Bernhard Dalheimer teaches macroeconomics and trade at Purdue University. Speaking with Srijana Mitra Das in ET Evoke, he explains the impacts of the US-Iran conflict/stalemate on global food systems — and the spectre of rising food insecurity in a world already facing climate change and El Nino:
Q. What are the likely impacts of the US-Iran war on food supply chains and eventually, food security — if this situation continues?
A. One thing we know for sure is that the effects will be very heterogeneous, depending on the region. There are three ways oil shocks affect the food economy. One is through fertiliser prices, which we have already seen skyrocketing. The second is transportation costs, which we have also seen rising throughout the world. The third is biofuel, which is not a big driver at this stage.
So far, the closure of the Strait of Hormuz has led to oil and fertiliser negative supply shocks, which have driven these price spirals. If the situ-ation stays as it is, it will have further effects through fertiliser cost increas-es, which will mostly seen in the next planting season in the developed world — in developing countries, especially Africa and parts of Asia, fertiliser price rises are already affecting farm profit-ability. Transportation costs as well in developing and lower-income countries constitute a much higher share of the cost of food than in developed economies. This is also where we see stronger effects on food prices.
Q. You’ve written food price shocks hit the Global North and Global South differently — could you ela-borate on that?
A . These differences arise from how important transportation costs, cooling systems, etc., are in the cost of producing food. That is the key variable — and that varies widely. In the United States, around 10% to 15% of the food dollar is on trans-portation, going upto perhaps 20% for fresh fruits and vegetables. In developing economies and other countries, the share of transportation cost is much higher, reaching even 50% at times. These are typically countries where foodt ravels long distances, roads are poor quality and machinery is not very energy-intensive. We know from the literature that especially in Sub-Saharan Africa, transportation is a really strong cost component in food production.
The next factor is fertiliser. In high-income countries, fertiliser is a very marginal component of t h e food dollar — the on-farm component in this is about 30% or 40%, so usually, those would not affect food prices very powerfully. However, as fertiliser costs rise, and more importantly, transportation costs also become more enhanced, such oil shocks end up having stronger effects.
The impact of fertili-sers also depends heavily on the planting season. In the Global North — and here, I’m talking actually about latitudes — planting decisions had already been made before March and fertiliser had already been purchased. So, this conf lict will have no effect on this year’s harvest. Yet, we’re now starting to think about 2027 and there is spec-ulation we might see some effects there. Everything in this situation is tied to hypotheticals as in, how long this shock will last and how strong an oil price rise this will be? Right now, most commodities are benefiting from relatively good stock situations — we had good harvests and there’s plenty of supply in the market, which is keeping commodity prices down now.
However, if you need a lot of money to transport these stocks, that is where the oil shock comes in. It’s not about ‘thin markets’ for food products where there aren’t enough supplies to feed people — the pressure comes from having to get these supplies to people, and as the gas bill increases, that will drive up this cost. From the supply side, there is not a lot of pressure right now in the market.
