Supply shortages fueled by the Ukraine-Russia conflict, as well as other pre-existing factors, have driven fertilizer prices to record highs. Prices for raw materials that make up the fertilizer market are up 30% since the turn of the year and now exceed those seen during the food and energy crisis in 2008, according to British commodity consultancy CRU. Russia and Ukraine are among the most important producers of agricultural commodities in the world. They export many supplies in the food and fertilizer industries to other countries. Due to the invasion of Ukraine, trade between Russia and the rest of the world has been severely disrupted.
Since the beginning of 2020, nitrogen fertilizer prices have quadrupled, while phosphate and potash have tripled. While farmers in developed markets have benefitted from high agricultural commodity prices, helping to partly offset high input prices, demand destruction is increasingly likely due to high prices and supply shortings. Economies around the world have been dealing with historically high inflation driven by soaring food and energy prices. The U.N. Food and Agriculture Index shows food prices are at an all-time high.
The intensity of this supply shock can have big consequences as inflationary pressure can grow and broaden. The food and fertilizer industries have an influence on the industrialization and transport industries too which then lead to even more markets being affected. Shipping and transportation difficulties plus the impact of Russian sanctions on global supply are set to stretch global markets even further like the 2008 global food crisis had. Global food prices before the 2008 crisis shot up quickly and it is quite possible that the food market and other markets can repeat and go through the same crisis that occurred in 2008. The food and fertilizer industries being hurt will affect the global economy.
Since the beginning of 2020, nitrogen fertilizer prices have quadrupled, while phosphate and potash have tripled. While farmers in developed markets have benefitted from high agricultural commodity prices, helping to partly offset high input prices, demand destruction is increasingly likely due to high prices and supply shortings. Economies around the world have been dealing with historically high inflation driven by soaring food and energy prices. The U.N. Food and Agriculture Index shows food prices are at an all-time high.
The intensity of this supply shock can have big consequences as inflationary pressure can grow and broaden. The food and fertilizer industries have an influence on the industrialization and transport industries too which then lead to even more markets being affected. Shipping and transportation difficulties plus the impact of Russian sanctions on global supply are set to stretch global markets even further like the 2008 global food crisis had. Global food prices before the 2008 crisis shot up quickly and it is quite possible that the food market and other markets can repeat and go through the same crisis that occurred in 2008. The food and fertilizer industries being hurt will affect the global economy.
Inflation is currently a big concern which is why Fed has decided to increase interest rates. It will be interesting to see how long it takes for the prices to come down in response to Fed's policies given the current economic/political situation.
ReplyDeleteI enjoyed how you pointed out just how many adverse effects conflicts such as the one between Ukraine and Russia can have on the world economy and supply chains. While I was aware of the fact that fossil fuels have been affected, I wasn't aware that both Russia and Ukraine provide a significant amount of fertilizer and other organic compounds needed to grow food to the world economy. Hopefully, the conflict will end before we see food accessibility around the world begin to decline.
ReplyDeleteSoon, bread and other common goods will either become more expensive or there will not be enough of them in countries that export agricultural goods from Russia and Ukraine. I hope this war will end soon
ReplyDeleteThis is a great example of how one event in one part of the world can affect the world's economy. It also is telling of an industry that many in the modern world forget about, agriculture and farming. Seeing that the U.S. is still a major producer of a number of different agricultural goods I believe this have an adverse affect on our economy.
ReplyDeleteWith the inflation rate so high, normal goods prices will be ridiculous. We already can see gas prices at an all time high in Ohio, not to mention what they are like in California. I wonder how the Fed increasing interest rates will help and if they will keep interest rates at a high.
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