Supply chain disruptions may drive growth in investments in sustainable food production.

Event Overview

In 2025, the Iran conflict continues to escalate, causing another shock to global supply chains. According to Ecovia Intelligence, this conflict has triggered significant fluctuations in fertilizer prices, with about a quarter of globally traded fertilizers needing to pass through the Strait of Hormuz, and instability in the region directly driving up transportation costs and insurance premiums. European farmers are currently paying about 50% more for fertilizer than a year ago, and this cost pressure is being passed down step by step along the food supply chain.

Supply Chain Background

The food industry chain is highly dependent on globalized procurement and logistics networks. Fertilizer is a key input for modern agriculture, and its price fluctuations directly affect production costs. Conventional agriculture relies heavily on synthetic fertilizers, while organic agriculture maintains soil fertility through natural methods such as crop rotation and composting, with very low synthetic fertilizer usage. Therefore, the impact of soaring fertilizer prices on organic farms is far smaller than on conventional farms. Additionally, organic agriculture typically consumes less energy than conventional agriculture, making it more resilient to energy price fluctuations.

Corporate Decision Logic

• Faced with ongoing supply chain disruptions, food companies are reassessing their procurement and production strategies. Ecovia Intelligence notes that large food manufacturers such as Nestlé, Unilever, Danone, and Barilla have begun investing in regenerative agriculture projects. The core logic of these projects includes:
• Reducing risk exposure: Directly engaging in farm management to reduce dependence on long-distance, highly volatile supply chains;
• Stabilizing procurement costs: Improving soil health to enhance yield resilience and buffer against fertilizer price fluctuations;
• Meeting regulatory and consumer expectations: ESG regulations are tightening across countries, and consumers are increasingly demanding transparency and sustainability.

Supply Chain Impact

Procurement Costs The rise in fertilizer prices directly increases input costs for conventional agriculture, while organic agriculture, due to low fertilizer usage, sees relatively smaller cost increases. This will narrow the price gap between organic and conventional foods, potentially driving more consumers to choose organic options.

Delivery Lead Times and Inventory Levels Regenerative agriculture and localized production can shorten supply chain links and reduce transportation time. However, the initial transition to sustainable production may face insufficient capacity, leading to longer delivery lead times. Companies need to adjust their inventory strategies, such as increasing safety stock to cope with volatility.

Supplier Management More and more food companies are incorporating suppliers' ESG performance into their evaluation systems, prioritizing farms that adopt regenerative agriculture or have traceable supply chains. This is prompting small and medium-sized farms to accelerate their transformation, or risk losing orders.

Risk Resilience Organic agriculture's diverse planting and soil health help resist extreme weather, but yields are typically lower than conventional agriculture. Companies need to seek a balance between efficiency and resilience.

Regional Impact### Europe Europe is a major market for organic food, but consumers are cutting spending due to inflationary pressures. During the Russia-Ukraine conflict in 2022, organic food sales in Europe fell by about 2%. The current conflict may suppress short-term demand, but in the long run, policy support (such as the EU's 'Farm to Fork' strategy) and growing consumer awareness will drive market recovery.

Middle East and North Africa This region relies on fertilizer imports, and the conflict directly threatens food security. Investing in sustainable agriculture (such as drip irrigation and organic farming) can reduce dependence on external inputs.

North America and Asia Major agricultural countries such as the United States, China, and India are exploring the large-scale application of regenerative agriculture. If fertilizer prices remain high, governments in these regions may introduce subsidy policies to encourage organic transition.

Future Trends

1. Investment growth: Food companies and retailers will increase investment in sustainable production methods (such as regenerative agriculture) to build more resilient supply chains. 2. Regionalization trend: Consumers prefer local food, and supply chains will evolve toward short chains and regionalization. 3. Technology driven: Digital technologies (such as blockchain traceability) and precision agriculture tools will enhance transparency and efficiency in sustainable production. 4. Price gap narrowing: The price gap between organic and conventional food may further narrow, prompting the mainstream market to accept sustainable products.

In short, this supply chain disruption is not only a short-term shock, but is more likely to become a catalyst for structural change in the food industry. If companies seize the opportunity and invest in sustainable production, they will gain a strategic competitive advantage.