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Christine McKee is alarmed by the skyrocketing cost of fertilizer that’s crucial to operating her southern Alberta farm.
The average cost of urea — a widely-used type of fertilizer — has increased rapidly since the U.S.- and Israel-led offensive against Iran brought war to a region critical to its global supply.
“If fertilizer prices continue to go up and commodity prices continue to stay where they’re at, then that really takes away our profitability,” said McKee, who farms near Lethbridge, Alta.
While her family has already purchased enough of the chemicals for the spring planting season, she’s worried about the fall.
“We know in the future we’re going to need fertilizer again, right? With every crop you plant, you need fertilizer.”
While the spike hasn’t yet affected food prices like the oil supply disruption immediately translated on gas pumps, experts say its impact could be felt in coming months if the conflict and its spillover effects persist.
Josh Linville, an analyst for financial services firm StoneX, says about one-third of global urea fertilizer exports passes through the Strait of Hormuz, located between Iran and the Arabian Peninsula.
Threats from Iran’s military against Western vessels has effectively brought shipping through the strait to a halt in the days since the war broke out.
That deterrence has made it mostly impossible for major shipments of oil, liquefied natural gas and fertilizer to leave a region that produces massive amounts of those products.
Even though Canada produces its own fertilizer supplies, buyers here are still subject to global commodity prices. It’s similar to the current spike to international oil prices having impact on Canada’s own crude and gasoline prices.
Oil prices spiked near $120 US a barrel for a time Monday as the U.S.-Israel war against Iran entered its 10th day. The threat of missile and drone attacks has all but stopped tankers from travelling through the Strait of Hormuz, and attacks on oil and gas facilities have exacerbated supply concerns.
The longer the price spike continues for oil, natural gas and nitrogen fertilizer, the more of a compounding effect there will be on Canadian producers, industry analysts told CBC News.
“We need a lot of fuel to run our equipment. And if fuel prices go up, that’s a big line item, a big expense for farmers,” said McKee.
Leigh Anderson, a senior economist at Farm Credit Canada, pointed out that global fertilizer supply was already under pressure.
“Even before what is happening in Iran, supplies of a lot of fertilizer were relatively tight already heading into this crop year which has kept a lot of fertilizer prices elevated,” Anderson said Monday.
‘A fundamental loss’
Benchmark prices for nitrogen fertilizer have surged about 30 to 40 per cent in the last week, according to analysts.
Linville, the StoneX analyst, said it was mostly the fear of supply disruptions that drove those costs up after the initial strikes on Iran.
But now there’s now potential for a large-scale shortage, as fertilizer plants are shuttered and the gas supply that fuels them is under threat.
With the Iran war threatening to upend much of the world’s oil and gas supply from Gulf states, experts say there could be a big uptick in demand for Canadian energy products, but Canada’s limited ability to get the products to market could be an obstacle.
If the disruption lasts four to six weeks and key spring fertilizer shipments to North America are missed, Linville predicted there would be major supply issues, even though Canada produces large quantities of fertilizer domestically.
Jon Neutens, head of agriculture at ATB Financial, said price surges wouldn’t impact all regions of the country equally.
“The impact is going to be felt in Eastern Canada a bit more quickly than it would be in Western on that increase in nitrogen costs,” Neutens said Monday.
“In the West, we are domestically supplied, and our production will supply the U.S. market as well.”
However, Neutens said the biggest danger for farmers is an unending conflict.
‘Blip on the radar’
Aaron Stein, executive director the Alberta Federation of Agriculture, agreed the supply issue would be a “blip on the radar” if shipping returned to normal within days.
“But, if this is protracted as North American producers are putting crops in the ground, you’re going to see those input costs at the time of planting go up throughout the growing season,” he said.
And those costs, said Stein, will eventually get passed down.
While Canadians are feeling immediate effects of the Iran conflict at the gas pumps, one analyst says consumers won’t feel the increased fertilizer costs right away.
Stuart Smyth, an agriculture and resource economics professor at the University of Saskatchewan, says short-term grocery prices are shielded from sudden spikes due to pre-existing contracts.
“In the short term — over the next two to three months — the impact would be pretty minimal, definitely well under one per cent,” Smyth said.
“But if this conflict extends into April, then we should start to expect it having an impact on food prices, though that probably wouldn’t show up until May, June or July.”
Farmers markets are likely to be the first place where consumers notice price increases, Smyth said, as they feature products like fresh fruit directly from producers.
‘Creative and resilient’
Canada’s farmers have been forced to weather various geopolitical challenges in the last year, including China’s canola tariffs, U.S. levies on potash and unpredictable global supply chains.
Stein, of Alberta’s agriculture federation, says that has created resiliency that will allow producers to weather the storm indefinitely.
“We’ve got some of the most creative and resilient farmers globally,” Stein said.
McKee is hoping for a quick resolution, calling it a “terrible situation to be involved in.”
“As a farmer, I hope it gets resolved and I hope that political interests get pushed aside and good trading relationships can be reestablished throughout the world, and that’s to everyone’s benefit.”
