The disruption of shipping through the Strait of Hormuz has led to warnings of a global food crisis
The US-Israel war against Iran is increasingly affecting consumers in more than just energy prices. The disruption in the Strait of Hormuz is driving up fertilizer costs and fueling a sharp rise in global food prices. Potatoes have emerged as the latest crisis as futures prices have soared in recent weeks amid dire warnings of food security and supply problems.
Why does the price of potatoes later rise?
Financial contracts linked to potatoes have soared more than 700% in the past month and are up more than 34% year-on-year through mid-May, according to Business Economics data.
The increase is largely due to concerns over the impact of the Middle East war on fertilizer supplies, energy costs and agricultural trade channels. Potato is a nutrient intensive crop that is highly dependent on nitrogen fertilizers such as urea and ammonia. The Strait of Hormuz, which handles about 20% of the world’s crude exports, is also important for the transport of nitrogenous fertilizers. Fertilizer prices have already risen nearly 80% since the crisis escalated, according to industry estimates.
According to United Nations estimates, about one-third of global fertilizer trade typically goes through the channel, including shipments of urea, potash and phosphate. Analysts say markets are increasingly bullish on the risk of higher farming costs and weaker future harvests.
What is the biggest concern?
Analysts say that the increase is unlikely to cause an immediate shortage and that the markets are reacting instead to the expectation of rising costs of agriculture, fertilizers and transport rather than the deterioration of the supply of potatoes.
However, if disruptions to the flow of fertilizer and energy markets continue, pressure could increase on the wider food sector. Processed potato products such as chips, chips and frozen meals appear to be particularly vulnerable due to their reliance on factory farming, energy-intensive production and global supply chains.
Will fries cost more in Europe?
The region is reportedly facing an oversupply of potatoes after farmers expanded production in recent years to meet growing demand, and to help consumers from rising retail prices.
However, traders remain concerned about the long-term effects of disruptions to global trade and energy markets despite the current supply glut.
The EU has already been dealing with rising living costs since the escalation of the Ukraine conflict in 2022, when it decided to cut energy ties with Russia, making it more vulnerable to volatility in international markets. The Iran war has added more pressure, and the bloc is now paying more for oil imports. This translates into higher petrol and diesel prices, increasing the cost of transporting food to stores and putting further pressure on grocery prices.
Will other major food prices be affected?
The Hormuz crisis has already affected a wide range of agricultural products, according to analysts and international organizations.
The Food and Agriculture Organization of the United Nations says global food prices have risen for three months in a row, with vegetable oil prices reaching their highest level since 2022. Wheat, rice and corn have also risen amid high transport and energy costs linked to instability around the Straits.
Economists say prolonged disruptions could eventually affect products ranging from bread and milk to meat and processed foods, especially in economies facing energy shocks.
Is the world facing a food crisis?
In richer economies, consumers may feel the pinch especially through higher grocery bills. In poor countries, however, the consequences can be even greater, as rising fuel and fertilizer costs threaten plantings, weaken yields and push staple foods out of reach.
Svein Tore Holsether, the chief executive of fertilizer giant Yara International, has warned that increased hostilities in the Gulf threaten global agricultural production and could eventually spark a food bidding war.
A similar warning came from Jose Andres, founder of the charity World Central Kitchen, who said war-related disruptions to fertilizer supplies could lead to a long-term global food crisis, with poor and import-dependent countries expected to suffer the worst.
A major economic crisis due to the conflict in the Middle East can push more than 30 million people in poverty in 162 countries, mainly in countries dependent on foreign energy, according to the United Nations Development Program.
