With commercial ship traffic through the Strait of Hormuz effectively halted amid armed clashes between Iran and the United States and Israel, the global fertilizer supply chain has taken a direct hit. Food security experts warned that the current Middle East crisis could trigger repercussions exceeding the grain price surge that erupted when Russia invaded Ukrainian territory in 2022.
According to the South China Morning Post in Hong Kong and others on the 8th local time, China, the world's largest grain producer, is scrambling to secure sulfur and nitrogen fertilizer, key raw materials for fertilizer, ahead of the spring sowing season. Fertilizer is the most important factor that determines food production. If the shortage of major agricultural inputs drags on, China's grain harvest is likely to decline. Some farms that cannot obtain fertilizer feedstock right away are considering drastic steps, including delaying sowing schedules or even reducing the acreage under cultivation.
Major Chinese media reported growing complaints from fertilizer raw material buyers across China over a shortage of sulfur inventories. According to a market analysis report that China Guosen Securities released in Dec. last year, China relies on overseas imports for 47% of its total sulfur supply. Sulfur is an indispensable core feedstock used to produce phosphate fertilizers that aid plant growth, pesticides that block pests and diseases, and various other essential chemical products.
For Chinese farmers, who consume enormous amounts of fertilizer and pesticides every year, the Strait of Hormuz logistics controls are a severe blow. More than half of the sulfur China imports comes from six countries near the Persian Gulf. To ship sulfur from these Middle Eastern countries to China as international cargo, it must pass through the strategically vital Strait of Hormuz. With vessels unable to traverse the sea route, large fertilizer plants in China that cannot procure feedstock in time are being forced to lower operating rates or even shut down production lines altogether.
As feedstock supplies to the market shrink, fertilizer prices in China have already skyrocketed. According to the information analysis firm S&P, with the major sowing season in the Northern Hemisphere approaching, fertilizer prices delivered to mainland China in January and February already averaged $520 (about 710,000 won), a clear uptrend.
Alan Pickett, managing director for fertilizer research at S&P, said, "Severe maritime logistics disruptions arising in the Strait of Hormuz could push fertilizer prices much higher than they are now." As fertilizer supply snarls drive farming expense to unbearable levels, farmers inevitably cut back on fertilizer use. Crops that do not receive sufficient nutrients from the soil grow poorly, and ultimately yields per unit area fall in a vicious cycle.
Beyond sulfur, the urea fertilizer supply chain that directly underpins food production has also seized up. Urea is the most representative nitrogen fertilizer feedstock supporting half of global food output. The Middle East is the world's largest fertilizer production hub. Among them, Iran is the fourth-largest exporter of urea in the world. The Financial Times in the U.K., citing commodities analysis firm CRU, said 45% of the world's sulfur export volumes and 35% of major fertilizer feedstock exports pass through the Strait of Hormuz.
Some experts pointed out that the physical logistics barriers caused by the closure of the Strait of Hormuz could deliver a massive shock to global food prices that far exceeds the 2022 Ukraine crisis. With significant damage expected for the cultivation of staple grains such as wheat and corn, it will be difficult to avoid a broad-based surge in food prices rising like dominoes. Raj Patel, a public policy professor at the University of Texas, told the Guardian in the U.K., "If supply disruptions continue, consumers will feel higher bread prices within six to 10 weeks, and will witness even egg prices climbing steeply within a few months."
Amid concerns the war could drag on, there are warnings that global grain speculators may preemptively bid up prices and stoke market turmoil. According to a report the U.N. Food and Agriculture Organization released on the 6th of this month, the global Food Price Index in February this year was 125.3 points, up 0.9% from the previous month. This ended a five-month streak of declines and marked a clear return to an uptrend. Tim Benton, a food security expert at the University of Leeds in the U.K., warned in an interview with Bloomberg, "If farmers feeling the burden of farming expense reduce fertilizer use and overall grain yields fall, in poor countries that rely on imports for staple foods it could lead to an irreversible humanitarian disaster."