Aussies could pay more for groceries as farmers hit by dual fertiliser and fuel hike due to Iran war

Australians could be forced to pay more for groceries as the US-Israeli war in Iran drives up the price of fertiliser.

The Middle East, known for being one of the world's most dominant suppliers of oil, also supplies up to 45 per cent of the world's urea.

Urea is the most commonly used nitrogen fertiliser that promotes high crop yields and is used for wheat and vegetables.

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Australia does not produce urea and relies almost entirely on imports, which have all but halted as the war shuts down the critical Strait of Hormuz.

Luis Gazzola, director of Gazzola Farms on Victoria's Mornington Peninsula, said the increasing cost of urea will leave farmers like him worse off.

"Prices have been going up for the last four years. Our cost of production has gone up 25 per cent or more," he said.

"But our returns and our produce, fruit and veggies, haven't gone up, unfortunately."

National Farmers' Federation president Hamish McIntyre said this could lead to higher prices at the supermarkets.

"Fertiliser prices are already climbing, with urea now sitting at around $US584 a tonne, up nearly 30 per cent in the past month and more than 50 per cent higher than a year ago," he said.

"That's deeply concerning as farmers prepare for winter cropping, because tightening supply and soaring costs could mean fewer crops planted and ultimately higher food prices."

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Monash University professor of econometrics and business statistics Robert Brooks said the extent of the consumer impact would depend on when and how much the supply chain can bounce back from the conflict.

"A lot of primary production is already operating with fairly tight margins and they're also operating in a situation where the planting and the growing cycle are seasonal, and so there are certain times where this becomes really time-critical," he said.

"On the grocery price chain end, transport then becomes a bigger part of infrastructure, so the longer you get disruption, and the longer you get higher oil, petrol, diesel and urea prices, the more you get price stickiness.

"And we do know that aspects of the supply shock that came out of the Russia-Ukraine conflict are clearly part of the inflation that we face today."

In a research note yesterday, Commonwealth Bank noted the crisis could last months and pose significant issues for agricultural production this year.

"While some of the best prepared farmers have most of their fertiliser needs purchased for the year, many don't have it delivered onto their properties, leaving them at risk of future supply shortfalls due to shipment challenges," economist Dennis Voznesenski said.

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"On the fuel side, some of the best prepared farmers have sufficient purchases for a few months, but only partially delivered.

"Farmers with limited reserves could run into issues due to recent panic buying, with fuel rationing reported across different parts of the country."

For farmers like James Duffell, who owns Farmer and Son in NSW's Riverina region, he will have to absorb the price increases.

"It's going to make a big difference to your bottom line, because a lot depends on petrol and diesel," he said.

"It's very hard for us to pass that on when we're the first ones in on the food chain.

"But if everything stops, no one gets to eat."

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