Most people understand that a crisis in the Middle East has a direct impact on fuel prices. But it could also have implications for your supermarket and restaurant bill. 

Why? Because the effective closure of the Strait of Hormuz, a narrow passage between the Persian Gulf and the Gulf of Oman, is a key shipping route for oil and fertiliser.

The region exports around 45 percent of global supply, and since the conflict began, the price of urea – a key nitrogen fertiliser used widely in agriculture – has surged by about 25 percent. It’s comparable with the spike in crude oil costs. 

Credit: iStock

How does this affect us?

Australian farmers are about to enter the winter cropping season, and will be planting their crops. For conventional farms, that means buying fertiliser. With urea prices rising, farmers’ costs are about to significantly increase and, in order to remain viable, they will have to look at passing those costs onto the consumer.

For farmer Ian Congdon of Woodstock Flour in Victoria, there’s “just a general feeling of panic.”

“Today I’m literally buying diesel at 30c a litre more than earlier in the week,” he says.

“It also means that the trucks we need to bring in grain from 100km away are flat-out  chasing fertiliser for other people trying to beat the price rise. Our stuff is getting delayed.”

As a regenerative farm, Congdon has a buffer – his fertiliser costs are lower than that of conventional farms. He also relies on a local supply chain, so he’s less exposed to global commodity markets. But his freight will increase.

“For most of Australia that grows grain, between now and June is when all the wheat crops go in, and it’s when people are buying fertiliser,” he says. “The cost of production goes up.”

It’s still early days, but Congdon expects to have to raise his prices. 

“I’ll much more likely have to do that than not,” he says. 

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Credit: Mark Roper

What do the experts say?

University of Sydney associate professor of economics David Ubilava doesn’t think all pantry staples – such as bread, pasta and cooking oils – are at risk of astronomical price increases. 

“Modern agriculture relies on fertilisers as input in production, so most of these staples can be potentially affected,” he says. “That said, the costs of inputs in agriculture are a substantially small share of the costs of food, because there is a whole range of other factors such as labour, processing and packaging that factor in.”

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Credit: Ben Dearnley

The dining-out factor

Rising transport and energy costs might also force restaurants to adjust menu pricing, just when diners thought we’d turned a corner on the cost-of-living crisis.

“Whether it happens or not will depend on how quickly the conflict, or specifically the market disruption, resolves,” Ubilava says. “Last time we saw a large spike in fertiliser prices (2021-2022) is when we also found ourselves dealing with inflationary pressures.

“But the relationship is more correlational than causal. There was a lot going on in the aftermath of the pandemic. This time things are different; global supply chains are not disrupted, save the affected region in the Middle East. 

“In my view, things will quickly go back to normal once this conflict ends. Or, at least, the conflict-related market disruptions get resolved.” 

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The Australian paradox

Even though we are far from the Middle East, the conflict also impacts local food exporters because we are susceptible to global energy shocks.

“We are part of the global economy – and that is a good thing,” Ubilava says.

“Our farmers are price-takers on input markets, such as fertilisers, as well as output markets, like wheat. So, it does not matter if we get a bumper crop; the price that an Australian farmer pays or gets paid is determined globally.” 

For now, farmers, restaurateurs and consumers will just have to face the uncertainties that lie ahead, and hope for a swift resolution of the conflict currently raging. 

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