OSLO- Yara, one the world's largest fertiliser makers, warned on Wednesday the world faced higher food prices because of rising energy costs and that it could lead to famine for the most vulnerable.
The Norwegian company, posting stronger-than-expected third-quarter profits, also said high gas costs would continue to curtail its ammonia output in Europe, which Yara cut by 40% last month.
The front-month European benchmark gas price has almost quadrupled this year to record levels, amid high demand as economies recover from the pandemic and below-average gas storage levels at the start of the winter heating season.
Natural gas is the most important cost input for nitrogen-based chemicals and fertilisers, including ammonia.
Higher energy prices will make food more expensive as farmers face higher input costs, such as fertilisers, said Yara CEO Svein Tore Holsether.
"I am particularly worried that the most vulnerable are going to be hit again, the second shock to the food system in a very short time, after the pandemic," Holsether told Reuters.
"The impact will likely be that we face famine (in some places)," he said, adding he had discussed his concerns with David Beasley, the head of the United Nations' World Food Programme, this week.
Q3 BEAT
July-September earnings before interest, tax, depreciation and amortisation (EBITDA), excluding one-off items, rose to $765 million from $558 million a year earlier and topped the $738 million expected by analysts in a Refinitiv poll.
Yara said higher prices for its products more than offset lower deliveries and increased input costs.
It expects to pay $850 million more for natural gas in the fourth quarter than a year earlier, and $950 million more in the first quarter of 2022 than the same period of 2021.
But since Yara is cutting ammonia output in Europe, it is buying less gas and so the cost impact will depend on the duration of the curtailment.
About half of the cut output could be restored "within a month or two," Holsether said, as some of it was due to maintenance.
The final decision would depend on natural gas prices and contract commitments, among other factors, he said.
Yara has capacity to produce 8.6 million tonnes of ammonia a year across its plants annually, with more than half of this - 4.8 million tonnes - in Europe.
It has an overall production capacity of just under 23 million tonnes of finished products used to fertilise crops, as well as for explosives and cleaning exhaust from diesel engines, among other applications.
Shares in Yara were down 0.65% at 0945 GMT in an Oslo benchmark index down 0.2%.
(Editing by Jason Neely and Mark Potter) ((victoria.klesty@thomsonreuters.com; +47 2331 6592; Reuters Messaging: victoria.klesty.thomsonreuters.com@reuters.net))
