Fertilizer Fuels Food Prices: Identification Through the Oil-Gas Spread

Since the 2008 Food Crisis, the link between agriculture and energy has become contentious. Agriculture consumes energy both directly, through oil products, and indirectly, through fertilizer. Since fertilizer cost depends on natural gas prices, we exploit variations in the oil/gas spread to estimate the causal cost contribution of fertilizer to agricultural commodity prices. Fertilizer accounts for 44% of food commodity cost, far exceeding the importance of direct energy, making it essential for understanding food markets. Shocks to fertilizer markets may thus have a far wider economic and social impact than so far acknowledged.