The core of the analysis lies in the interdependence of modern agriculture with energy, logistics, and climate stability. Food producers rely on steady supplies of natural gas and sulfur for fertilizer, diesel for machinery and transport, and open sea lanes for trade. Current conflicts are testing all these pillars simultaneously, just as El Niño conditions threaten to compromise harvests in key producing regions. “Conflict is now testing all of them at once, just as El Niño tests the harvest,” the S&P report states, highlighting a risk environment where structural supply issues are compounded by acute weather shocks.
The financial implications are already visible in input costs. The International Monetary Fund’s (IMF) World Economic Outlook, released last week, forecasts an overall 10% increase in fertilizer prices this year. While the IMF projects food costs to rise by 5% in 2026 and 2.4% in 2027, it emphasizes that these regional variations depend heavily on local exposure to energy and supply chain disruptions. The IMF warned that higher energy and food prices could have severe effects on poverty and food security, potentially threatening political stability in vulnerable economies.
A critical bottleneck lies in the Strait of Hormuz, a chokepoint vital to the global agricultural supply chain. Forty-seven percent of the global sulfur trade, a key ingredient in fertilizer, normally transits through this strait. The disruption of these flows has had an immediate impact on commodity markets: Middle Eastern prices for exported sulfur reached a record high of $1,000 per metric ton in July, doubling from a historically high starting point of $500 per metric ton at the beginning of the year. This price surge directly inflates the cost of fertilizer, a critical input for staple crops globally.
Simultaneously, the diesel supply crunch is creating a secondary, often overlooked, distortion in agricultural markets. Rising diesel prices, driven by energy conflicts, make biodiesel production more economically attractive relative to food crops. This dynamic is exacerbated by pro-biofuel policies in certain jurisdictions. In Indonesia, for instance, the industrial use of palm oil for biodiesel is expected to reach roughly five times its 2015-16 level. As a result, in some regions, crops destined for fuel become more valuable than those intended for food, effectively diverting agricultural output away from human consumption and toward energy production.
The physical impact of these economic pressures is expected to be widespread. S&P Global notes that disruptions could affect agricultural production worldwide, with specific vulnerabilities identified in soybean and corn production in Brazil and wheat production in Australia. These regions are pivotal to global food balances, meaning that any reduction in yield due to either input cost volatility or El Niño-related weather patterns will have immediate ripple effects on global export availability.
The human cost of these trends is disproportionately borne by low-income countries. In these economies, food costs amount to approximately half of household spending. Consequently, even moderate increases in global commodity prices can translate into significant deficits in household budgets, increasing the risk of social unrest and political instability. The IMF’s warning underscores that the threat is not merely economic but also geopolitical, as food insecurity can destabilize fragile states.
While a global food crisis is not a certainty, the convergence of these factors creates a high-risk scenario. The S&P report concludes that if wars continue to disrupt energy and fertilizer supplies while weather patterns cut harvests in key regions, “the elements of such a crisis will be falling into place.” The distinction between a price shock and a structural supply crisis remains a critical area of uncertainty, but the current trajectory suggests that the margin for error in global agricultural logistics is narrowing rapidly.
Market participants and policymakers will be monitoring the next developments in the Strait of Hormuz, any further revisions to IMF commodity price forecasts, and early harvest data from Brazil and Australia to gauge the severity of the coming growing season.
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