What drives urea price fluctuations?

This paper examines the key drivers of global urea price fluctuations. As a key agricultural input boosting yields per hectare, urea reached a record $925 per metric ton in April 2022 in the context of the COVID-19 pandemic and the onset of the war in Ukraine. This price increase raised production costs for farmers, thereby presenting a substantial threat to global food security. This study employs a Vector Error Correction Model (VECM) on monthly data from 1985 to 2023 to examine the effects of energy prices, agricultural commodity prices, the real effective exchange rate (REER) and temperature anomalies on urea price dynamics, while also assessing the impact of the COVID-19 pandemic and the war in Ukraine. The main results indicate that energy and agricultural prices positively affect urea prices in the long run, while the REER has a negative impact. Furthermore, increasing temperature anomalies are associated with higher urea prices. Finally, I find that the COVID-19 pandemic significantly contributed to increases in urea prices. These findings provide valuable information on the dynamics of urea prices, enabling the development of agricultural policies and decision making to stabilize urea prices and ensure stable access to this fertilizer, which plays a crucial role in global food security.