Global Fertilizer Market Under Pressure: How Middle East Conflicts Could Impact Food Prices
Escalating tensions in the Middle East are creating noticeable pressure on the fertilizer market, a critical niche within the agricultural sector. This could develop into a primary driver of food price dynamics in Europe, and Latvia specifically, in the coming months. Conflict in the Persian Gulf region is already disrupting global supply chains, with increasingly clear repercussions for Europe.
The Urgency of Fertilizer Supply
According to reports from the British publication “The Guardian,” Svein Tore Holsether, CEO of Norwegian fertilizer manufacturer “Yara International,” warns that a prolonged conflict involving Iran could significantly reduce global food production. The primary risk centers around supply chain security in the Persian Gulf, a key source of fertilizer raw materials. Price increases are already being observed; the price of urea has risen from approximately $487 to $700 per ton in just a few weeks, directly increasing agricultural production costs.
Urea is one of the most widely used nitrogen fertilizers globally, crucial for crop growth. It provides plants with nitrogen, a key nutrient for leaf and stem development, and overall yield. Its effectiveness and relatively low cost make it popular in grain farming, including in Latvia.
Potential for Catastrophic Supply Disruptions
Holsether cautioned “The Guardian” that “If the Strait of Hormuz were to be closed for a year, it would be catastrophic. We are talking about plant nutrition, and if they don’t get nutrition, you will see a significant reduction in farm yields. For some crops, if they don’t get fertilizer, you could see a reduction in the first harvest of up to 50%.”
This translates to potential increases in grain and food prices across the Baltic region, including Latvia. Latvian farmers face rising costs during the spring sowing season and increased reliance on volatile global markets. In a region already impacted by energy resource prices, the new conflict could fuel further food price inflation.
Recent Disruptions in Production
The international news agency “Reuters” reports that the conflict has already directly impacted fertilizer production in several regions, particularly due to disruptions in natural gas supplies. In Qatar, operations at one of the world’s largest urea plants have been suspended following attacks on liquefied gas infrastructure. In India, at least three plants have reduced production due to significant declines in liquefied natural gas supplies from the Persian Gulf.
Bangladesh has closed four out of five fertilizer plants, whereas Australia’s “Wesfarmers” has warned of potential supply delays. Egypt, which supplies 8% of the world’s traded urea, may face difficulties with nitrogen fertilizer production after Israel announced force majeure on gas exports.
Brazil is almost entirely dependent on urea imports, nearly half of which pass through the Strait of Hormuz. US farmers report a shortage of approximately 25% of the fertilizer supplies they need, according to “Reuters”.
Price Increases Already Being Felt
Recent reports in Polish media indicate that fertilizer prices in Poland have already begun to rise. Complex fertilizer prices have increased by approximately 7%, while urea prices have risen by as much as 14%, with further increases expected. These price increases are driven by global factors – energy costs, geopolitical tensions, and supply uncertainty. Farmers are becoming more cautious with purchases, and some are reducing fertilizer employ, anticipating further price fluctuations, potentially leading to lower overall yields.
Latvia’s Vulnerability and the CBAM Impact
Zinta Jansone, Commercial Director and Agronomist at the Latvian agricultural cooperative “VAKS,” emphasizes that the rising cost of fertilizers poses a greater threat to Latvia than anywhere else, as the country is entirely dependent on imports.
She also notes that the European Union’s Carbon Border Adjustment Mechanism (CBAM), which applies to fertilizers, is currently suspended but not cancelled. This means importers will need to register each tonne imported from third countries and a corresponding tax will be calculated in the future.
CBAM is an EU policy that imposes a carbon emissions price on imported products, including fertilizers, if they were produced with high CO₂ emissions. Its aim is to reduce carbon leakage, promote greener production, and level the playing field for EU businesses. Currently, importers must register as authorized CBAM declarers to import goods covered by the mechanism.
“We know what price we can buy at now, but we don’t know what the calculated taxes will be at the beginning of 2027. Each (fertilizer) tonne imported from third countries must be registered, but the cost will be calculated in the future. (..) This could be around 70-140 euros per imported tonne, depending on the manufacturer and fertilizer formula. (..) We could import cheaper fertilizers from Uzbekistan or Kazakhstan, but we don’t know the rules of the game clearly,” Jansone explained.
Another unknown factor is the price of oil and gas, which are closely linked to fertilizer prices. Latvia has purchased a relatively small amount of fertilizer this year, Jansone noted, but “VAKS” has ensured its members are supplied, with approximately 80% of the necessary fertilizer purchased in the autumn. Fertilizer market prices have already risen by around 70-100 euros per tonne, depending on the specific product.
The Need for Favorable EU Policies
“If Europe adopts favorable rules for our farmers and can import from third countries, that would change the game in our favor. But if this CBAM remains in place, we will not be able to compete. (..) We are waiting for a decision on whether to maintain or cancel CBAM.”
Agriculture Minister Armands Krauze criticized the CBAM regulations even before the Iranian conflict, describing them as an unfair burden on EU farmers. At an extraordinary meeting of EU Agriculture Ministers in Brussels on January 7th of this year, Krauze emphasized that production costs for farmers in the EU are already very high and the introduction of the CBAM would further increase the price of nitrogen fertilizer, rather than supporting a transition to more sustainable production.
Frequently Asked Questions (FAQ)
- What is CBAM? CBAM (Carbon Border Adjustment Mechanism) is an EU policy that puts a carbon price on imports, including fertilizers, to ensure fair competition and promote green production.
- How will the conflict in the Middle East affect fertilizer prices? Disruptions to supply chains in the Persian Gulf region are already causing fertilizer prices to rise, and further conflict could lead to significant price increases.
- Is Latvia particularly vulnerable to fertilizer price increases? Yes, Latvia is entirely dependent on fertilizer imports, making it highly susceptible to global market fluctuations.
- What is urea and why is it crucial? Urea is a widely used nitrogen fertilizer crucial for crop growth, providing plants with essential nutrients.
Explore further: Discover more about sustainable farming practices and the future of food security here.
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