KUALA LUMPUR, March 24 — A Singaporean think tank has found that Malaysia is vulnerable to fertiliser trade disruptions from the West Asia conflict because most of Malaysia’s fertiliser use is imported.
The S. Rajaratnam School of International Studies (RSIS) at Nanyang Technological University expects the Middle East war to have a “double-whammy” impact on both Asean’s import of fertilisers and its energy-intensive fertiliser production – at a critical time when five major crops, including rice, are being planted in the coming months.
The first wave impact, according to the think tank, will likely come in the form of disruptions of access to imported fertilisers, as Asean relies on sources outside the region for 82 per cent of its fertiliser imports. Urea, a nitrogen fertiliser, is the most widely used fertiliser globally.
“Cambodia and Myanmar are most vulnerable to the first wave (fertiliser trade) disruption as they are completely dependent on fertiliser imports, with negligible domestic production.
“Following these will be countries with limited domestic production capacity that falls well short of annual requirements. These include Malaysia, Thailand and the Philippines where domestic fertiliser production can only meet 39 per cent, 24 per cent and 22 per cent of each country’s annual fertiliser use,” wrote Jose Ma. Luis Montesclaros, Kayven Tan, and Mely Caballero-Anthony in a March 20 commentary on Asean’s food resilience amid the Middle East conflict.
China, which supplies a third of Malaysia’s imported fertilisers, has reportedly banned fertiliser exports amid the Persian Gulf conflict. After Russia, China is the second biggest origin of imported fertilisers for Malaysia.
RSIS noted that even though some Asean nations with surplus fertiliser production capacity may weather the first wave – especially Laos, Brunei, and to a smaller extent, Singapore – these countries are still vulnerable to the second wave impact: a liquefied natural gas (LNG) trade disruption affecting Asean fertiliser producers.
LNG is a critical input in producing urea, thus posing an “energy-fertiliser” nexus.
Iranian missile attacks on Qatar’s Ras Laffan Industrial City, the world’s biggest LNG facility, have reduced Qatar’s LNG export capacity by 17 per cent, with the damage expected to take between three and five years to repair.
According to RSIS, Qatar is the second largest producer of LNG, supplying 20 per cent of global LNG exports and 14 per cent of global urea. Qatar was forced to halt production in its major fertiliser facilities and declared a force majeure.
“Since approximately 83 per cent of the Middle East’s total LNG exports were initially bound for Asia, Asean fertiliser producers are thus similarly vulnerable to the second wave disruption. All fertiliser producing countries, even those not sourcing from the Middle East, are vulnerable to the second wave disruption as they face greater import competition and higher import costs,” said RSIS.
“The second wave is most relevant to Indonesia and Vietnam where 82 to 83 per cent of fertiliser consumption is drawn from domestic production. The food security risk is that Asean fertiliser producers could reduce production, or raise prices and pass these on to farmers.”
RSIS’ analysis said the first and second waves of fertiliser import and LNG-fertiliser production disruptions were amplified by the timing of the West Asia conflict that is occurring when five key crops – rice, maize, soybeans, sugar cane, and cassava – are being planted.
March is a critical period for the rice sector as fertiliser is being applied across Indonesia, Myanmar, the Philippines, Thailand, and Vietnam – countries where data is available.
Last Wednesday, the Agriculture and Food Security Ministry (KPKM) claimed that Malaysia’s reserve stocks of “main raw materials” were sufficient for “a few months”, after a stakeholder engagement session with 160 agrofood industry players on the impact of the West Asia conflict.
KPKM’s Facebook post on the stakeholder engagement session, which was led by the ministry’s secretary-general Isham Ishak, did not specify “fertiliser” or “animal feed ingredients”, concerns that were previously flagged by Malaysian poultry producers and agriculture experts.
The next day, the Fertiliser Industry Association of Malaysia (FIAM) warned of “sustained cost escalation, supply rationing, and operational delays” in the plantation and agriculture sectors, as a prolonged West Asia conflict could lead to severe disruptions in the Malaysian fertiliser market.
Malaysian fertiliser producers like Union Harvest and FGV Fertiliser have halted new orders, as the prices of some raw materials reportedly increased by 100 per cent to 150 per cent within a fortnight.
According to its analysis of Malaysian sectors expected to be affected by the West Asia conflict, the Galen Centre for Health and Social Policy listed ammonia, urea, and diammonium phosphate (DAP) fertiliser inputs as facing “very high” exposure to Hormuz disruption – the highest exposure level compared to other products or inputs.
Sectors affected are agriculture, palm oil, paddy or rice, fruits and vegetables, food production, and the plantation sector.
“This is one of Malaysia’s clearest vulnerabilities,” said the Galen Centre.
Farmers’ associations yesterday warned of increases in the prices of fruits and vegetables in Malaysia due to fertiliser shortages and diesel price hikes. Vegetable prices are expected to surge by 50 per cent within one or two weeks and fruit prices by 20 per cent in three to six months.
The United Nations’ Food and Agriculture Organization (FAO) noted that fertiliser prices increased by nearly 20 per cent within days of disruptions to shipping through the Strait of Hormuz. The Gulf region accounts for roughly 30 to 35 per cent of global urea exports and up to 30 per cent of internationally traded fertilisers.
FAO data shows global fertiliser prices can remain 15 to 20 per cent higher in the near term if disruptions persist.
In his interview with Arabian Business published last Thursday, FAO chief economist Maximo Torero said the impact from the West Asia conflict wasn’t a traditional food supply shock, but a broader “systems shock” affecting agriculture through energy, fertiliser, and logistics channels.
“The effects are more diffuse but potentially longer-lasting,” he was quoted as saying.
He also noted that unlike oil, there are no coordinated global reserves for fertilisers.
RSIS’ commentary noted that in Asean, only Thailand has announced having sufficient fertiliser stockpiles for five months of planting, while other countries in the region have yet to publish their fertiliser stockpiles.
