A deepening global fertiliser supply shock is threatening to curb Australian farm output and entrench inflationary pressures, as geopolitical disruption in the Middle East constrains critical nutrient flows and drives input costs sharply higher despite a stronger Australian dollar.
The disruption, linked to conflict affecting key shipping routes including the Strait of Hormuz, has exposed Australia’s heavy reliance on imported fertilisers and raised the prospect of “demand destruction”, with growers reducing application rates, switching crops or scaling back plantings altogether.
Analysts warn the shift could ripple through to lower yields, tighter food supply and higher consumer prices into 2026 and beyond.
Rabobank’s latest outlook, detailed in its semi-annual Fertiliser Outlook, shows nitrogen and phosphate prices rising significantly faster than agricultural commodities, compressing farm margins globally.
Negative affordability
The bank’s RaboResearch division believes affordability has moved into negative territory, with limited signs of recovery next year.
“Prices for nitrogen and phosphates have risen far faster than agricultural commodity prices, which is compressing farm margins globally and accelerating affordability pressure,” the report found.
Lead analyst Bruno Fonseca warned that this imbalance “raises the risk of widespread fertiliser demand destruction” as farmers adjust to persistently high costs.
In Australia, the impact is amplified by structural import dependence.
Between 2019 and 2023, the country sourced nearly 90% of its nitrogen fertilisers and around 70% of phosphates from overseas, leaving domestic supply exposed to global shocks.
The vulnerability has been underscored by recent disruptions to Middle Eastern exports, which account for a substantial share of global urea trade.
Price hikes
RaboResearch analyst Paul Joules estimates Middle East granular urea prices have surged 94% year-to-date, even after accounting for currency movements, while diammonium phosphate prices have risen 11%.
Potash has remained relatively stable, increasing by about 2% over the same period.
“The Australian dollar has strengthened, which would normally ease import costs, but supply constraints in urea and natural gas markets have kept fertiliser prices elevated,” Joules said.
The Strait of Hormuz—through which roughly one-third of global fertiliser shipments transit—has emerged as a critical chokepoint.
According to trade data compiled by industry analysts, around 43% of global urea exports and 44% of sulphur shipments used in phosphate production pass through the corridor.
Prolonged disruption risks further tightening already constrained markets.
Immediate threats
Independent analysis published by La Trobe University academics Sean Arisian and Phil Brewer highlights the immediacy of the threat to Australian agriculture.
Their modelling suggests yield penalties of 10 to 25% for winter cereals under reduced fertiliser application, with worst-case losses approaching 40% on nutrient-poor soils.
“A tractor can be idled until diesel arrives. A crop cannot wait for nitrogen without consequence,” they wrote, noting that fertiliser shortages have more immediate agronomic impacts than fuel disruptions.
Survey data points to tightening supply at the farm level.
A recent FarmLink poll found 90% of growers lacked sufficient urea on hand less than a week before the traditional autumn sowing period, while only one-third had secured delivery contracts.
Separately, industry body AUSVEG reported that half of surveyed vegetable growers held less than three weeks’ supply, prompting some to reduce plantings ahead of the winter growing window.
The constraints are already influencing cropping decisions.
Fewer crops
In Western Australia, the nation’s largest grain-producing state, forecasts indicate a 14% decline in wheat plantings to 3.68 million hectares, as growers pivot toward less fertiliser-intensive crops such as barley and canola.
But the cost shock extends beyond fertiliser.
Analysis by the Commonwealth Bank of Australia indicates fuel, fertiliser and transport account for roughly 14% of farm operating costs, with diesel and fertiliser prices currently 79% and 67% above five-year averages, respectively.
The bank estimates the combined impact could cut agricultural sector income by up to one-third.
Despite these pressures, global grain prices have remained relatively subdued, limiting farmers’ ability to pass on higher input costs.
University of Sydney agricultural economist David Ubilava said the disconnect is forcing producers to reassess planting decisions in real time.
“Input costs have gone up, but wheat and barley prices have effectively not moved,” he said, adding that smaller operators are more likely to scale back production first.
Macro picture
The broader macroeconomic implications are increasingly drawing investor attention.
Fertiliser markets, once viewed as a cyclical agricultural input, are now seen as a key transmission channel for geopolitical risk into global inflation.
Elevated input costs can reduce crop yields, tighten food supply and feed into consumer price indices with a lag of several months.
Commonwealth Bank modelling suggests that a 15% reduction in fertiliser use could cut wheat output by 9%, while a more severe 45% reduction could slash production by up to a quarter. Similar declines are projected for barley and canola.
The timeline for these effects is gradual but persistent.
Analysts expect the most acute impact on food prices to emerge in late 2026 and into 2027, reflecting the lag between planting decisions and harvest outcomes.
Government intervention provides limited relief
Australian Prime Minister Anthony Albanese announced on 17 April that Indonesia would supply 250,000 tonnes of urea—equivalent to about 20% of Australia’s remaining fertiliser needs for the current season—through a deal facilitated between private entities.
However, industry participants say supply availability, rather than price alone, remains the critical variable.
“So long as farmers can access fertiliser, they can absorb price shocks,” Ubilava said. “If they cannot secure supply, production simply stops.”
Meanwhile, in the longer term, domestic production capacity may reduce exposure to global disruptions.
The Perdaman urea project in Western Australia, scheduled to commence operations in 2027, is expected to supply up to 90% of Australia’s urea demand.
Until then, fertiliser markets are likely to remain a key pressure point for both agriculture and inflation.
As Rabobank noted, prolonged supply constraints risk reinforcing fertiliser’s role as a structural bottleneck in global food production, with consequences extending well beyond the farm gate.
