Food prices set for further rise as energy and fertilizer costs increase

Fertilizer markets don’t grab the headlines. But 4bn people – half the world’s population – rely on nitrogen fertilizer for their food, according to Our World in Data.

And Russia’s invasion means prices are rising whilst availability is decreasing.

  • The chart shows natural gas prices and ammonia costs since 2020
  • Natural gas is the raw material for ammonia
  • Its price was typically around €20/MWh, and has more than doubled to €50/MWh today
  • And, of course, prices will likely go higher as winter boosts natgas demand
  • Ammonia costs have followed natgas higher
  • They were around $250/t before the invasion. Today, they are $200/t higher – and still rising

Buyers expect natgas prices will move higher, and so they are starting to buy ahead of price rises.  

But, of course, not everyone can afford to pay higher prices. And the invasion has actually cut large supplies of Russian gas due to sanctions.

As the I.C.I.S chart shows, up to 70% of Europe’s fertilizer output has been shut down at times over the past 18 months. Farmers have been caught both ways – supplies have been reduced, and they have had to pay much higher prices.

Of course, this doesn’t catch the news headlines. Fertilizer markets aren’t like oil markets – where higher prices immediately increase the gasoline price at the pump.

Instead, farmers buy fertilizer to feed their crops for the next growing season. So the problems start to come a year later, when the reduced crop comes to market at higher prices.

Europe’s problems are, of course, having a global impact. US farmers were badly hit last year, as Modern Farmer reported in December:

“2022’s drastic increase in fertilizer prices has hit farmers’ pockets, and many have opted to buy less fertilizer

And farmers globally are now preparing for the worst, as India’s Daily Star paper reported at the weekend:

“Global fertilizer costs have been surging over the past 2 months” We can see the impact in the chart showing food price indices in the USA, Europe and Japan. They have all moved higher since the invasion, and seem set for another move over the winter.

Similarly, the FAO Cereals index nearly doubled after the invasion.

It then fell back a bit as Ukraine’s cereal exports resumed. But Russia refused to renew the deal in July and this is set to push prices higher. As the BBC reports:

“Ukraine is one of the world’s biggest suppliers of crops such as sunflower oil, barley, maize (corn) and wheat.”

Its export share is huge, and it holds Top 4 market positions: 46% of sunflower oil (No. 1), rapeseed 20% (No. 3), barley 17% (No 2.), corn 12% (No. 4) and wheat 9% (No. 3).

And other prices are also rising as the charts show:

Plus, as the proverb reminds us, “It never rains but it pours”.

The World Bank is already warning that the developing El Nino phenomenon is likely to impact commodities such as rice, coffee, palm oil and natural rubber.

India is the world’s top rice exporter.  It has already banned the export of non-basmati rice – and plans to ban sugar exports. Inevitably other exporters are already following its lead to protect domestic supplies.

Economists might like to believe that inflation is somehow a monetary phenomenon.

But as we are all likely to learn to our cost over the winter, food and energy prices are critical for most people. Oil prices are already rising, as discussed last week. And food prices are joining them.