Over the past few weeks, following the outbreak of the conflict in the Middle East, we have shared our perspectives on the potential implications of a prolonged crisis for the Nigerian economy, as well as an analysis of how structural bottlenecks may constrain Nigeria’s ability to fully optimise any resulting windfall. With the conflict now extending beyond three weeks, we have broadened the scope of our assessment to include areas that have received relatively less attention, particularly the Agriculture and Manufacturing sectors.
Risk of Strait of Hormuz Disruption… Why the Agriculture Impact Channel Matters
Escalating tensions involving US & Israel vs Iran have heightened the risk of partial disruptions along the Strait of Hormuz – a corridor that handles 20.0-30.0% of global seaborne oil trade and a meaningful share of global petrochemical flows according to the Energy Information Administration (EIA). While oil market sensitivity is well understood, the less appreciated channel is through fertilizer feedstocks, particularly ammonia and sulphur, both of which are closely linked to natural gas and refining activity in the Gulf.
Fertilizer prices have historically exhibited strong directional co-movement with energy benchmarks. During the Russia-Ukraine war, for instance, urea prices surged more than 3x at peak, reflecting the combined impact of energy price shocks and supply disruptions. Current market dynamics suggest a price shock scenario of between 10.0-30.0% upside swing rather than a physical supply shortfall.
Beyond Oil: Implications for the Fertilizer Industry
Global fertilizer production is energy-intensive: natural gas accounts for 60.0-80.0% of ammonia production costs, making the industry highly sensitive to energy price volatility. In addition, phosphate fertilizers rely on sulphur and ammonia inputs, both of which are exposed to Gulf supply chains. Although major exporters such as Morocco (phosphate) and North America (potash) are not solely dependent on Hormuz transit routes, input cost inflation and freight rerouting could raise global benchmark prices.
For Nigeria, the impact is asymmetric – while domestic producers like Dangote Fertilizer Limited and Indorama Eleme Fertilizer & Chemicals can sustain urea production, the country remains over 70.0% import-dependent for phosphate and almost entirely dependent for potash (NBS). This creates a cost-push dynamic for NPK blending, with local manufacturers facing rising input costs, FX constraints, and potential working capital strain.
Implications for Agriculture and Agro-Allied Industries
Nigeria consumes an estimated around 6.5-7.0m metric tonnes of fertilizer annually, with NPK accounting for a significant share of smallholder usage. A 20.0-30.0% increase in fertilizer prices could lead to 10.0-20.0% reduction in application rates, based on historical elasticity observed during 2022/2023. For key agro-products such as maize, rice, and palm oil, reduced NPK usage can lower yields by up to 15.0-20.0%, given the importance of balanced nutrient application. In this scenario, farmers are likely to switch to urea (nitrogen-only), scale down cultivated acreage, or delay planting. This has mid-to-long term pass-through effects on agro-allied sectors, including food processors and input distributors, as raw material availability tightens and input cost volatility increases. Vulnerable regions such as Northeast Nigeria – already facing structural food insecurity – are particularly exposed.
Implications for Nigeria’s Food Inflation Outlook
Food inflation in Nigeria remains highly sensitive to input costs, with fertilizer accounting for around 20.0-30.0% of total crop production expenses for smallholder farmers. A sustained increase in fertilizer prices at the start of the planting season raises the likelihood of lower harvest volumes in H2 and beyond, reinforcing supply-side pressures.
During the 2022 fertilizer shock, Nigeria’s food inflation rose by around 500bps over subsequent quarters (NBS), highlighting the pass-through from elevated agricultural input costs. With food accounting for nearly half of CPI basket weighting (40.1% based on new rebasing metrics), any supply disruption is likely to have an outsized impact on headline inflation. Overall, while the Middle-East crisis may not particularly trigger a global fertilizer shortage, it significantly increases the risk of a fertilizer affordability shock in Nigeria – one that could translate into weaker agricultural output and renewed upside pressure on food inflation in the medium term.
Implications for Nigeria’s Manufacturing Sector
Beyond agriculture, the shock transmits into manufacturing through agro-allied value chains. Lower crop yields tighten the supply of key inputs – grains, oils, and starches – driving raw material inflation for food processors and FMCGs. For instance, key FMCG players such as BUA Foods (+1.8ppts to 65.7%), Dangsugar (+4.6ppts to 81.8%), and Honey Flour (+6.2ppts to 88.0%) recorded high cost-of-sales ratio in 2022 following the impact of fertilizer price shock on input costs. With industry cost-of-sales ratio already elevated (c.70.0%) due to knock-on effect of FX and energy goods prices liberalization since mid-2023, profit margin compression is likely under a scenario of fresh pressure point, forcing price increases or output cuts.
In a weak demand environment, this raises the risk of demand destruction, particularly in price-sensitive segments At a macro level, these dynamics reinforce of pressures on Nigeria’s manufacturing PMI and output growth. Higher input costs (energy and agriculture-linked) combined with constrained consumer demand could lead to slower industrial output expansion and weaker capacity utilisation rates across the sector. In effect, the fertilizer shock represents a second-round inflationary impulse – transmitting from energy markets to agriculture, and ultimately into manufacturing – thereby complicating Nigeria’s inflation-growth trade-off.
Our Recommendations
To mitigate the second-round effects of a potential fertilizer price shock on Nigeria’s economy, policymakers and businesses need to act proactively and cooperatively. For policymakers, priority should be given to preserving fertilizer affordability at the start of the planting season through targeted support (such as input subsidies, tax holidays for local fertilizer producers). In addition, we recommend that the government should ensure preferential FX access for fertilizer importers and NPK blenders to ease cost pressures.
Over the medium term, accelerating backward integration in phosphate and potash segments will be critical to reducing structural import dependence, alongside improvements in distribution logistics to lower farm-gate costs.
For businesses, particularly across agriculture and agro-allied manufacturing, the focus should be on strengthening procurement strategies (including forward contracts and supplier diversification), optimising input efficiency, and reinforcing working capital buffers to manage price volatility. FMCG players may also need to adopt gradual price pass-through strategies and adjust product offerings to protect demand in a weak consumer environment.
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