Higher food price warning for households as fertiliser costs, diesel prices and inflation skyrocket during oil crisis

Australian farmers under pressure from the oil crisis, high fertiliser costs and soaring inflation will be forced to pass on costs to consumers, pushing up food prices.

This warning came from ANZ commodity strategists Soni Kumari and Daniel Hynes, who stress that oil shortages from the Iran war will fuel inflation elsewhere in the economy.

They warn that price hikes from the conflict will likely be delayed as higher fertiliser and fuel costs – notably for diesel – rattle the agriculture sector.

Fertiliser prices are up 30 per cent in the United States and have lifted further in other markets, according to Ms Kumari and Mr Hynes’ note.

“Australia imports around 85 per cent of its fertiliser needs, leaving it highly exposed to ongoing trade disruptions,” the note read.

“More than 60 per cent of the urea used in Australia’s fertilisers comes from the Middle East, with the balance from Asia.”

ANZ warned that Australians should expect smaller crops and a rise in food inflation due to the crisis.

Fertiliser prices are just under 20 per cent below the peak reached in early 2022 when the invasion of Ukraine rattled food markets.

Risks to the food market remain as the Middle East conflict disrupts a wider array of the world’s energy and fertiliser supplies than the Russia-Ukraine conflict did, ANZ warned.

However, this impact would not immediately hit prices in the same way the beginning of the Russia-Ukraine conflict did.

“Unlike the Russia-Ukraine conflict, the current conflict in the Middle East has not shown any immediate effect on agricultural production,” the note said.

“This is because Russia and Ukraine were major grain producers but the Middle East is not a major producer.

“In the near term, fertiliser demand is being supported by existing inventories and government subsidies, while the effects of lower application rates typically emerge only in next year’s harvest.”

A similar warning came from Rabobank’s 2026/27 Australian Winter Crop Forecast that predicted an eight per cent drop of Australia’s winter cropping area.

Wheat planting will fall more than 20 per cent, however, barley, canola and pulse plantings are expected to lift compared to last year’s crops.

RaboResearch senior grains and oilseeds analyst Vitor Pistoia said higher fertiliser and diesel prices will influence farmers’ cropping decisions and food output.

“These higher costs are encouraging shifts towards lower-input crops and contributing to a reduction in total cropping area,” Mr Pistoia said.

Food prices are also expected to rise as inflation remains elevated at 4.6 per cent.

Fresh data from the Australian Bureau of Statistics due on Wednesday will confirm how the oil crisis continues to send prices soaring.

It will also reveal where in the economy the higher fuel costs have spread.