The Iran war threatens to cause a new shock to food prices in developing countries

The disruption of fertilizer shipments and the rise in energy prices due to the Iran war threatens a new wave of rising food prices in countries at risk, which could lead to a setback that extends for years, while many countries are still recovering from successive global shocks.

Developing countries witnessed a noticeable improvement and attracted investments after the global “Corona” pandemic and the war in Ukraine caused turmoil in the food, fuel, and financial markets. Now, the Iran war threatens to undermine these gains, leaving families struggling to meet their food needs.

“This could have a significant impact on prices and food prices over time,” said Odile Renaud-Basso, president of the European Bank for Reconstruction and Development, where the bank is a major lender in about 40 emerging economies.

For her part, Mary Deron, managing director at Moody’s credit rating agency, said that food and fuel constitute less than a quarter of the consumer price inflation basket in most advanced economies, but they represent 30 to 50% in many emerging markets.

She said, “A number of economies face this risk, making them particularly vulnerable to the risk of price fluctuations driven by external factors.”

Fertilizers are a major pressure point, as about 30% of the fertilizers traded globally pass through the Strait of Hormuz, and producers in the Gulf region are major suppliers of ammonia and urea, according to the Food and Agriculture Organization of the United Nations (FAO).

Bank of America warns that the conflict threatens between 65 and 70% of global supplies of urea, noting that prices have risen by between 30 and 40%.

In turn, the chief economist at the FAO, Maximo Torero, said in comments about the repercussions, if the conflict continues for only a few more weeks: “This will affect agriculture. There will be a decline in the world’s supplies of primary commodities of basic grains and feed, and thus of dairy and meat products.”

Unlike fuel, there are no strategic global stocks of fertilizers, but some countries are more vulnerable than others.

Latin America, which is far from war and includes Brazil and Argentina, the giants in the fields of energy and agriculture, enjoys a safer situation. However, Brazilian Agriculture Minister Carlos Favaro warned of the possibility that the country will face problems with fertilizer supplies. As for oil-producing Nigeria, the Dangote Fertilizer Plant will contribute to alleviating the severity of the crisis. In contrast, countries such as Somalia, Bangladesh, Kenya and Pakistan do not usually maintain large stocks of fertilizer, and rely more on supply chains.

Unlike what happened in 2022 when the Russia-Ukraine war suddenly affected the two countries’ grain exports, higher fertilizer prices or even a severe shortage could lead to lower crop yields, while higher energy prices increase the cost of production and transportation.

Data from the International Fertilizer Industry Association revealed that any shortage in fertilizer supplies is likely to first affect crops that rely heavily on nitrogen, such as corn and wheat, and the increase in the cost of feed will be reflected in all products, from bread to poultry and eggs.