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As Russia is hit by sanctions, fertilizer shortages threaten the world’s food supply

Western sanctions against Russia, a major exporter of potash, ammonia, urea and other soil nutrients, have disrupted global shipments of these key commodities. Fertilizer is key to keeping corn, soy, rice, and wheat yields high. Breeders are trying to adapt.

March 23, 2022 / 08:15 PM IST
Source: Reuters

Source: Reuters

Sky-high fertilizer prices are prompting farmers around the world to cut consumption and reduce the area they plant. This comes in the wake of the Ukraine-Russia conflict, which has seen some agribusiness veterans warn of food shortages.

Western sanctions against Russia, a major exporter of potash, ammonia, urea and other soil nutrients, have disrupted global shipments of these key commodities. Fertilizer is key to keeping corn, soy, rice, and wheat yields high. Breeders are trying to adapt.

The pivot can be seen in the agricultural powerhouse of Brazil, where some farmers are applying less fertilizer to their corn and some federal lawmakers are pushing to open up protected indigenous lands to potash mining. In Zimbabwe and Kenya, small farmers are once again using manure to feed their crops. In Canada, a canola farmer has already stockpiled fertilizer for the 2023 season in anticipation of even higher prices.

Farmers elsewhere are taking similar steps. Reuters spoke to 34 people on six continents, including grain producers, agricultural analysts, traders and farming groups. All expressed concern about the cost and availability of fertilizers.

In the United States alone, fertilizer bills are expected to rise 12 percent this year after rising 17 percent in 2021, according to data from the American Farm Bureau Federation and the US Department of Agriculture (USDA).

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Some growers are considering switching to plants that require fewer nutrients. Others plan less acreage. Others say they will simply use less fertilizer, a strategy that experts expect will hurt yields. Production is most at risk in developing countries, whose farmers have fewer financial resources to weather the storm, said Tony Will, chief executive officer of Illinois-based CF Industries Holdings, a leading maker of nitrogen fertilizers.

“My concern right now is actually a global food crisis,” Will told Reuters.

On Saturday, Peru declared a state of emergency in its agricultural sector over fears of food insecurity.

The decree says the country’s planted areas have fallen 0.2 percent since August due to rising fertilizer prices and that the volume of Peru’s grain imports for animal feed has also fallen due to cost concerns. The government is now drafting a plan to increase the country’s food supply. DOUBLE WHAMMY Global fertilizer prices were already high before Russia invaded its neighbor on February 24, when record natural gas and coal prices forced some fertilizer makers to curb production in the energy-hungry sector. Ukraine’s cities were besieged by rockets, tanks and troops in what Moscow called a “special operation” to demilitarize the country. Russia denies attacking civilians in the conflict.

Western nations responded with tough economic sanctions against Russia, while the United States and European Union imposed new sanctions on Belarusian President Alexander Lukashenko, who backed the Russian offensive.

Together, Russia and Belarus accounted for more than 40 percent of global exports of potassium last year, one of the three critical nutrients used to boost crop yields, Dutch lender Rabobank said this month. In addition, Russia accounted for about 22 percent of world exports of ammonia, 14 percent of world urea exports and about 14 percent of monoammonium phosphate (MAP) – all major types of fertilizers.

Sanctions have disrupted sales of fertilizers and crops from Russia. Many Western banks and traders are avoiding Russian shipments for fear of clashing with rapidly changing regulations, while shipping companies are avoiding the Black Sea region for safety reasons.

It all amounts to a double whammy for the global food supply.

Russia and Ukraine are major grain producers. Together they account for about 30 percent of global wheat exports and 20 percent of corn exports. Grain shipments through the Black Sea have already been disrupted. Stuck shipments from these two countries have helped boost global food inflation. The World Bank said last week that a number of developing countries are facing short-term wheat supply shortages due to their heavy reliance on Ukrainian exports.

But the fertilizer crisis is in some ways more worrying because it could stifle food production in the rest of the world, which could help plug the gap, said Maximo Torero, chief economist at the UN Food and Agriculture Organization.

“If we don’t solve the fertilizer problem and trade in fertilizers doesn’t continue, we have a very serious problem [food] Delivery next year,” Torero told Reuters. BRAZIL AT RISK Brazil, the world’s largest exporter of soybeans, relies heavily on imported fertilizers such as potash, which accounted for 38 percent of plant nutrients used last year. Russia and Belarus were the source of half of these shipments.

Even before the Ukraine-Russia conflict, Brazilian farmers reduced corn cultivation due to rising fertilizer prices. Soybean cultivation is also likely to be affected as growers are expanding at a slower pace than in previous years, according to Agroconsult, a Brazilian agriculture consultancy.

In the west-central state of Mato Grosso, farmer Cayron Giacomelli told Reuters he has already reduced fertilizer use for his current corn crop. He said he will do the same when he plants soybeans later this year, a move he believes could shrink his crop by at least 8 percent.

Giacomelli said fertilizer is hard to come by and some traders won’t complete sales until cargo ships dock in Brazil. He’s still kicking himself for not completing a purchase he negotiated just before Russia invaded Ukraine. “I got distracted and now I’m paying more,” Giacomelli said.

Meanwhile, lawmakers from Brazilian farm states are pushing for laws that would open up indigenous lands in the Amazon to potash mining. This measure is opposed by members of the local Mura tribe, who say mining would destroy the natural habitat they depend on. The bill is still on its way through the nation’s Congress.

In Zimbabwe, scarce and expensive imports have forced corn farmers like Boniface Mutize to make their own fertilizer. “We mix cow manure or chicken waste with zinc,” he said.

It is the same in rural Kenya. Farmer Mary Kamau said she too has cut back on purchases of commercial fertilizer and uses manure to feed the coffee and avocados she grows on 12 acres in Murang’a County. She fears the consequences for her family. “If I don’t get a good harvest, I don’t get good prices. And that will influence me in the next two years – not just this season,” said Kamau.

LESS HECTARES, LESS FERTILIZER

In the United States, Mike Berry, a fifth-generation farmer from New Mexico, has similar concerns. He recently paid $680 a ton for liquid nitrogen to fertilize his corn crop, an “exorbitant” price that was 232 percent higher than last year’s price.

Berry said he plans to reduce his spring plantings of forage corn to about 300 acres from his usual 400 to 600 acres. Berry said it will also reduce its use of liquid nitrogen by about 30 percent, which could reduce its yields by 25 percent.

Conclusion: “We will produce less,” he said.

That may seem short-sighted given that commodity prices have risen sharply in recent weeks. But the cost of growing crops outweighs the potential revenue for many farmers.

“Crop decisions are increasingly being made not based on market fundamentals, but rather on the cost of production, which is determined by the price and supply of fertilizers,” dozens of U.S. lawmakers wrote in a March 17 letter to the U.S. International Trade Commission. They called for an exemption from tariffs on fertilizer imports from Morocco and Trinidad and Tobago.

US farmer Don Batie described the stressful process of sourcing enough fertilizer for this year’s sowing.

“This is crazy,” says Batie, who grows 1,500 acres of corn and soybeans in Lexington, Nebraska. “Until they get a price and give it to you, the price changes.”

WHERE TO BUY?

Asia is also struggling.

India, which imports fertilizers for its vast agricultural sector, is increasingly turning to Canada and Israel to replace its Russian supplies.

Thailand, meanwhile, is under pressure for its signature rice crop. Russia and Belarus accounted for about 12 percent of fertilizer imports last year, Thai government data shows. But buying from elsewhere could prove difficult, in part because domestic fertilizer price controls are putting pressure on Thai importers as world prices skyrocket, according to Plengsakdi Prakaspesat, president of the Thai Fertilizer and Agricultural Supplies Association.

“If you’re a trader and you’re absolutely going to lose money, are you going to import any more stuff?” said Plengsakdi.

China imposed fertilizer export restrictions last year to protect its own farmers as global prices soared on strong demand and high energy prices. Beijing was expected to ease those restrictions this year, potentially boosting global supply, said Gavin Ju, senior fertilizer analyst at commodities consultancy CRU’s Shanghai office. But he said that is less likely now that the global market is in chaos.

Concerns about rising inflation and a protracted war in Ukraine have some farmers planning far ahead.

Corn and canola farmer Bert Peeter in Manitoba, Canada, recently agreed to spend more than CA$500,000 to buy 80 percent of the fertilizer he needs for 2023. Though prices are skyrocketing, he reckoned that it could get worse.

This “may not be over after a year,” Peeter said.
Reuters
first published: Mar 23, 2022 08:15 pm
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