Rural and regional communities need to brace themselves for disruptions and financial fallout as the impacts of the war in Iran and Australian inflationary pressures ripple through agribusiness.
However, as in any crisis, there will also be opportunities to diversify and future-proof the nation’s agricultural operations.
University of New England (UNE) experts predict that higher input costs associated with the Middle East conflict – especially for diesel, fertiliser and transport – will necessitate operational changes on-farm.
Iran’s blockade of the Strait of Hormuz has restricted the passage of about one-fifth of the world’s oil, and both fuel and fertiliser are vital to farm activities, especially upcoming autumn/winter sowing programs.
It takes about 1 kilogram of oil to produce 1 kilogram of nitrogen fertiliser, so every oil price increase is directly reflected in fertiliser costs. And urea prices continue to rise beyond the initial 20% hike that accompanied the outbreak of war as supplies become further constrained.
Rising input costs and supply chain pressures
Professor of Agribusiness and Value Chains in the UNE Business School, Derek Baker, says like the supply chain disruptions experienced during COVID, the war in Iran will have a cascade effect.
“You have the dual shock of higher prices and logistic problems,” Professor Baker says. “In the case of fertiliser availability, this is hard on the tail of big increases in costs in recent years. This will all mean that crop production costs will rise, and we may see farmers vary their autumn seeding and crop rotations, to save on fertiliser. This will directly influence both crop volumes and quality.
“Farmers’ ability to implement resilient production systems could also be threatened. Buying feed is going to be more expensive. Where dry conditions continue and people can’t sell their animals into existing markets or afford the increased trucking expenses, it’s going to be difficult finding and affording agistment. This may see crops diverted increasingly to animal feed.”
Innovation and alternative approaches to nitrogen
However, necessity is, as they say, the mother of invention.
Associate Professor of Crop Science at UNE, Richard Flavel, believes input constraints in the grains industry may see broad-acre growers seek alternate ways to fix nitrogen in their soils.
“This could mean they look at increasing the legume component of their crop rotations by planting more pulses such as chickpeas, lupins and faba beans,” he says. “Potentially, this situation may also stimulate more thinking around alternative nitrogen sources or even consider onshore nitrogen production using renewable energy.”
Market uncertainty and shifting production decisions
Still, uncertainty over how long the war will last and how deeply its effects will be felt, coupled with higher interest rates and cost-of-living pressures nationally, has many producers “preparing for the worst, but hoping for the best”.
“Everyone will be trying to protect their margins,” says UNE Senior Lecturer in Agricultural Economics/Agribusiness Dr Emilio Morales. “The impacts will be very commodity specific because so much is beyond their control. For example, I expect that higher cereal costs could see less finishing of cattle in feedlots and the supply of grass-fed beef grow.
“Some farmers may be able to capitalise on a bigger demand for Australian produce, which is likely to command higher prices, and this may be sufficient to compensate for their higher input costs.”
Long-term impacts and emerging opportunities
In the longer term, supply chain disruptions associated with geopolitical events like war can have broader genetic and environmental repercussions, especially when met with vast climatic variation of the kind we see across the Australian continent.
On a more positive note, periods of resource scarcity can present opportunities to introduce more sustainable practices to support longer-term economic and environmental viability.
“There will undoubtedly be supply and market challenges for producers, but these kinds of pressures may see producers adjust the ways they operate and inspire innovation to identify strategies to sustainably source nitrogen in farming systems,” Associate Professor Flavel says.
New business possibilities could also arise, especially for producers along shorter supply chains that are less reliant on fuel.
“If there is a major disruption with food imports, smaller-scale enterprises that are more competitive may be able to gain a foothold in the market and help meet the demand for previously imported products,” Professor Baker says.
Flow-on effects for consumers
One thing is certain in these volatile times – higher costs will not only be borne by producers.
“Producers are most likely to be more modest in what they produce,” says Dr Morales. “We are likely to see this flow on to shortages for consumers, and we can expect that food prices will increase.”
