Agriculture in 2026: Food Security Drives Policy as Supply Risks Mount
WHAT YOU NEED TO KNOW
- The Strait of Hormuz crisis demonstrated the vulnerability of Indo-Pacific agriculture to energy and fertilizer supply disruptions. Although the recent U.S.-Iran ceasefire framework and reopening of the strait have eased immediate supply concerns, elevated input costs, food-security intervention and geopolitical risk management will continue to shape agricultural markets through the second half of 2026.
- Food-security policy is shifting from market management to strategic intervention. Governments are prioritizing sovereign food and fertilizer access through measures such as India’s expanded fertilizer subsidies and rice export controls and China’s fertilizer export restrictions and grain reserve expansion. Meanwhile, Southeast Asia is witnessing more domestic production investments while facing increasing trade distortion, compliance burdens and fragmented agricultural supply chains.
- BGA expects reduced palm oil supply in the global market as major producers prioritize domestic consumption. Indonesia and Malaysia will increase their palm oil-based biodiesel blend to mitigate the energy crisis, which will squeeze edible oil supply.
ON THE HORIZON
- Expanded state intervention in fertilizer and grain markets will remain prominent, particularly via India’s subsidy protections, China’s export controls and reserve management in Southeast Asia. This will distort trade flows, while governments seek to control domestic inflation and ensure supply security.
- Additional export restrictions on fertilizer, grain and feedstock from major producers may be expected as food inflation accelerates and geopolitical tensions disrupt commodity flows.
- Compounding weather and geopolitical pressures, including El Niño and La Niña disruptions, Indian monsoons and reduced Southeast Asian palm oil combined with shipping insecurity and commodity nationalism, may significantly increase regional agricultural supply instability into 2027.
Sector Overview and Forecast
Macrotrend Monitor
Strait of Hormuz Disruption and Agricultural Market Impact
The repercussions and associated risks stemming from the Strait of Hormuz blockade will continue to impose major macroeconomic, trade and policy disruptors for the Indo-Pacific’s agriculture sector. While Asia-bound agriculture products rarely go through the strait, the conflict has indirectly impacted the sector.
Prolonged volatility is increasing diesel costs, freight and war-risk insurance premiums and (via natural gas markets) fertilizer production costs — raising agricultural transport, food processing and farm input expenses across the region. These effects cascade through supply chains for grains, rice, edible oils, livestock and processed foods. Higher energy and shipping costs are pressuring key exporters such as India, Vietnam, Thailand and Indonesia and are tightening margins in sectors such as Southeast Asian palm oil production. These pressures increase food inflation risks and increase the likelihood of more government intervention.
Governments across the Indo-Pacific are leaning more heavily on fertilizer and fuel subsidies, strategic reserves, export and licensing controls, import diversification and targeted bilateral commodity arrangements to manage price pass-through and political exposure. India is maintaining politically sensitive subsidy protections while diversifying procurement, China continues to prioritize grain security and has used fertilizer export controls as a supply-management lever and Indonesia is exerting more controls over strategic commodity imports and exports. BGA identifies a shifting perspective that favors interventions compared to free trade, with policymakers increasingly concerned about food security.
Therefore, businesses should plan for greater policy activism, including tariffs and nontariff barriers tied to domestic price stability, tighter procurement and licensing controls and more strategic government-to-government commodity arrangements. The global uncertainty also reshapes trade relationships between countries, creating both new opportunities and risks.
Australia is pivoting toward Indonesia for fertilizer supply because Indonesia’s methane-rich liquefied natural gas supports domestic fertilizer production, insulating the country from shortages and enabling urea exports at premium prices.
The Future of Food Security
Indo-Pacific food-security policy is moving rapidly from market stabilization toward sovereign control. Governments increasingly view food systems through national security, inflation control and industrial competitiveness frameworks rather than through open-market principles.
This shift is driving expanded strategic reserves, domestic agricultural production investment, sovereign fertilizer capacity, agricultural technology deployment and tighter trade protections. India’s fertilizer subsidy expansion and rice trade controls, China’s food-security legislation and strategic stockpiling and Indonesia’s food estate development all reflect this broader regional transformation. Governments will likely deepen procurement controls, domestic production incentives and strategic bilateral trade partnerships.
Environmental, social and governance standards; sustainability initiatives; and carbon regulations are also becoming more central to agricultural policy. Carbon border mechanisms and sustainable finance requirements are increasingly shaping export competitiveness, particularly for palm oil, livestock and major commodity producers. Southeast Asian exporters face growing pressure to comply with stricter environmental trade regulations from Europe and developed markets, while governments are responding through green industrial policy, sustainable agriculture incentives and regulatory harmonization efforts.
Biofuels and energy transition policies are further reshaping agricultural markets. Rising demand for biofuel feedstocks, including palm oil, sugarcane and corn, is increasing competition between food and fuel uses. Countries such as Indonesia and Malaysia will likely continue biofuel-blending expansion to strengthen energy security, while India is expected to increase ethanol-related agricultural investments. These policies will create new investment opportunities but may intensify food inflation and supply pressures.
Agricultural technology and productivity investment are becoming strategic priorities as governments seek long-term resilience. Precision agriculture, climate-resilient seeds, water efficiency systems and digital supply chain modernization are increasingly central to both public and private investment agendas. Australia, Japan, Singapore and India are expected to expand agri-tech incentives, viewing technological productivity gains as essential to reducing import dependence and climate vulnerability.
Subsector Highlight
Fertilizer Supply and Demand Challenges
Fertilizer markets will likely remain among the most exposed agricultural subsectors, with Strait of Hormuz-related shipping insecurity compounding pre-existing vulnerabilities. Elevated natural gas prices raise ammonia and urea production costs, while rerouting, congestion and sanctions risk can constrain supplies from key Middle Eastern producers. At the same time, China’s periodic export controls continue to tighten effective global availability. Governments are therefore increasingly using structural policy tools — not only short-term price measures — to reduce exposure. India is expected to sustain politically crucial subsidy protections despite fiscal strain. Australia is positioning itself as an alternative supplier and source for low-carbon inputs. Many Southeast Asian countries are prioritizing domestic capacity, reserve-building and diversified sourcing.
Policy responses are moving beyond emergency subsidy support toward more durable interventions, including domestic production incentives, strategic reserve expansion, bilateral procurement agreements and supply-diversification mandates. For governments, the objective is to reduce long-term exposure to external fertilizer shocks while balancing fiscal sustainability and food inflation risks. For agribusinesses, this environment rewards alignment with evolving national industrial strategies such as local investment participation, diversified supplier networks and proactive engagement on compliance requirements. Sustainability regulation could further reshape fertilizer markets through low-carbon ammonia development, emissions-related compliance requirements and green industrial subsidies.
The strategic challenge for both governments and firms is input security across fertilizers, fuel and increasingly carbon-related compliance. Procurement resilience, policy alignment and regional diversification will be key determinants of cost control and competitiveness as volatility persists.
Palm Oil Market Braces for El Niño and Tightened Export Policy
BGA forecasts a potential squeeze in the global supply of crude palm oil and its derivative products because both Indonesia and Malaysia issued regulations prioritizing domestic supply and are projected to face record-breaking drought.
Around 80 percent of the estimated 75 million tons of palm oil are produced by the two countries. Palm oil dominates Asia’s vegetable oils, meaning disruptions in the palm oil supply could lead to further food price hikes in the region.
Indonesia has announced a policy to increase the palm oil blend for diesel from 40 percent to 50 percent, potentially slashing 3.5 million tons of global crude palm oil supply. Meanwhile, Malaysia announced its intention to increase its palm oil blend from 10 percent to 15 percent, further straining the global market.
Indonesia and Malaysia are also expected to be hit by a major drought during the El Niño season in the third quarter, according to the countries’ meteorological agencies. A BGA source at major palm oil producing company said that corporations are expecting pressure on production and are on high alert over potential forest fires.
For edible palm oil, the rise of plastic packaging costs increases production costs and consumer prices for cooking oil. These factors will further contribute to inflationary pressure in the region, which is already facing cost-push inflation from the energy sector.
We will continue to keep you updated on developments in the ECR sector as they occur. If you have comments or questions, please contact BGA Directors of ECR Chayamon Srisongkram or Mardika Parama.
Best regards,
BGA ECR Team
