Agrifood, an important sector highly dependent on diesel used for planting, harvesting, processing and transportation, will be severely impacted if the conflict lasts any longer due to higher oil and fertiliser prices.
That was the dire warning Coface Economist, Australia and New Zealand (ANZ), Apolline Greiveldinger gave in a Coface media event, titled ‘From Disruption to Decision: What the Middle East Conflict Means for Agrifood Sector in Australia and New Zealand’.
Impacted fertiliser leads to food risk
“Around 33% of seaborne fertiliser transits through the Strait of Hormuz, with very limited alternatives,” Ms Greiveldinger explained.
“Much of Saudi Arabia’s infrastructure is located on the Hormuz side, with no rail corridors connecting it to the Red Sea. This is consequently increasing fertiliser prices.”
She also highlighted that Australia is particularly vulnerable in this context, as the country sources around 52% of its urea, a water-soluble nitrogen fertiliser, from the Gulf countries.
“For New Zealand, the Gulf accounts for around 22% of its fertiliser imports, and agriculture heavily relies on nitrogen fertilisers, notably for crops and canola, and disruption would create difficulties for the coming seasons,” warned Ms Greiveldinger.
“Farmers may need to reduce volume or switch to other types of crops.”
A second risk
A second, less well-known risk Ms Greiveldinger shone a spotlight on was the lack of cereal imports to the Middle East.
“The Middle East countries are big importers of cereals, and now they are no longer able to import those volumes,” she explained.
“These volumes will have to be redirected to other markets, which may drive down prices that have already been at historic lows prior to the conflict.”
She also said, “A consequence would be a widening of the gap between rising fertiliser input prices and falling cereal sales prices, which would cause margins to drop.”