How the energy crisis could become a food security crisis

The ongoing conflicts in Iran and Ukraine, along with extreme weather conditions, are causing a complex squeeze on global agricultural supplies, potentially leading to a food security crisis, according to a new report. The report, released by S&P Global Institute, highlights how multiple factors are threatening worldwide food supplies and driving up prices, particularly in vulnerable economies.

The report points to the El Niño phenomenon as a potential exacerbating factor, in addition to restricted supplies of crucial fertilizer ingredients, higher fuel costs in agriculture, and other challenges. The S&P Global Institute report provides a comprehensive look at these interconnected issues.

The International Monetary Fund (IMF) has issued warnings about food prices as well, predicting a 10% increase in fertilizer prices this year and food costs rising by 5% in 2026 and 2.4% in 2027, depending on the region. The IMF emphasizes that higher energy and food prices could have severe consequences for poverty and food security, potentially destabilizing political environments in vulnerable economies.

The report notes that food producers rely on consistent supplies of natural gas and sulfur for fertilizer, diesel for farm machinery and food transportation, and open sea lanes for trade. The conflicts are now testing all of these factors simultaneously, as El Niño also puts a strain on harvests.

The risk, according to the report, is growing, especially for low-income countries where food costs constitute nearly half of household spending. Disruptions to agricultural production worldwide could occur, from soybeans and corn in Brazil to wheat in Australia, the report finds.

An additional concern raised by the report is the potential increase in biodiesel production due to a diesel supply crunch. As diesel becomes more expensive, the production of biodiesel may become more attractive in some regions, leading to crops for fuel potentially becoming more valuable than crops for food.

The report provides several key statistics to illustrate the overlapping threats. Middle Eastern prices for sulfur, a vital fertilizer ingredient, reached a record $1,000 per metric ton in July, up from $500 at the beginning of the year. In Indonesia, industrial use of palm oil for biodiesel is projected to be approximately five times its 2015-16 level.

The bottom line drawn by the report is that, while a global food crisis is not inevitable, the combination of ongoing conflicts disrupting energy and fertilizer supplies, coupled with adverse weather conditions affecting harvests, could create a perfect storm of such a crisis.