BNY’s Geoff Yu reports that emerging market (EM) food producers are experiencing strong investment flows as ongoing supply disruptions through the Strait of Hormuz, combined with higher fertilizer and energy costs, push food prices higher and elevate them on policymakers’ agendas [1]. According to the Center for Strategic and International Studies, 20%–30% of global fertilizer exports previously transited the Strait of Hormuz before the current conflict, and the region is also a significant producer of energy byproducts used in fertilizer production elsewhere, all of which pass through the Strait [1].
Australia, Brazil, and Argentina are identified as key beneficiaries of these trends due to their commodity export profiles, though BNY cautions that government intervention and price caps could limit margin expansion for staple producers [1]. The report notes that even if the Strait of Hormuz reopens, certain supply challenges are expected to persist and continue affecting global headline inflation throughout the rest of the year, with substantial implications for policymaking and asset allocation [1].
Climate pressures in the coming months are also expected to raise food production costs, further impacting supply and final prices [1]. The Philippine central bank, in its rate hike last month, highlighted that higher global oil and fertilizer prices have started to feed through to domestic fuel and food prices, a trend BNY expects to be echoed across other EMs where food insecurity is more acute [1].
While the conflict has so far generated positive terms of trade shocks for 'geographically unexposed' energy exporters, BNY expects food and soft commodities to begin performing well too. For economies like Australia and Brazil, industrial commodities and energy are expected to drive most of the adjustment, but the staples sector is also anticipated to benefit defensively if global inflation continues to rise. However, the risk of government intervention remains high, as evidenced by the recent U.K. initiative asking supermarkets for voluntary price caps, and margin expansion should not be assumed [1].
CONCLUSION
Emerging market food producers are seeing increased investor interest due to inflationary pressures and supply disruptions, with Australia, Brazil, and Argentina positioned to benefit. However, persistent supply challenges, climate pressures, and the risk of government intervention may limit profit margins, making the outlook cautiously optimistic.