India faces food inflation risks ahead of Kharif despite USD 18.6 bn subsidy as Hormuz disruption hits supplies: FAO Chief Economist

"If the crisis (Gulf conflicts and below normal monsoon) persists, India faces higher import costs, reduced domestic fertilizer availability, and pressure on food inflation particularly for wheat, rice, and vegetables," he told ANI in an exclusive e-mail interview.

He further added that " The government's USD 18.6 billion fertilizer subsidy for FY2026-27 will help, but fiscal pressures are mounting."

On the US-Iran tensions and blockade of Strait of Hormuz, he said that India is significantly vulnerable in this case as it sources roughly 35 percent of its fertilizers from the Gulf and applies more than 120 kg of nitrogen per hectare.

Commenting on the low operating capacity of domestic fertiliser plants, he said

"Domestic fertilizer plants are operating at only 60 percent capacity after the government capped gas allocation at 70 percent of historical averages."

He also said that the National Fertilizers Limited plants in Punjab although restarted operations they could face challenges. The Kharif planting season in India begins in May, with a 60 percent likelihood of below-normal monsoon rainfall in 2026, he added.

Reacting to a query on whether prolonged disruptions in fertilizer trade would impact crop yields and food prices, he said, "If disruptions continue beyond 60 days, the effects become severe."

He said that the fertilizer price increases lead directly to reduced application rates. In low-input systems (Sub-Saharan Africa at under 20 kg/ha), even small reductions cause disproportionately large yield collapses.

Torero said that this could lead to shrinking incomes for the farmers across the globe.

"Global cereal producer income could drop by nearly 5 percent. These supply reductions tighten grain markets, push up prices, and trigger cross-commodity price contagion to wheat, rice, and soy," he added.

Higher fuel costs will raise expenses for irrigation, transport, storage, and processing--compressing farmer margins across the board.

Rising energy prices directly increase the cost of natural gas--the primary feedstock for nitrogen fertilizers.

Global fertilizer prices are already 50-80 percent higher. Farmers facing these higher costs reduce fertilizer application, leading to lower crop yields. The effect is worst on nitrogen-intensive staples like rice, corn, and wheat, he said.

On whether the food crisis could occur in case the conflict and supply disruptions persist only for a couple of months, he said, "Everything depends on duration. If the Strait reopens within the 60 days window, markets will absorb the shock within three to four months."

Global grain stocks remain ample, and the FAO Food Price Index is still 21 percent below the March 2022 peak, he added.

However, if disruptions extend beyond 60 days--into a medium-term (three-month) or long-term (six- to twelve-month) scenario--the outlook darkens significantly, he said.

"Under prolonged conflict, the FAO projects no full recovery even by 2030, with global household welfare remaining 1.45 percent lower and food consumption 0.94 percent lower than baseline," he said.

Moreover, food commodity prices will increase in the second half of the year and in 2027, this will lead to food inflation and therefore to overall inflation which will result in an increase in interest rates reducing economic growth.

"FAO predicts overall reduction of economic growth could be of a reduction of 1.7%. As a result we will be in stagflation, high inflation and low growth," Torero said.

Talking about global food security especially in import-dependent countries, he said the conflict has severely disrupted the Strait of Hormuz, through which up to 30 percent of globally traded fertilizers, one-quarter of seaborne oil normally pass, 20% of natural gas And 50% of Sulphur.

"Tanker traffic has collapsed by over 90-95 percent. For import-dependent countries, this means soaring costs and physical shortages of fertilizers, fuel, and food," he said, adding that the gulf states, which rely on imports for 70-90 percent of their food, face the most immediate threat.

However, countries like Bangladesh, Kenya, Sudan, and Sri Lanka--highly dependent on Gulf fertilizers--also face acute risks to their planting seasons and household food affordability.

As the blockade of Strait of Hormuz is causing disruptions in global food supply chains, Torero said the closure of the Strait has stalled an estimated 3-4 million tonnes of fertilizer trade per month. Shipping insurance premiums have surged from 0.25 percent to as high as 10 percent of hull value, making transport economically prohibitive.

"Even if fighting stops, normal shipping will not resume until insurers see months of quiet waters. The result is higher costs, delayed deliveries, and fractured supply chains that cannot be quickly repaired," Torero said.

He said that the most vulnerable regions in terms of food insecurity due to the current crisis are South Asia and East Africa at this point.

However, he said "as we move through the crop calendar the effects will move from East to West and from South to North."

Also, Bangladesh (53 percent Gulf fertilizer dependency, Boro rice season underway), Sri Lanka (100 percent synthetic fertilizer imports), and India (35 percent Gulf dependency, plants at 60 percent capacity) are in the highest-risk category, he added. (ANI)