Gippsland farmers feel impact of Middle East war as price of fertiliser surges

The Persian Gulf is about 12,000km from David Johnson’s dairy farm in Neerim South, but that hasn’t stopped him and other Gippsland farmers from feeling the financial impacts of the Middle East war.

What happened: Since Israel and the US launched attacks against Iran, the war has spread to other parts of the Middle East, causing chaos in international shipping.

Twenty percent of the world’s oil - and many other products, including the nitrogen fertiliser urea - have to pass from the Persian Gulf through the Strait of Hormuz into the Arabian Sea before being shipped east into Asia and to other destinations.

Iran has blocked the Strait of Hormuz, threatening to attack cargo ships that attempt to run the gauntlet. 

Nearly two thirds (64 percent) of Australia’s urea is imported from the Persian Gulf, according to the Australian Bureau of Statistics. 

The blockage has caused the international price of urea to surge by about 25 percent compared to a month ago.

In Australia, the price spike appears to be higher. According to Western Victoria dairy farmer, Mark Billing, the price has risen from $800 to $1,250 a tonne.

• What is urea? The fertiliser boosts grass growth during colder months.

Johnson told the Monitor he will delay his usual bulk order for urea this year and instead wait a month or two to see “how things settle down”.

“It's generally our cheapest source of growing extra feed,” he said. “Urea is probably half our fertiliser usage; [the price increase is] going to hurt the most.”

Fertilise the soil

Associate Professor at the University of Melbourne’s School of Agriculture, Food and Ecosystem Sciences, Roger Armstrong, told the Monitor that for a large portion of Australia’s grain farmers, urea is one of the single largest costs.

“It is very significant,” he said. “Farmers have always got to compromise between the price of fertilisers going up and their seasonal outlook.”

• “Most urea applications occur after crops emerge, so that's still a couple months away in June, July.”

Armstrong predicts most farmers will, like Johnson, delay ordering urea until absolutely necessary.

Risky business

Armstrong said our reliance on imports for fuel and fertiliser has long been an issue facing Australian farmers.

“If it's cheaper to get imports, then that will tend to be [what we choose],” he said. “But in the long run we need to balance [the price] against the risk of not being able to access critical inputs.”

Gippsland farmers

David Johnson currently spends about $80,000 a year on fertiliser, and so significant price spikes would be keenly felt.

Johnson said farmers need to keep replacing soil nutrients like phosphorus or potassium, as they are removed by cattle eating grass.

“We put the fertiliser on to replace those nutrients and grow the right species of grass,” he said. “You can get away with not doing as much for half a season, or a season, but at some stage you've got to replace that nutrient.”

Why is the cost of urea so volatile?

Professor Armstrong said natural gas was currently the most expensive element in producing urea. 

“If there's an alternative to using fossil fuels, that'd be a win-win in the long-term, from both price and environmental perspective.”

• Urea has been successfully produced by using green hydrogen (renewable energy), but there are no production facilities in Australia.

Resilient farmers

Australian farmers are adaptable, Armstrong said, adding that “the solution to this issue is not going to be found in the next couple of months. It's a longer term strategic issue for farming in general”.

Alternate methods

Berrys Creek beef farmer Fergus O’Connor and wife Deb stopped using traditional fertilisers when prices spiked after Russia invaded Ukraine in February 2022.

“I switched from using nitrogen fertiliser to a leaf foliage spray,” Fergus told the Monitor. “The price of nitrogen fertiliser has gone up enormously. For me to spray 25 acres would cost $3,500.”

Fergus said the leaf foliage spray costs him $400 to spray 25 acres.