It’s once again time to talk about agriculture and supply chains (and that’s almost never a sign of good news).
What happened: Food inflation is expected to pick up thanks to the closure of the Strait of Hormuz, which is not only a key channel for oil and gas, but also the world’s fertilizer supply, according to a new TD report.
Much of the world’s fertilizer trade passes through the strait, including around 25% of global urea exports, 13% of diammonium phosphate exports, and nearly 50% of sulfur exports.
Prices of these key agricultural inputs are already surging, particularly in countries most dependent on fertilizer imports in Africa and Asia.
Why it matters: Higher farm input prices will eventually get passed on and show up at the grocery store in the form of higher consumer prices.
Yes, but: Canada is uniquely positioned to weather this shock in the food supply chain better than most. Canada’s crop inventories are still high, offering some cushion on prices, we only import 5% of our urea from the Gulf, and Canada’s potash industry stands to benefit from a global fertilizer crunch.
Most of what we pay for food comes from non-farm costs, like transportation and retail — even if wholesale food prices rise, that will limit the impact on prices at the grocery store.
“Existing inventories and domestic production advantages should contain the hit to consumer prices,” TD writes.
Our take: In Canada, it will likely be farmers who get squeezed more than consumers — they are price-takers and companies in other parts of the supply chain will be reluctant to push price hikes on shoppers already fed up with expensive groceries.—TS
