Last year’s riots in Indonesia came against the backdrop of rising food inflation.”
Supply-chain disconnect
The food industry is suffering a double blow from the Gulf War.
High fuel prices affect tractors, reapers and trucks. But there’s also the generators for irrigation units, barns, threshers and refrigerators.
The curve ball is manufactured fertilisers.
These are derived from liquefied natural gas (LNG). Any price rise it experiences affects key ingredients, including ammonia, urea and sulphur. And high fuel costs must be added to its distribution.
About 20 per cent of the world’s supply of raw LNG passes through the Hormuz Strait. It also accounts for about 23 per cent of processed ammonia, 34 per cent of urea and 45 per cent of sulphur.
The problem is no longer just the initial 85 per cent price shock. Supplies are drying up.
“Already, fertiliser plants in India and Pakistan are facing production declines given the disruption to natural gas supplies from the Middle East,” Walker reports.
The UN Food and Agriculture Organisation (FAO) says the one-month disruption we’ve experienced so far would affect farmers in the Southern Hemisphere who have not yet purchased fertilisers for the coming season.
A three-month war would deepen the crisis for those in the Northern Hemisphere.
A war extending into 2027 would result in a global economic and supply crisis.
The WFP predicts that the fallout will spread through the global system by June. And that represents an average price rise at the shelf of about 3.6 per cent.
Like Southeast Asia’s farmers, Australian farmers are being faced with the question: to fertilise, or not?
“A wheat farmer, for example, must decide whether to switch to less fertiliser-intensive crops or face much lower crop yields,” argues the Lowy Institute’s Walker.
“Whereas rice farmers cannot easily substitute so must absorb fertiliser costs or reduce fertiliser consumption and face lower yields.”
Australia’s tendency to field-graze cattle may offer some cushioning effect.
“Grains are a principal source of animal feed, so high grain prices ultimately affect dairy and meat prices alongside prices of staple foods,” Welsh explains.
That’s a problem for piggeries and chicken farms. And US-style grain-fed cattle sheds.
“Wars have a way of revealing the world’s hidden architecture,” concludes International Crisis Group president Comfort Eo.
“We notice the narrow straits, the fragile chokepoints, the invisible bargains that keep daily life intact only when they begin to fail.”
Jamie Seidel is a freelance writer
