Iran war food price crisis: overview
- Strait of Hormuz closure continues disrupting global energy and fertiliser trade
- FAO warns prolonged conflict could trigger food price crisis within months
- Fertiliser shortages and energy costs threaten yields and increase production expenses
- Fertiliser-intensive crops likely face greatest price pressure
- Industry must diversify logistics, reduce fertiliser use and adopt resilient technologies
It is now three months since the start of the Iran war. Despite frequent reports of a potential deal to end the conflict, none has yet been forthcoming.
This means that the Strait of Hormuz remains closed and the subsequent choking of global energy and fertiliser trade continues.
In a war like this one, anything could happen. No one truly knows how long the Strait will remain closed.
If the conflict continues, the UN’s Food and Agriculture Organisation (FAO) predicts, it could lead to a major crisis in food prices within six to 12 months.
Food price crisis on the horizon
The war in Iran has already put pressure on the food sector. It has driven up global energy costs and pushed up the price of fertiliser, making food production more expensive. It has strained demand for vegetable oils that are being used as biofuels. It has even led to the use of black-and-white packaging due to shortages of ink.
But all of this could pale in comparison to what may come down the tracks if the war continues.
A global food price crisis could take place, suggests the FAO, if things do not change soon. According to FAO chief economist Maximo Torero, farmers and stakeholders must act now if the crisis is to be avoided.
The FAO’s food price index, which tracks the prices of global commodities, has increased every month since the war began.
What commodities will be affected?
The impact on individual food commodities will not be uniform. The most commonly consumed ones may not be hit the hardest.
“I think the commodities most likely to be adversely affected by the Middle East conflict are those that are either niche or not widely available,” says Stephen Butler, CCO and co-founder of AI commodity price prediction platform ChAI.
Such commodities, he suggests, will be either those extensively tied to the global supply chain or those that are highly energy intensive to produce.
The commodities that will be impacted the most are those where fertiliser use is the most extensive, explains Tosin Jack, director of market reporting at commodity intelligence platform Expana.
Expana’s sources report that grain farmers in Romania, France, Poland and Ukraine are considering switching to alternative crops like sunflowers because of fertiliser prices. In the oilseeds and veg market, sources report that high fertiliser prices are encouraging higher soybean acreage in the US, although many argue this is not fertiliser-related.
Initially, the crisis did not affect the prices of soft commodities, such as cocoa, wheat, milk and dairy, as significantly as it did other commodities. These are not highly energy-intensive to produce, so are affected less by energy shortages.
However, this could change if the crisis continues, says ChAI’s Butler, although food inflation, if it takes place, will likely come to the fore in the second half of the year and into next year.
Meanwhile, reports suggest that coffee has moved on from the conflict, explains Expana’s Jack. While there are concerns around fertiliser prices, these are expected to be short-term.
What other factors could affect the crisis ?
Weather may worsen the crisis. The initial shock from the Iran war, at least for food, was eased by the fact that it took place in the spring planting and growing seasons, Butler explains. Yet the current European heatwave and dry spells in Central and Eastern Europe do not present favourable conditions and could affect crop quality.
Meanwhile, the demand for biofuels will keep the prices of commodities such as palm oil elevated well into 2027, Butler predicts.
However, he believes that the biggest threat to the food sector comes from shortages of urea and phosphate fertiliser, as well as more niche energy sources such as helium and liquefied natural gas. These shortages normally affect the price of the finished product further down the supply chain.
While oil and gas production “usually finds a way to catch up with and replace supply shortages”, this is not the case with these other inputs.
With these risks in mind, the food sector must prepare and aim to mitigate the crisis.
How can industry prepare?
The food industry must act quickly in order to mitigate the impact of the predicted crisis, says the FAO.
In the short term, alternative trade routes must be found in order to bypass the Strait of Hormuz.
The use of intercropping — growing multiple crops together to reduce the use of fertilisers — is also recommended.
The FAO warns against exacerbating the demand for biofuels too much, which may create competition between food and fuel.
In the long-term, the food sector should diversify ports, corridors, storage and logistics in order to reduce future checkpoint risks.
It should build regional reserves to reduce the impact of location-specific shocks.
Irrigation should be expanded by replacing diesel with electric and solar-powered systems.
The FAO also recommends expanding the use of drones, electrified machinery and precision agriculture technologies.
Finally, the use of early warning systems and monitoring should be expanded so that companies can respond before crises escalate.
In short, it is not too late to prepare. The food sector must diversify risk and reduce the pressure of the war on its supply chains.
