Fuel, Fertiliser and Fear: Small Firms Brace for Price Storm

The warning lights for Britain’s small businesses are beginning to flash. Conflict in the Middle East is already pushing up fuel prices, threatening fertiliser supplies and setting off a chain reaction that could ripple from farms to restaurant tables and high streets. A single shipping route — the Strait of Hormuz — carries a large share of the world’s oil, gas and fertiliser ingredients, so any disruption quickly feeds through into higher transport costs, rising food prices and shrinking customer spending. For the UK’s already stretched small firms, particularly farmers, hospitality venues and independent retailers, the risk is clear: if energy, fuel and food inflation accelerate together, the fragile recovery on Britain’s high streets could stall before it properly begins.

If there’s any good business news this week could someone please pass it on to me.

I think we can all see in real time why supply chains around the world are being disrupted. The initial fear was about oil and gas supplies pushing up prices at the pumps and energy bills for businesses as well as households. Businesses all over the UK need energy and transport for production and delivery, so we can guess that if the Middle East conflict goes on much longer those prices will increase. There are already increases at the pumps. One small business owner told me yesterday that he’d had to pay 10 pence more per litre on Tuesday than he did on Saturday. The knock-on impact of that is likely to be increased prices as businesses find they can’t absorb the additional costs and have to pass them on to customers.

As if that was bad enough, the warnings this morning are about the global fertiliser supply chain. Farmers need fertiliser to grow crops and to keep their crop yields up. If the effective closure by Iran of the strait of Hormuz persists, crop production and food security is likely to be affected. It’s not just a sea route for the transportation of oil and gas but between a quarter and a third of the global trade in the raw materials for fertiliser passes through the strait. Roughly half of global food production depends on synthetic nitrogen and crop yields would fall without fertiliser. That means possible shortages. Shortages push up the prices of household items like bread, pasta and potatoes as we saw during the pandemic, and they make animal feed more expensive.

The Gulf is home to some of the world’s largest fertiliser factories. Iran is the fourth-largest global exporter of urea, which is used in fertiliser. Fertiliser prices are already up, as happened in 2022 after Russia’s invasion of Ukraine. We may feel a long way from the seat of the conflict, but the ripples will spread widely if it carries on for weeks or even months.

The NFU says farmers are already seeing price volatility because of the conflict. Most producers will have enough fertiliser for this year but they’re likely to be thinking ahead to next year. If farmers’ costs go up the knock-on impact on the already struggling hospitality sector could be very painful.

As I discovered the other day food inflation is up to 4.3%, well above the 3% the official inflation figure reported for February. Business inflation is often well above the official figure and again if costs go up businesses may be forced to pass those on the customers in increased prices. If prices of fuel, travel, energy and food start accelerating for households then customers won’t have anything left over to spend in pubs and restaurants even before price increase filter through with inevitable consequences on a sector already under the cosh.

It’s too early to say what the fallout will be for UK businesses in the medium or long term but there are certainly signs already that prices are going to come under pressure. Farmers were already struggling, the weather hasn’t help, and food price increases from suppliers in the UK and abroad could signal disaster for our vital hospitality sector and the high streets that depend on them to attract customers. We’re a consumer economy. It depends on people getting out and spending. If by any remote chance you do still have some money to spend ‘think small first’ and spend it with the small and micro businesses that need your support. Please.

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