Tensions choke urea supply, strain India's farm sector

The shortage of nitrogen-based fertilizers, particularly urea, amid the geopolitical tensions in the Middle East, has created significant pressure across the agricultural value chain in India.

Analysts say the lack of urea may affect not only food security and food prices in India, a major agricultural powerhouse, but also the outlook of the global economy.

Manoj K. Fogla, general secretary of India's West Bengal Rice Mill Owner's Association, said the demand for urea is normally high because it is one of the cheapest nitrogen sources available for Indian farmers.

"That explains why the industry has become vulnerable to logistics disruptions in the Strait of Hormuz and fluctuations in liquefied natural gas prices," Fogla said.

India is the world's largest producer and a major exporter of rice, accounting for about 40 percent of global exports this year, according to the United States Department of Agriculture.

However, the US-Israel-Iran standoff has choked the strait, through which one-third of fertilizer traded by sea globally passes, according to data from the United Nations Conference on Trade and Development.

"Thus, India will bear the full brunt of the urea shortage as its agriculture sector depends significantly on Gulf producers that route the product through the Strait of Hormuz," said Lawrence Loh, director of the Centre for Governance and Sustainability at the National University of Singapore.

"Immediately there may be domestic scarcity that will drive up spot prices of the commodity," Loh said. "Crop yield will suffer due to the lack of fertilizers," he said.

India's annual urea demand is about 38 million metric tons, with 20 to 25 percent reliant on imports. If shortages persist into the sowing season in May and June, experts predict a noticeable effect on crop yields, which may lead to reduced production levels and higher market prices in the coming cycles.

Manjeet Singh, CEO of Rice Master Global, a leading exporter of premium-quality basmati rice in India, said that for companies like theirs the impact is indirect but substantial.

Eroding margins

Costlier inputs squeeze farmers, tighten paddy supply and erode export margins already stretched by freight and insurance hikes, Singh said, adding that it will potentially affect demand in price-sensitive markets such as West Africa and the Middle East.

Indian Prime Minister Narendra Modi said earlier in parliament that the government was working to ensure farmers receive adequate fertilizer in the upcoming sowing season.

Analysts said India will have to tap on its strategic reserves while it diversifies supply chains for urea. Loh said the global economy will experience yet another driving force for inflation as food prices rise.

Fertilizer shortage, which is among the spillover effects from the Middle East conflict, diminishes world food supplies, he said. Black markets for urea may crop up globally because of farmers' pressing needs to secure stock, he added.

Guo Xuetang, director of the Research Centre for South Asia and Indian Ocean Studies at Shanghai University of International Business and Economics, said the fertilizer shortage in India will result in the insufficient supply of quality rice exports, driving up prices and further fueling global inflation.

Therefore, he said, it will be in line with India's own interests if it can stand more firmly to end the conflict in the Middle East, by working together with responsible players such as China; otherwise its farmers, exporters and people will continue to suffer the war's impact.

Arunava Das is a freelance journalist for China Daily.

Contact the writers at vivienxu@chinadailyapac.com