Fertilizer is extremely important in agriculture. However, commercial fertilizer costs hit a new high in a month, more than doubling from the previous year.
Because of the fertilizer shortage and high prices, farmers may switch to crops that require less fertilization, affecting supply as well as the possibility of lower crop yields.
According to CNBC, food prices are set to rise further as supply tightens due to the conflict in Ukraine, which is causing a grain insufficiency as well as a fertilizer shortage, both of which could have far-reaching consequences.
In addition to being a major grain exporters for much of Europe and the rest of the world, Russia and Belarus both supply 40 % of the major ingredient of fertilizer, potash. Furthermore, Russia accounted for 48 % of the global supply of ammonium nitrate and 11 % of the global supply of urea, both of which are components of fertilizer.
Before Russia attacked Ukraine in late February, the world was already running low on food. According to a UN report on food security, between 720 million and 811 million people will go hungry in 2020, an increase of up to 161 million from 2019.
The Russia-Ukraine war has only exacerbated the situation. Wheat prices have risen by 27% since the invasion began, as markets prepare for supply from both Russia and Ukraine to dwindle. While major countries can absorb higher costs and seek alternatives, developing countries have few options other than to foot a larger bill.
Because of cost inflation from fertilizer, grain shortages will put pressure on commodity prices and basic food costs.
According to the Associated Press, the UN Basic and Agriculture Organization (FAO) said that prices for food commodities such as grains and vegetable oils hit all-time highs last month, owing in part to the Russia-Ukraine conflict. Its Food Price Index, which analyzes the regular change in global prices for a basket of goods, averaged 159.3 points in March, up 12.6% from February.
The price increase also exposes a flaw in the Federal Reserve's plan to slow price growth. To reduce inflation, the central bank began raising interest rates in March. Higher borrowing costs help to keep demand for a variety of goods in check, however people need to eat, and the Fed's inflation-fighting strategy won't do much to close the food supply-demand gap.
"This is very extraordinary," Josef Schmidhuber, deputy head of the FAO's markets and trade section, told the news agency. "These exorbitant food prices necessitate immediate action."