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UK arable farmers will face a “cash crisis” this summer when they are forced to fork out for more expensive fertiliser as the US-Israeli campaign against Iran restricts the global supply of raw materials to help grow crops.
Farmers who grow grains are already under financial pressure following two consecutive years of poor harvests and a five-year low wheat price. Now they could see production costs soar, in what would be a repeat of the input cost crisis that followed Russia’s full-scale invasion of Ukraine.
“The hit to farmers’ pockets will be this spring and summer,” said Nick Shorter, chief executive of farm management firm Velcourt, which oversees 56,000 hectares of UK arable farmland. “There is a real cash crisis looming.”
The majority of arable farmers have secured their supply of fertiliser for the upcoming spring, which means the higher costs will not be reflected in the season’s grain price.
But from this month onwards, farmers expect to start ordering fertiliser for next year at a higher price.
The Middle East is a major producer of fertilisers and the conflict has caused trade flows through the Strait of Hormuz to grind almost to a halt, forcing up global prices.
About 35 per cent of global exports of urea, a widely used nitrogen fertiliser, pass through the Strait, according to CRU data, as does 45 per cent of global sulphur exports, used to produce phosphate fertilisers.
Granular urea prices in the Middle East have risen from $485 a tonne before the outbreak of the conflict, to $650 at the end of the week.
The price of ammonia imported to Europe reached a three-year high of $750 a tonne on Friday, according to S&P Global.
“It’s not the same scale of increase that we saw in the Ukraine war but it’s still an extra cost,” said David Swales, head of economics at the Agriculture and Horticulture Development Board, a levy board that supports farmers.
“We’ve had horrendous weather, the amount of arable [produced] has been down a lot, but the market has been well supplied . . . They’ve got a lower price and less to sell. Higher fertiliser prices chucked on top of that is a challenge for them.”
Fertiliser is the biggest input cost for arable farmers, making up a quarter of production costs for crops, followed by fuel at about 10 per cent.
Velcourt’s Shorter said that since February 24, his urea supplier’s price had risen 14 per cent while ammonium nitrate was up 10 per cent. The price for red diesel had risen 55 per cent to 104p per litre.
In 2022, at the start Russia’s invasion of Ukraine, urea prices doubled, he added.
Farmers will have to wait to recoup those higher input costs when they negotiate their sales price next year, which is when consumers could start to see the higher price reflected in their grocery baskets.
“It’s very concerning — we have a very low world grain price at the moment and the margins are very tight,” said Robert Chapman, an Aberdeenshire farmer who manages 2,500 hectares of farmland.
“Those that have fertiliser sitting in their sheds would make more profit selling that than growing grain.”
Like most arable farmers Chapman has secured his fertiliser for the year. “I should be OK. But it all depends how long this carries on for,” he said. “One of the problems is we have no fertiliser production in the UK anymore — we’re totally at the whim of foreign companies.”
The UK imports 100 per cent of its fertiliser, with 55 per cent imported from the EU and the rest from countries outside the bloc including Egypt, Israel, Morocco and Russia, according to the Agricultural Industries Confederation, which represents animal feed and fertiliser manufacturers.
An AIC spokesperson said suppliers and distributors were continuing to operate as normal and that it did not anticipate an immediate disruption to UK supply.
https://www.ft.com/content/cfb63d33-22c3-48cb-b9fa-37d224b78c74
