Geoff Bennett:
Let’s focus now on some of the economic effects of the war with Iran.
About a third of the world’s fertilizer supply passes through the Strait of Hormuz, and its effective closure is causing shortages and price spikes for fertilizer during the crucial spring planting season. That has led to fears of both elevated food prices and lower crop yields across the globe.
This morning, Agriculture Secretary Brooke Rollins told PBS News’ Liz Landers that — quote — “everything was on the table” to fix the problem for American farmers.
Brooke Rollins, Agriculture Secretary:
Clearly, this — I think we’re at 36 days for the conflict — has elevated the issue of fertilizer and how important it is for American farmers and, frankly, for our food supply.
The good news is that about 80 percent of our farmers actually last fall locked in their fertilizer, so, as we’re moving into planting season, it’s only about 20 to 25 percent of our farmers that didn’t lock that in. We are working directly to ensure that we can get them what they need and it won’t bankrupt them.
Geoff Bennett:
Now, despite those numbers, farmers we spoke with say they fear these cost increases could put them over the edge.
Here’s some of what they told us.
Russell Boening, Texas Farmer:
My name is Russell Boening. My family and I farm right south of San Antonio. We’re buying nitrogen right now. And it’s about 40 percent higher than it was two or three months ago, before the conflict. Let’s just say that.
Lance Lillibridge, Iowa Farmer:
I’m Lance Lillibridge from Benton County, Iowa.
We booked most of our fertilizer before the conflict in Iran. However, some of it we did not because it was too expensive. We’re probably going to go without that particular nutrient on our crop this year. A lot of other farmers are doing the same thing.
Matt Frostic, Michigan Farmer:
My name is Matt Frostic. I have a crop and livestock operation in Michigan. In January, we were looking at nitrogen for about $350 a ton. Today, that number is bouncing around $600.
Steve Turner, Illinois Farmer:
Steve Turner. I am a farmer in northwest Illinois located about 40 miles northwest of Springfield.
We have got a lot of our inputs paid for, but I’m afraid we’re going to be looking at some elevated prices for a while.
Russell Boening:
There’s people saying, well, there’s 80 percent of the fertilizer has already been purchased for this year’s crop. And we actually heard that figure from USDA. Even if 80 percent is pre-purchased and the other 20 percent goes up 50 percent or more, it can still be a pretty good hit for you.
Matt Frostic:
The reality is, we’re not breaking even. We didn’t break even the last two years.
Lance Lillibridge:
With increases in input prices, there are no margins. They appear to be zero at this point.
Steve Turner:
It’s just not the fertilizer. It’s going to be the fuel end of this thing. And I know everybody’s experiencing that right now with the elevated fuel prices.
Russell Boening:
You know, I always say, if gas and diesel go up, if oil goes up, everything else is going to follow in some form or fashion.
Matt Frostic:
As fuel becomes expensive and it’s hard to produce that crop or costs more to produce and transport that crop, it all kind of equates to higher prices.
Lance Lillibridge:
So much of growing a crop is out of our control, and we can only manage certain things. When the prices of these inputs become so high, it’s — gosh, what do we do? I don’t know. And I don’t think anybody’s got a wonderful answer to it.
Russell Boening:
Well, when it comes to policy, I mean, frustration might be a little bit of a strong word. There’s maybe anxiety even before the conflict. Let’s be honest about it. Tariffs have caused the price of our inputs to increase. If you want to look at it from the 30,000-foot view, agriculture pretty much still trusts this administration. That’s still what I hear.
Steve Turner:
When you look at the Strait of Hormuz, we have got to have shipments out of there. And I think anything, whether it’s our U.S. Navy or whatever it is to stabilize that region to get shipments out of there, because we were already fighting record inflation and a price squeeze already. And this is just more on it right there.
Geoff Bennett:
For more on the impact of this fertilizer shortage, return now to Caitlin Welsh. She’s the director of the Global Food and Water Security Program at the Center for Strategic and International Studies.
Welcome back to the program. It’s good to have you.
Caitlin Welsh:
Thanks for having me.
Geoff Bennett:
So the Strait of Hormuz has been closed now for longer than a month. How critical is it for global fertilizer supply?
Caitlin Welsh:
Very critical, and for a number of reasons, first of all, because the Gulf is responsible for production of a significant amount of major fertilizer types, exporting — being the top exporter of some major types of nitrogen fertilizer and phosphate fertilizer.
The Gulf is also responsible for significant proportions of exports of inputs to fertilizers as well, liquefied natural gas and sulfur. And, combined, both the restrictions on exports to fertilizer and inputs to fertilizer has caused the price spikes we just heard about.
Geoff Bennett:
Well, say more about that. What has it meant for prices and availability?
Caitlin Welsh:
Yes, the prices of all fertilizers are increasing, whether or not they’re exported from the Gulf. And the prices of nitrogen-based fertilizer, particularly, like some of the ones we just heard the farmers reference.
One type of nitrogen fertilizer has increased by 45 to 50 percent month on month. What that means for farmers right now, as you mentioned, in the spring planting season, a lot of farmers are faced with high prices. Some farmers, in fact most farmers in the United States had already secured the fertilizer they needed for this planting season beforehand.
But those who didn’t needed to purchase fertilizer in global markets and were exposed to those high prices. When that happens, farmers have to make choices. They plant less crops, they apply less fertilizer or they switch the crops that they plant. All of those have long-term effects.
Geoff Bennett:
Globally, what are the biggest risks if this disruption continues?
Caitlin Welsh:
So, the biggest risks come in two categories. One is risks from high fertilizer prices. And that — those risks change depending on the time horizon of this war. The nature of the countries affected and how they’re affected changes.
When you look at the countries that were importers of the products that I mentioned, the final fertilizer products and the inputs to fertilizers, those include some of the world’s major agricultural producers and exporters. So, potentially many really important countries on ag markets could be affected, alongside a lot of countries that are food-insecure could also be affected.
But the other category it impacts comes actually through a different channel, which is high energy prices. And it’s actually through high energy prices that we’re expecting to see high food prices in the short term in the U.S. and around the world.
Geoff Bennett:
If the strait were to reopen tomorrow, how quickly could the supply recover?
Caitlin Welsh:
Weeks to months likely.
Geoff Bennett:
Really? Months?
Caitlin Welsh:
Mainly because liquefied natural gas is one of the most important inputs to nitrogen fertilizer. And what we have seen are intentional attacks on LNG production facilities. So, the duration of time it takes to get those facilities back online is going to affect how long it’s going to take to get fertilizer prices back to normal.
Geoff Bennett:
There are comparisons to the 2022 disruption after Russia’s invasion of Ukraine. Is that a fair comparison?
Caitlin Welsh:
Yes and no.
It’s a fair comparison, in that major commodities are affected in both scenarios and the timing was very, very similar almost to the day. In the case of Russia’s invasion of Ukraine, you had fertilizers and fuel and food exports affected. In the case of this war with Iran, you have fertilizers and fuel affected mainly.
With Russia’s invasion of Ukraine, because millions of tons of grains were effectively locked in Ukraine’s ports immediately after the invasion, that’s why you saw global food prices spike to a historic high within a matter of weeks.
In this case, again, it will take some time to see the impacts of high fertilizer prices on agriculture markets and food prices, but in the near term, it’s high energy prices that are driving food prices higher globally. We saw the first report of the U.N. Food and Agriculture Organization out just a few days ago looking at prices in March.
The price of all major ag commodities had increased.
Geoff Bennett:
Well, that was my next question for you. We talked about the impact on these farmers.
Caitlin Welsh:
Yes.
Geoff Bennett:
But, for regular consumers, I hear you say that we might not see the price increases for, what, a couple more weeks?
Caitlin Welsh:
A couple more weeks.
I will be looking for the Consumer Price Index report from the U.S. out in a matter of days. I will be watching for subsequent reports from the U.N. Food and Agriculture Organization. The World Food Program of the U.N. expects that the impact of high energy prices alone will increase the number of people experiencing acute food insecurity by up to 45 million, depending on the duration of the war.
And those impacts could spike within a few months. So it takes a few months for the impacts of high energy prices to bear out on high food prices. That’s what we saw in the case of Russia and Ukraine as well.
Geoff Bennett:
Caitlin Welsh, thanks, as always, for your insights.
Caitlin Welsh:
Thank you for having me.
