Fertilizer Prices Surge, Putting Food Security at Risk

A Convergence of Pressures

The global agricultural sector faces a renewed shock as fertilizer prices climbed 2.4% in the first weeks of 2026 — a sharp reversal of the stabilization seen at the end of last year. The surge, driven by intersecting pressures from energy markets, European regulation, and a deepening geopolitical crisis in the Middle East, threatens to push food production costs higher and worsen food inflation worldwide.

The price spike is not the result of a single cause. Three forces have converged simultaneously to rattle global fertilizer markets, leaving farmers, policymakers, and food importers scrambling for answers.

Energy, Regulation, and Sanctions

Natural gas accounts for 70% to 80% of the variable cost of producing ammonia, the backbone of nitrogen-based fertilizers. US natural gas prices at the Henry Hub rose 16% year-over-year in January 2026, while prices across parts of the Northern Hemisphere spiked even more sharply. Benchmark urea prices reflected the turbulence, jumping from approximately $350 to $430 per ton in just three weeks.

Regulatory pressure compounded the problem. The European Union's Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase on January 1, 2026, imposing carbon costs on fertilizer imports into the bloc. Rabobank estimates the levy will raise urea prices by roughly 8%, while France projects an increase of around 25% for its agricultural sector. Italy and France jointly petitioned the European Commission in early January for an exemption, warning of serious competitive harm to European farmers.

A third layer of pressure came from geopolitics. Ongoing sanctions on Belarusian potash and Russian fertilizer exports have constrained supply and embedded a persistent risk premium in global markets. Iran — a top-three supplier of urea — faces renewed scrutiny that traders have priced into futures contracts.

The Hormuz Factor

A new and potentially decisive risk emerged at the end of February. Following US-Israeli military strikes on Iran, the 2026 Strait of Hormuz crisis effectively halted shipping through one of the world's most critical maritime chokepoints. The cost of hauling crude oil from the Middle East to China surged 94% in a matter of days. Analysts warned that a prolonged closure could push Brent crude to $100–$120 per barrel.

For fertilizer markets, the consequences would be severe. Higher oil and gas prices would directly inflate the cost of producing nitrogen fertilizers, while shipping diversions via the Cape of Good Hope would raise delivered costs everywhere. The World Bank has flagged import-dependent nations — particularly in Sub-Saharan Africa and South Asia — as most vulnerable to supply shocks of this kind.

Food Security in the Balance

Fertilizer prices are a leading indicator for food prices. The ripple effects are already visible: food inflation rose 1.3% in January 2026, and analysts warn the situation could deteriorate further if Hormuz disruptions persist.

The World Bank had projected the agricultural price index to ease modestly in 2026 — but those forecasts predate both the Hormuz crisis and CBAM's price impact. Rabobank's semi-annual fertilizer outlook now expects global fertilizer demand to decline as poor affordability squeezes farmers, particularly smallholders in developing nations who have the least financial buffer.

If the current shocks prove durable, the consequences for food security in import-dependent countries could be severe — threatening a fragile global balance already strained by years of compounding crises.