Excessively high fertiliser prices mean farmers are limiting their use, reducing yields. This is particularly the case in developing nations where farmers simply don’t have the cash to buy fertiliser.
This means crop production will be hit particularly hard in Africa, South America and parts of Asia. Meanwhile, demand for fertilisers from key agriculture markets remains strong amid rising grains prices. Higher crop prices are incentivising these farmers to use more fertiliser to increase productivity.
The combination of tight supplies and strong demand should keep prices elevated, though we have to be mindful of the recent price rally.
Bringing it home
Food shortages are expected to worsen as climatic issues, energy shortages, the pandemic and the invasion of Ukraine all impact the world’s ability to produce sufficient food.
China appears to be one step ahead of the rest of the world in terms of securing additional food supplies and their policy to increase imported product reserves is now serving them well as other countries scramble to import product at inflated prices. High global food prices will cause hunger in developing nations and erode wealth globally, as it will continue to underpin inflation.
Food-exporting nations like Australia and New Zealand may continue to benefit in a net sense from high commodity prices but it’s hard going for lower-income earners. In addition, as global prices become too expensive, demand will fall, as consumers’ ability to purchase higher-value proteins such as dairy products and red meats is reduced. Demand for basic foodstuffs such as grains is not expected to wane to the same extent – people have to eat.
The world will need to wait for global supply to increase before these markets rebalance and prices temper. It’s also worth noting high food prices are not conducive to geopolitical stability. Hunger induces migration and topples governments.
The food crisis is another factor to add to the growing list of potential geopolitical risks as the world tentatively emerges from the shadow of COVID-19.
Soni Kumari is Commodity Strategist and Susan Kilsby is Agriculture Economist at ANZ