Inflation Gets New Push From Gas Pipeline Delay

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Natural gas prices in Europe jumped some 16% after Germany suspended approval for the Nord Stream 2 pipeline. The move is likely to add increased upward pressure to fertilizer prices, raising farm operating costs and further fueling global food price inflation.  

The Nord Stream 2 pipeline is meant to carry greater quantities of natural gas directly from Russia to Western Europe. Germany’s energy regulator said it suspended the approval process because the pipeline operator needs to be certified as a German company. 

Even if the delay proves to be a temporary move, it threatens to undermine confidence in the politically controversial pipeline. After approval by Germany’s energy regulator, known as the Bundesnetzagentur, the pipeline will also need approval by the European Commission. 

Fertilizer prices have been on an upward tear for months, fueled by energy crises in many countries and global supply chain disruptions. Higher fertilizer prices are expected to impact farmers worldwide, from corn producers in the US Midwest, where urea prices have as much as tripled in the past year, to rice plantations in India, and coffee growers in Brazil. Germany is Europe’s top fertilizer producer, with exports mainly slated for Brazil. 

In the US, fertilizer accounts for about 35% of farm operating costs, not including labor and machinery. Higher fertilizer costs are likely to be passed along as increased food prices. Farmers also could choose to reduce their fertilizer usage, which could lower yields and result in decreased crop production. 

China’s recent decision to suspend phosphate and urea fertilizer exports has tightened trade flows. Urea futures prices on the Zhengzhou Commodity Exchange are up 43% year over year, though down from a peak reached last month. 

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