Lagarde warns food risks

Christine Lagarde said a prolonged disruption in the Strait of Hormuz could spill from energy into food, with fertilizer shortages severe enough to force rationing. (reuters.com) Lagarde made the warning in a Bloomberg Television interview on April 14, as finance officials gathered in Washington for the International Monetary Fund and World Bank spring meetings. Reuters reported that she said the euro-zone economy was already between the European Central Bank’s baseline and adverse scenarios. (reuters.com) The bottleneck she pointed to is not just oil. The Food and Agriculture Organization said on March 26 that the Strait normally carries up to 30% of internationally traded fertilizers, and that tanker traffic through the corridor had collapsed by more than 90% after the conflict escalated. (fao.org) Fertilizer is crop food: farmers spread nitrogen, phosphate and potash on fields to raise yields, and shortages usually mean lower application rates, smaller harvests, or both. UN Trade and Development said on March 30 that natural gas is a key input for nitrogen fertilizers such as urea and ammonia, so higher gas prices push fertilizer costs up fast. (unctad.org) That is why central bankers are talking about fertilizer at all. The United Nations warned on April 13 that disruptions since Feb. 28 were already constraining flows of oil, gas and fertilizer for newly planted staples, with the next planting season at risk if shipments do not resume. (news.un.org) The price move is already visible. The Food and Agriculture Organization said Middle East granular urea rose 19% in the first week of March and Egyptian urea jumped 28%; CNBC reported Egyptian granular urea later climbed to about $700 a metric ton from roughly $400 to $490 before the war. (fao.org) (cnbc.com) Food prices have not fully caught up yet. United Nations economists said existing stocks and last year’s good harvests kept the March food price index relatively stable, but warned that “the real stop in supply” would show up later as pre-crisis cargoes finish arriving and farmers face tighter input supplies. (news.un.org) The exposure is global, not just European. CNBC reported that about one-third of global seaborne fertilizer trade passes through Hormuz, and CRU estimated roughly 30% of exportable supply was effectively unavailable to the market when shipments from Saudi Arabia, Qatar, Bahrain and Iran were constrained. (cnbc.com) For policymakers and traders, the immediate watchpoints are shipping traffic, war-risk insurance, gas prices and fertilizer benchmarks such as urea and ammonia. Lagarde’s warning puts food security alongside inflation on the list of risks if the Hormuz disruption lasts into the next crop cycle. (fao.org) (unctad.org)