On May 12, the Senate Agriculture Committee is set to explore the reasons behind the global food crisis and will no doubt look for solutions. Senators will seek answers from these witnesses on what exactly is contributing to the looming food shortages around the globe.
However, this crisis is not being driven by the actions of American producers, but is the predictable consequence of globally-integrated supply chains operating under considerable geopolitical stress.
Since the beginning of the Iran conflict and the closure of the Straits of Hormuz, crude oil prices have roughly doubled, and diesel prices have increased by approximately 50 percent. Since fuel is embedded in every stage of the food supply chain—tractors, trucking fleets, rail transport, and ocean shipping—the higher energy costs impact the affordability of food. Fuel accounts for fifteen to thirty percent of food production costs in the U.S.
At the same time, farmers across the Great Plains are dealing with severe drought conditions. Roughly 90 percent of Nebraska and Oklahoma are currently experiencing drought stress, threatening wheat yields and herd viability.
However, perhaps one of the biggest reasons for food affordability challenges is the rising demand for fertilizer and the growing supply shortages. The fertilizer market sits at the intersection of energy, shipping, and mining, and every one of those systems is currently under pressure. Nitrogen fertilizer relies on ammonia, derived from natural gas, and phosphate fertilizer uses a significant amount of both ammonia and sulfur, which is a byproduct of oil refining. The Gulf region supplies roughly half of the world’s traded sulfur; the closing of the Strait of Hormuz—through which approximately 16 million tons of fertilizer products normally transit annually—has created a massive shipping disruption.
At the same time, Ukrainian drone strikes have targeted Russian oil refining and fertilizer infrastructure, including nitrogen facilities tied to ammonia production. Russia is the world’s third-largest producer of sulfur, and the world’s largest producer of potash, another fertilizer input.
The consequence has been a tightening across nearly every major input market. Ammonia exports from Russia are roughly 80 percent below pre-war levels. What’s more, China has imposed new export restrictions on fertilizer and sulfur products to protect domestic agricultural supply, limiting access for the rest of the world.
The fertilizer shortages have already impacted global food production capacity. Fertilizer application is highly time-sensitive: Farmers cannot make up missed fertilizer applications later in the growing season. If high costs force acreage reductions or lower application rates during planting windows, crop yields suffer months later.
Such adjustments are already happening, and farmers are increasingly shifting toward fewer fertilizer-intensive crops as input costs rise. Corn acreage is projected to decline this year, while wheat acreage has fallen to its lowest level in a century. As a result of this, analysts estimate that net farm income may fall by as much as $60 billion from its 2022 peak.
The world is in the midst of what is beginning to resemble a global food supply emergency. However, some politicians in both parties want to pretend that rising costs and restricted access are the result of corporate perfidy rather than a breakdown in global commodity flows.
Prices are set by supply and demand in a global market, and domestic producers have little say over them. Domestic producers cannot quickly scale production to offset the loss of major global suppliers. Fertilizer production is capital intensive, highly regulated, and its production requires infrastructure that takes years to build.
Many U.S. policy responses currently being considered would undoubtedly make the current situation significantly worse. Forbes contributor Dan Eberhart recently argued that punitive actions against domestic producers would do nothing to lower global sulfur prices, reopen the Strait of Hormuz, or restore ammonia exports. They would simply weaken domestic production capacity at an unpropitious time. Policymakers should be focused on strengthening domestic production capacity, reducing regulatory barriers to expanding fertilizer production, and taking steps to protect American agricultural activity from increasingly volatile geopolitical realities where possible.
Modern food security depends on fragile international supply chains, which happen to be under strain from war, energy disruption, export controls, and drought. Understanding these realities is critical when the Senate Agriculture Committee members consider potential approaches to address this situation.
