Food fears

Weekly Updates

Every energy price spikes inevitably feed fears of higher food prices. Fertilizer manufacture is energy intensive, and natural gas is used to produce some of the chemicals. The food price risk is not evenly distributed.
Emerging markets are more vulnerable to a fertilizer shock in three ways. Food is a higher share of an average consumer’s spending basket. Food is generally less processed, meaning that the farm gate price is a larger part of the consumer price. Fertilizer use is less efficient (although fertilizer efficiency has improved significantly in recent years).
In developed economies, farmers receive only a small fraction of the consumer price of food. That means that higher fertilizer prices do not need to feed significant food inflation. However, stories of crop shortages might be exploited by the retail sector to increase markups. US retailers (across all products) have profit levels running at over 20% of the sector’s gross value added—equivalent to the record highs of the pandemic. Wholesalers’ profits, at around 10%, are below long-term averages.
However, higher fertilizer prices may not be the biggest agricultural price threat this year. 2026 might produce a super El Niño weather pattern. In that case, drought and limited water supply might be more important than shortages of nitrogen.