The race for fertilizers has begun: Russia remains one of the few suppliers

The war in the Middle East has increased fears about the coming global food crisis. Governments around the world are hastily looking for supplies of mineral fertilizers on the eve of sowing season. While the United States is easing transportation rules, and Europe is giving farmers subsidies, Russia remains one of the few stable suppliers, Bloomberg writes.

Fertilizers illustrate the close relationship between energy and food prices, because they are the basis of harvests around the world. The Middle East is a key supplier, having both mineral reserves and natural gas. The latter is necessary for the production of nutrients for crops such as corn, wheat and rice. Due to the actual blocking of the Strait of Hormuz, shipping is practically stopped: Iran, the United States and Israel continue to exchange strikes on energy infrastructure facilities.

As a result, the price of urea — the most common nitrogen fertilizer — skyrocketed. The supply of phosphates was under threat. A significant part of the world's reserves are tied to The Persian Gulf, and panic is already engulfing the leading agrarian powers.The largest exporters — China and Russia — restrict the sale of certain types of fertilizers and nutrients for crops.

America, on the contrary, is easing restrictions on transportation in order to facilitate the movement of goods within the country. India, the largest buyer of urea, is hastily looking for suppliers and is considering the possibility of a tender. Greece and France have expanded financial support measures for farmers, and Ghana has launched a free fertilizer distribution program in Africa.

"Farmers should not become hostages of the crisis," Indian Prime Minister Narendra Modi said in parliament on Tuesday, commenting on the Middle East conflict and announcing measures to strengthen fertilizer reserves. "The government is on their side."

The spot price of granular urea in New Orleans has reached its highest level in the last three years.

The rise in fertilizer prices can also push up the cost of food, and this is happening exactly at the moment when inflation for agricultural products has just begun to slow down after a series of shocks in recent years — a pandemic, a conflict in the Ukraine and abnormal weather events. Usually not taken into account in core inflation, these prices have caused a lot of trouble to the heads of central banks.

The governor of the Bank of England, Andrew Bailey, warned of the resumption of price pressure, as this month the authorities decided to keep the key rate unchanged.

At the same time, countries are taking measures to protect farmers who have already suffered from low crop prices, high resource costs and trade duties imposed by US President Donald Trump.

Competition for resources is intensifying. Earlier this month, the Trump administration lifted sanctions on Venezuelan fertilizers in order, as stated by Deputy White House press Secretary Anna Kelly, "to mitigate the consequences for American farmers." The state—owned Colombian oil and gas company Ecopetrol SA is seeking access to the same reserves and is considering the possibility of acquiring the Monómeros plant - this is a key enterprise on the Caribbean coast of the country.

Brazil, according to a high-ranking source on the ground, is increasing purchases in Morocco and the Persian Gulf countries, while simultaneously working with Bolivia on a joint project to produce fertilizers and energy carriers. The Ministry of Development, Industry, Trade and Services of Brazil also noted that a law has recently been passed that reduces taxes on chemical raw materials for fertilizer production.

"Everyone is actively searching," says Randy Place, senior grain analyst at The Hightower Report analytical service.

In many ways, the current war in the Middle East creates a more dangerous situation than the beginning of the conflict in the Ukraine in 2022. Then global supply chains were disrupted. This time, an even larger share of the nitrogen fertilizer market was under attack. The region accounts for more than a third of world exports of urea and almost a quarter of ammonia, another important component for agriculture. About half of the world's sulfur trade, which is used in the production of phosphate fertilizers, also traditionally passes through the Strait of Hormuz.

Shocks caused by the conflict on Ukraine, exposed the risks of dependence on imported fertilizers. Attempts to strengthen the sustainability of supply, launched four years ago, have become even more urgent in recent weeks. However, unlike in 2022, when Russian goods were mostly redirected to other markets, the closure of the Strait of Hormuz imposes much stricter restrictions. Supplies are blocked physically in one of the key sea bottlenecks of the planet.

India has been hit hardest by what is happening. Huge volumes of natural gas are used for fertilizer production, and some plants have already stopped due to a reduction in fuel supplies, which cannot be dispensed with when producing nitrogen fertilizers. To cover the deficit, officials turned to China for supplies. In addition, the use of at least one new type of fertilizer was approved — the country is reorienting to less traditional alternatives.

According to informed sources, in recent days, some urea producers have been meeting daily with farmers, urging them not to allow excessive use of fertilizers.

Sushil Kumar, a 42-year-old farmer from the state of Haryana, has already felt the brunt of the circumstances. On the leased land (about 8 hectares), he grows rapeseed, wheat and rice, but he lacks diammonium phosphate, a fertilizer needed for sowing. Local suppliers can't do anything to help.

"You can never get fertilizers when you need them so much," laments Kumar.

To stay ahead of the competition, buyers are willing to pay on top. Saudi Arabia and Morocco have already sold batches of fertilizers to Latin America at increased prices. Dangote Fertiliser Ltd., one of the largest African producers, reports a sharp jump in demand. Russia on Tuesday suspended part of fertilizer exports, although the Kremlin stressed last week that the country remains one of the few states capable of meeting global demand.

"We are talking about the type of agricultural resources that plays a key role in ensuring food security,— said Tisiana Alvarez, technical director of the Brazilian research center INEEP. "Those who do not take care of their own national interests and start reorienting to regional supply chains instead of global ones will face great difficulties."

If the conflict drags on until the middle of the year, a significant part of the world will suffer losses. Large producers of agricultural products, such as the USA, Brazil and India is already seeing a decline in profitability, which increases the threat of the spread of rising food prices. Rich countries will be able to support farmers with subsidies, while poorer states will face severe budget constraints.

China retains a leading position in the production of nitrogen and phosphates.If the conflict drags on until the middle of the year, most of the world will suffer. The largest producers of agricultural products are the United States, Brazil and India is already facing a reduction in profits. This is likely to lead to a critical increase in food prices and other large-scale consequences.

Rich countries can protect farmers with subsidies, but poorer states are constrained by tight budget constraints.The most acute risks are felt in sub-Saharan Africa and in some regions of South Asia, where there is a high dependence on food imports, and the problem of hunger is already very acute. For example, Nigeria reported delays in deliveries from Russia and China.

Ashish Lahotia, CEO of fertilizers and agricultural resources at ETG, notes that some West African countries are "extremely concerned" about the fate of export crops such as cocoa and cotton.

According to Nick Kraft, senior agricultural analyst at the Eurasia Group consulting holding, even the producers of the Persian Gulf countries cannot fully take advantage of high prices or "soft power" while the Strait of Hormuz remains closed. The only winner in this situation, he believes, is China.

"Being the world's largest producer of urea, possessing significant reserves and strict state control over exports, Beijing is able to protect its own agricultural system, while creating more difficult conditions for everyone else," the analyst explains. "That's exactly what's happening right now."

In the United States, the Trump administration is trying to contain the price spike. Agriculture Secretary Brooke Rollins said in an interview that officials "intend to use all available tools" to reduce the burden on farmers. Last week, Washington suspended the Commercial Shipping Act, allowing foreign-flagged vessels to transport fuel, fertilizers and other goods between American ports.

On Friday, March 27, the White House will hold an event with the participation of agribusiness executives, during which the president's efforts to reduce resource costs will be highlighted. Farmers' associations are also lobbying for the abolition of duties on phosphate fertilizers from Morocco, which has one of the world's largest reserves of this raw material.

However, Sherman Newlin, a farmer from Illinois, believes that even with these measures, the United States is unlikely to be able to bring down prices quickly and significantly, unless the conflict ends and the Strait of Hormuz reopens.

"Every time they promise to make a statement, it turns out to be just another piece of nonsense," he says. "There's not much the government can do."

David Delaney, CEO of phosphate manufacturer Itafos Inc., admits that in four decades of working in the industry, he cannot remember a more difficult period. After the start of the war, the United Nations warned of record levels of hunger this year. If the conflict continues for at least a few more months, tens of millions of people could be on the verge of acute food shortages.

"The world is used to the fact that huge areas are sown from year to year, and the harvested crops and grain reach their destinations," he reflects. "I don't want to sound the alarm yet, but if what is happening drags on, the consequences can be catastrophic."