Up to 10 billion meals a week could be lost worldwide if disruptions to fertiliser supplies continue, Yara’s chief executive has warned. Svein Tore Holsether said about half a million tonnes of nitrogen fertiliser are currently not being produced because of the fighting linked to the Iran conflict and blocked shipping through the Strait of Hormuz. Raw material shortages and soaring gas and urea prices have pushed fertiliser costs sharply higher, threatening crop yields and driving a potential bidding war for food. The shortages will hit the poorest countries hardest and are already feeding through to food-price forecasts in developed markets.

Supply shock from the Gulf

The fertiliser industry is facing a double shock. Shipping through the Strait of Hormuz has been disrupted after the outbreak of hostilities tied to the Iran conflict. A large share of key raw materials for nitrogen fertiliser comes from the Gulf. About a third of global urea and roughly a quarter of internationally traded ammonia originate in that region.

That matters because urea and ammonia are the building blocks for nitrogen fertilisers. When supply routes are blocked, production falls. Holsether, chief executive of Yara, said production in Qatar and Iran has been reduced and that some Asian governments have rationed gas. Gas is needed to capture nitrogen from the air, so higher gas prices push up the cost of making fertiliser.

Holsether warned that the current shortfall amounts to roughly half a million tonnes of nitrogen fertiliser not being produced. He said the gap could translate into as many as 10 billion meals a week that aren't grown.

For some crops, he added, skipping nitrogen can cut yields by up to 50% in the first season, a figure he linked to early European summer crops such as potatoes.

Prices have jumped, and markets are reacting

Fertiliser prices have spiked since the conflict began. Urea prices rose from about $487 a tonne before the attack on Iran to roughly $700 a tonne, an increase of around $210.

Industry reporting also points to an overall fertiliser price rise of about 80% since the start of the war between the US, Israel and Iran.

Higher input costs hit farmers first. They face rising diesel, energy and other input bills while crop prices haven't yet climbed by the same amount. Holsether said farmers are carrying a growing mismatch between costs and returns. That gap compresses margins across agriculture and raises the chance that some fertiliser will be rationed or left unused.

Those market moves can ripple quickly. Less fertiliser use lowers yields. Lower yields mean smaller harvests and less exportable food. That can push importing countries into bidding competitions for available supplies. Holsether warned that, in such a scenario, wealthier buyers can outbid poorer ones.

Mastheads

Who will be hit hardest

The most obvious impact is on countries with limited buying power. Holsether said Europe will generally be able to outbid poorer nations in a global market. He urged European governments to look at the effect that robust buying power would have on the most vulnerable elsewhere.

International agencies have already flagged risks. The UN World Food Programme warned that rising food and fuel prices driven by the conflict could worsen hunger for vulnerable populations in the region and beyond. That warning echoes Holsether’s concern that a bidding war could reduce food affordability and availability for developing countries.

Even where supply is technically secure, price rises can make food unaffordable for many families. In the UK the Food and Drink Federation has forecast food inflation could hit 10% by December. The Bank of England has said food price inflation might reach 4.6% in September and could go higher later in the year. Analysts expect those headline numbers to be influenced by wholesale fertiliser and energy costs spilling into retail food prices over the coming months.

Industry structure and capacity

Yara is the world’s largest producer of nitrogen-based mineral fertilisers. The company traces its roots to 1905 and has production sites across Europe and in India and South America. That scale gives it buying power and distribution reach. It also means Yara is exposed to swings in raw-material supply and energy costs that are concentrated in the Gulf.

Holsether framed the current problem as both regional and global. He described the conflict as regional in origin but with direct implications for the world food system. When a large share of a key raw material comes from a single region, disruptions there transmit rapidly across markets.

Companies that rely on nitrogen fertiliser now face hard choices. They can try to source limited product at higher prices. They can cut volumes and accept lower yields. Or they can pass costs on to buyers. Each option shifts the economic pain somewhere along the supply chain, from producers to consumers or to countries that lack deep pockets.

Governments have a narrow set of tools soon. They can move to shore up shipping lanes, ease energy constraints, subsidise farmers or release national stockpiles where they exist. Holsether pointed to gas rationing in parts of Asia as an immediate production constraint. Where governments ease gas limits, fertiliser production can recover more quickly.

But policy actions carry budgetary costs. Subsidies to keep fertiliser affordable or to top up farmer incomes require public spending.

That spending competes with other priorities. Export controls or trade measures used to protect domestic supply can intensify global shortages by reducing available exports.

Companies are also weighing logistics alternatives such as rerouting shipments or increasing inventories where possible. Yet higher inventories are costly. And alternatives are limited if the raw-material base remains constrained.

For investors, the shock matters on several fronts. Fertiliser producers could see earnings fall where plants are offline or feedstock costs surge. Some producers might fare better if they can secure supplies and sell at higher prices, but that depends on operational flexibility and access to feedstock.

Food processors and retailers face margin pressure as input costs rise and consumers resist higher prices. Firms with limited pricing power could see earnings squeezed. Those with stronger brands and supply chains may be able to pass on costs, but the timing and extent will vary by market.

Related Articles

Holsether said production shortfalls total roughly half a million tonnes of nitrogen fertiliser, a gap he warned could translate into as many as 10 billion meals a week.

This article was created with AI assistance.