RIYADH: How could a missile strike on a Qatari gas facility drive up the price of rice in Bangladesh? The answer lies in an unappealing commodity, yet one that forms a significant part of the world’s food supply: fertilizer.
Qatar burns natural gas to produce ammonia, which is then converted into urea. Urea is added to the soil, where grain is grown.
According to the South China Morning Post, disrupting the first step, as Iran did when it struck QatarEnergy’s liquefied natural gas processing facility on March 1, will have cascading effects along the food production chain.
The price of urea in Southeast Asia has jumped by more than 40 percent since the Qatari LNG plant went offline.
By March 9, prices for April and May shipments had surpassed $700 per tonne, their highest level since the third quarter of 2022, when the Russia-Ukraine War disrupted global supplies.
The Gulf region currently accounts for about 45 percent of global urea exports.
But the Iranian attacks have made passage through the Strait of Hormuz extremely risky. As a result, shipments representing about one-third of the world’s fertilizer trade have been halted, with Asia being among the most vulnerable regions.
3 to 4 million tonnes of fertilizer will not reach markets monthly
According to estimates by analytics firm Signal Ocean, between 3 and 4 million tonnes of fertilizer per month will not reach markets as long as the Strait of Hormuz remains closed.
The impact will be particularly severe on South Asia. Pakistan imports most of its LNG from Qatar and the UAE, while Qatar supplies India with more than 40 percent of its LNG imports and about two-thirds of Bangladesh’s.
All 32 ammonia plants in India — one of the world’s largest producers of nitrogen fertilizers — run on gas. According to Indian media reports, one plant has shut down due to shortages, while three others have reduced production.
CRU Group vice president of market intelligence and pricing Chris Lawson believes the three South Asian countries will have to “pay a very high price” for fertilizers if they can obtain them on the open market. If they cannot, it will ultimately affect their upcoming harvests.
Timing is crucial, as farmers in northern India and Pakistan typically fertilize their summer monsoon crops, such as rice, sugarcane, corn, and cotton, between April and July.
CRU Group estimates that if the disruption to Gulf supplies continues until early April, South Asian buyers could need up to 1.5 million tonnes of additional supply per month.
The impact of the delay in August
What makes managing this impending crisis even more difficult is that its effects are not immediate. Fertilizers not purchased in March do not necessarily mean empty shelves in April, but rather a decline in crops in August, by which time the season will be over and nothing can be done about it.
In an analysis distributed to clients earlier this month, CRU Group warned that if the Gulf crisis continues beyond March 20, “the main risk will shift to wider supply disruptions” due to restricted export routes and limited storage capacity.
Even if tensions subside, restarting idle production capacity will take an additional two weeks, resulting in a “significant reduction” in Middle East supplies until at least late March.
Disruptions of this magnitude have triggered a chain reaction in the past, according to Signal Ocean. Farmers use less fertilizer, marginal land requiring more inputs is left uncultivated, and producers switch to crops with lower nitrogen requirements.
For example, soybeans may replace corn, leading to a surplus in one market and a shortage in another. If enough producers abandon corn cultivation, animal feed will become scarce and prices will rise, followed by higher prices for farmed meat and fish.
India, China most vulnerable to disruptions
According to Signal Ocean, India and China are the most vulnerable to supply disruptions, as each relies on the Gulf for approximately 20 percent of its fertilizer imports.
The company explained that the likely outcome would be lower global crop yields, higher feed and food prices, and increased volatility in agricultural commodity markets.
Alternative exporters, most notably the US and Brazil, may attempt to compensate for some of the shortfall, but the company indicated that the timing and scale of this response will be crucial in determining the severity of the impact.
Impossible Choices
For individual farmers at the periphery of supply chains, the effects could be devastating, according to Alexandra Brand, vice president of sustainability and corporate affairs at Syngenta Group.
She explained that these farmers already operate on very thin profit margins and may be forced to make difficult choices in the coming months if fertilizer costs rise sharply and supplies dwindle.
Brand explained that small farmers, family farms, and large commercial farms will all feel the pressure, as each will have to choose between paying prices they cannot afford, cultivating less land, or forgoing fertilizer altogether and accepting a smaller harvest.
She said that the continued disruption of fertilizer supplies threatens “agricultural productivity and food security for millions of people.”
Currently, fields are still being planted but most of the fertilizer that was supposed to reach Asian farms is either stuck in the Gulf or has not been produced at all.
This year’s harvest will reveal this reality. By the time the effects become apparent, it may be too late to act.
