Why open markets matter for global food system resilience
Open food and fertilizer markets are a critical source of resilience during global food crises. The experience of 2022-23 showed that while trade and supply chains adapted to severe shocks, policy interventions that restricted trade amplified market pressures.
Higher oil and gas prices are once again raising concerns about fertilizer costs. The events of 2022 provide a reminder of how energy markets, fertilizer markets and trade policy can interact during a global crisis.
In 2022, overlapping shocks caused by Russia’s invasion of Ukraine, economic fallout from the pandemic, and extreme weather events led to soaring food prices that pushed more than a quarter of a billion people globally to acute levels of hunger.
Grain, energy, and fertilizer markets had all suffered shocks simultaneously, with the world’s poorest countries, many in Sub-Saharan Africa, most severely affected due to their high vulnerability. Natural gas is the critical input used to produce ammonia, which is then processed into urea, the world’s most widely used nitrogen fertilizer. As natural gas prices surged, fertilizer production costs rose sharply.
But rising energy costs were only part of the story: policy responses compounded market pressures and price volatility. In particular, faced with rising prices and supply concerns, many countries resorted to export restrictions in an effort to protect domestic consumers. In 2022, export restrictions covered 11% of pre-pandemic global food trade, up from 3% before the pandemic.
Fertilizer markets followed the same pattern. While importers reduced barriers to fertilizer imports, many exporters imposed restrictions to shield their own markets. This disrupted trade flows and reduced global availability just as the energy crisis made production more expensive. As importing countries competed for a shrinking pool of available fertilizer, prices were pushed even higher.
When countries try to shield domestic markets from global price movements through trade restrictions, the volume of goods available on the global market declines, making global prices more volatile. Estimates indicate that export restrictions related to Covid and Russia’s invasion of Ukraine exacerbated this volatility. Domestic prices were often not stabilized either — when fiscally unsustainable subsidies were abruptly withdrawn, local prices spiked just as sharply. These poorly targeted interventions carried heavy human costs: across 51 countries, the poorest households lost 23 percent more real income than the wealthiest during the crisis period.
Since fertilizer production is highly concentrated, heavily dependent on natural gas, and difficult to substitute, fertilizer trade recovered more slowly than food trade. The combination of sustained demand and restricted global supply meant fertilizer markets remained tight long after food trade flows had adjusted.
There are important lessons here for policymakers today, as countries again face increases in fertilizer prices, with knock-on effects for food prices.
The experience of 2022-23 suggests that export restrictions intended to insulate markets ended up increasing price volatility, while resilience in the food markets came from the ability of farmers, traders, shippers, and importers to adapt. Keeping food and fertilizer markets open allows that adjustment process to work. While open markets cannot prevent shocks, keeping markets open is essential to help countries adapt and recover effectively.
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