Bulletin: Middle East fertiliser shock

Middle East briefing 

Fertiliser shock threat 

Disruption in the Middle East has pushed up global oil and gas prices, raising the risk of a fertiliser‑driven food price shock for the UK. Fertiliser is a key route by which energy prices feed into food inflation.  

Gas accounts for around 90% of the variable cost of nitrogen fertiliser, so higher gas prices pass quickly into farm input costs. Supply pressures persist as exports from the Gulf remain constrained. UK exposure is high, producing around 371,000 tonnes of fertiliser annually while importing a further 1.287m tonnes. The IMF estimates around half of fertiliser price increases feed into food prices with a lag of roughly 12 months. 

Read our latest article Middle East briefing: Fertiliser shock risk for UK food prices

CO2 supply risk returns 

Fertiliser disruption can quickly become a wider food-system risk because it can also tighten supplies of industrial CO2. CO2 is essential for operation of the food system (e.g. for use in livestock stunning, packing short-life foods, carbonating drinks) and is often produced as a by-product of other industrial processes, including nitrogen fertiliser production. 

With fertiliser production currently under pressure as a result of the Middle East conflict, the government has moved to increase domestic supplies of CO2. The mothballed Ensus bioethanol plant on Teesside, which shut in Autumn 2025, will be restarted for an initial period of three months. 

The government is providing up to £100m for the project.

IGD opinion 

This is a sensible response to anticipated shortages of CO2, and it is fortunate that the Ensus plant was held on standby rather than being decommissioned. 

However, it raises various questions. The first is around feedstock. The Ensus plant uses feed wheat to produce alcohol (it can also use maize), requiring up to 1m tonnes per year. It is not clear where this volume of wheat will come from, or what the price will be. 

Second, if the primary reason for re-opening the plant is to produce CO2, what will become of the ethanol, which was previously the major output? It is not obvious that a local market can be found for it, especially now that US bioethanol can be imported tariff free (a key reason the Ensus plant and the Vivergo plant were shut in the first place). 

Finally, there is no visibility of what will happen after the initial three-month period is up. If CO2 is still in short supply over the summer, will the government continue to support production at Ensus? 

Disruption persists despite ceasefire 

Since last week’s ceasefire announcement, conditions in the Middle East have stabilised politically but remain highly disrupted commercially. Energy markets have not normalised and confidence remains fragile. Shipping through the Strait of Hormuz continues at a fraction of normal levels, with insurers, shipowners and traders remaining cautious amid ongoing security constraints.  

Gas prices eased briefly on ceasefire hopes but remain volatile, reflecting damaged infrastructure and uncertainty over whether de‑escalation will hold. While the ceasefire has reduced immediate escalation risks, market signals continue to point to disruption rather than resolution. 

IGD opinion  

Despite diplomatic progress, markets are pricing continued disruption. Volatile energy prices and constrained logistics mean risks to food inflation remain skewed to the upside, explaining why IGD inflation forecasts are yet to shift. 

UK forecast growth under pressure 

The IMF’s latest World Economic Outlook report, focusing on the possible economic impact of war in the Middle East highlights a sharp downgrade to the UK outlook following renewed geopolitical disruption.  

• UK GDP growth for 2026 is now forecast at 0.8%, down from 1.5% previously, while UK inflation is expected to rise to 3.2%, up from 2.5%. The IMF points to weak underlying momentum and limited fiscal headroom leaving the UK more exposed to higher energy costs and financial volatility.  

• Globally, growth is also slowing, with world GDP forecast at 3.1% in 2026, down from 3.3%, while global inflation has been revised up to 4.4% from 3.8%, reflecting sustained commodity and energy price pressures. 

Risks to the forecasts are mostly on the downside (i.e. high risk of even less favourable outcomes) with IMF expressing concerns over an expanding war, trade disputes, and possible bubble burst events, especially around AI. IMF urges governments to focus on developing co-operation and credible policy responses to share problems. 

IGD opinion 

The UK will be one of many countries sharing in the economic shock created by the war in the Middle East – the challenges are not unique to us. However, the UK is poorly positioned to absorb the impact, reflecting weak economic momentum and limited fiscal headroom. 

If, as IMF suggests, growth in 2026 is halved as a result of the war, this would raise serious questions over the fiscal plans set out by the government in the Autumn, potentially requiring some adjustment. The earlier this is addressed, the easier it is likely to be. 

It is also worth noting that this outcome assumes a brief and limited conflict. If the war persists or spreads, the economic consequences could be significantly more severe. 

GDP Improvement, though fragile 

Monthly GDP data from ONS shows the UK economy performed relatively well, growing by 0.5% in the three months to February 2025, the strongest performance since Spring 2025, with Services leading. Growth year‑on‑year was 0.8%.

IGD opinion 

The key word here is “relative”. Compared with the recent past, growth of 0.5% is an improvement. However, average quarter-on-quarter GDP growth over 2000-19 (i.e.: excluding Covid but including the Credit Crunch) was closer to 0.9%, meaning current performance remains weak by longer‑term standards. 

This pace of growth does little to offset several years of underperformance and represents a soft start to 2026, with the OBR forecasting annual growth of 1.1%. It is also important to note that the Middle East conflict began on 28 February, so this data does not yet reflect its likely negative impact. 

Young people key to workforce stability 

Young people will play a central role in stabilising the UK food and drink workforce as labour shortages and skills gaps continue to limit capacity across the sector. Workforce pressures are increasingly structural rather than short term, reflecting demographic change and high levels of economic inactivity among 16–24‑year‑olds.  

Building awareness of the sector, improving early experiences, and creating clearer progression routes are seen as critical to strengthening the talent pipeline. This comes amid continued concerns about youth inactivity and growing policy focus on skills and workforce participation, reinforcing the importance of early engagement in supporting long‑term workforce resilience across food and drink supply chains. 

Help us inspire the next generation  

We have plenty of opportunities for businesses to get involved. Please email [email protected] to learn more about our summer programme of workshops and other activities we have coming up.  

See our article Young people are key to stabilising the food and drink workforce 

High‑sugar food cut from school menus 

The government has announced plans to remove high‑sugar and deep‑fried foods from school menus as part of the first major overhaul of School Food Standards in over a decade. The proposals would limit foods high in fat, salt, and sugar, while increasing fruit, vegetables, and wholegrains across school meals. Changes will apply to both breakfasts and lunches, alongside a consultation on implementation and a new national enforcement mechanism. 

IGD opinion  

This policy direction aligns with wider changes to how foods high in sugar are defined and regulated. See IGD’s explainer on sugars and the Nutrient Profiling Model, which underpins HFSS policy and school food standards. 

Government confirms Industrial Competitiveness Scheme outcome 

The UK government has confirmed the outcome of its consultation on the British Industrial Competitiveness Scheme, setting out the final design and expanded eligibility. The scheme will cut electricity bills by up to 25% for more than 10,000 electricity‑intensive manufacturers from 2027, with a one‑off payment for some firms to bridge support not received in 2026.  

Eligibility is based on electricity intensity rather than sector, meaning food and drink manufacturers may qualify where processing activities are power‑intensive, such as milling, baking, refrigeration, and manufacturing. The announcement is particularly relevant for producers facing sustained energy cost pressures across the food supply chain.