A report from Oxford Economics warns that global fertilizer prices are projected to increase by more than 30 percent in 2026 compared to 2025 levels, with urea prices expected to rise even more rapidly. This surge is driven by ongoing shipping disruptions through the Strait of Hormuz, which are tightening global supply.
Impact on Fertilizer Affordability
The prolonged constraints on traffic through this strategic waterway are worsening fertilizer affordability at a time when grain-to-fertilizer price ratios have fallen to historic lows. This places increasing pressure on farm margins and crop yields. According to Oxford Economics, even though nominal fertilizer prices have not surpassed previous peaks, their cost relative to crop revenues is more burdensome than at any point in over six decades, raising the risk of reduced application rates and weaker yields.
Revised Forecasts and Expected Trends
Kiran Ahmed, lead economist at Oxford Economics, stated, "We have revised up our fertilizer price forecasts since the onset of the conflict and now expect fertilizer price increases to exceed 30 percent this year compared to last, with urea prices likely to rise at an even faster pace." The report anticipates that traffic through the Strait will remain constrained through the second quarter of 2026, with shipping gradually recovering from July. However, port congestion and logistical bottlenecks could continue disrupting fertilizer flows through year-end, especially if energy cargoes are prioritized.
The impact will vary significantly across crops and regions. Rice, maize, and wheat face the greatest exposure due to their heavy reliance on urea-based fertilizers. Rice is particularly vulnerable because of current planting cycles, while parts of Asia, Australia, and Brazil remain highly dependent on Middle Eastern fertilizer imports.
Historical Low in Affordability
A key measure of affordability, the grains-to-urea price ratio, has dropped to its lowest level since records began in 1960, highlighting the growing burden on farmers. Even though nominal fertilizer prices remain below the peaks reached in 2022, the relative cost is higher. The report notes, "There is reason to believe the hike in fertilizer prices could have a wider impact on global usage than suggested above," as lower crop prices make fertilizer purchases harder to justify for farmers already operating on tight margins.
Market Volatility and Expert Insights
Recent market data points to continued volatility. Urea traded at $502.50 per tonne on May 22, down 7.37 percent from the previous day and more than 27 percent lower over the past month, according to Trading Economics. However, prices remained nearly 10 percent higher year on year. Marielli Bou Harb, partner at Arthur D. Little Middle East, explained, "The current fertilizer disruption highlights the timing mismatch between geopolitical shocks and agricultural cycles. Fertilizers are time-sensitive inputs: if farmers miss key application windows during planting and crop development stages, part of the yield impact can persist even if supply conditions improve."
Harb noted that effects on food prices and security are likely to emerge gradually over future planting and harvest cycles, with impact varying between advanced and developing economies. Advanced agricultural economies typically have greater resilience through subsidies, financing mechanisms, inventory buffers, and forward purchasing. In contrast, import-dependent economies across parts of Asia, Sub-Saharan Africa, and Latin America are more exposed to rising fertilizer costs, particularly for nitrogen-intensive staple crops like rice and maize.
Potential Responses and Risks
While alternative sourcing routes remain possible, they come with added costs and logistical challenges, including longer shipping routes, higher freight and insurance costs, and port capacity constraints. Producers are likely to respond through a combination of lower application rates, shifts toward less fertilizer-intensive crops, delayed planting decisions, or a stronger focus on higher-margin export crops. Harb concluded, "The broader risk is that what begins as a temporary supply and pricing disruption gradually translates into tighter agricultural markets, continued pressure on food inflation, and additional strain on vulnerable farming systems in import-dependent economies."
Inelastic Demand and Regional Disparities
Fertilizer demand is generally considered relatively inelastic, meaning farmers tend to prioritize its use even as prices rise. However, farmers in lower-income and least developed countries are more likely to reduce usage due to limited financial capacity and weaker government support. Food and Agriculture Organization data shows nitrogen fertilizer use in these economies fell 7.9 percent in 2022, more than double the global decline of 3.4 percent during the price surge. Ahmed stated, "Lower application rates in such countries also suggest an outsized impact on yields compared to more advanced economies where fertilizer may be overapplied."
Persistently high prices combined with weak crop returns could lead farmers to reduce usage more sharply than historical trends suggest. In advanced economies and heavily subsidized markets such as India, fertilizer application could decline by 10 to 15 percent with limited impact on yields. In poorer economies, even small reductions in usage risk triggering disproportionately large losses in agricultural output and worsening food security concerns.
The report emphasizes that while urea fertilizer prices have not yet reached the heights of 2022, when accounting for crop prices, urea fertilizer is more costly for farmers than it was then. The grains-to-urea price ratio fell to its lowest level in April this year since records began in 1960. Oxford Economics warns that risks remain tilted toward a longer disruption in the Strait of Hormuz, and any further delays to a full reopening could intensify pressure on global food prices, harvests, and economic growth.
