World Bank, suppliers sound alarm over high fertilizer prices

Jan 30, 2023 News

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Kaieteur News – Last year, the World Bank reported that fertilizer prices had more than tripled compared to two years earlier. It warned that high input costs, supply disruptions, and trade restrictions, was driving the hike, while natural gas prices started rising due to tensions between Russia and Ukraine, leading to widespread production cutbacks in ammonia—an important part of nitrogen-based fertilizers. Similarly, the rising price of coal in China, the main feedstock for ammonia production there, forced fertilizer factories to cut production.

The Bank said this month that fertilizer prices have eased from their early 2022 peaks, but remain at historically elevated levels. The price easing, it noted, partly reflects weak demand as farmers have cut back fertilizer field applications due to affordability and availability issues. The industry is also affected by supply-side issues, including a production crunch in Europe, disruptions due to sanctions on Russia and Belarus, and trade restrictions in China.

As of October 2022, about 70 percent of European ammonia production capacity had been reduced or shut down.

Supply disruptions from the Ukraine-Russia war had significant impact on the fertilizer market. The Bank said that following Russia’s invasion of Ukraine in February 2022, several economies (including the EU and the U.S.) imposed sanctions on Russia and Belarus, both important fertilizer suppliers.  However, the trade sanctions have specified “carve-outs” for the food and fertilizer sectors to avoid adverse effects on global food security. These carve-outs, the Bank continued, have enabled Russia to continue exporting fertilizers, but, potash (mined or manufactured salts) exports from Belarus have fallen by more than 50percent due to the restriction on using EU territory for transit purposes. In particular, Lithuania has halted the use of its railway network to transport Belarusian potash to the port of Klaipeda, which typically handles 90 of Belarus exports.

Since last year, China also implemented export restrictions. Supply concerns were exacerbated by the country’s decision to extend its export restrictions on fertilizers until the end of 2022, in order to maintain domestic availability. Di-Ammonium Phosphate (DAP) exports from China, which accounts for 30percent of global trade in DAP, fell by nearly 50 percent during the first ten months of 2022, while Chinese urea exports declined by about 60 percent over the same period.

Earlier this month, one of the world’s largest fertilizer companies warned that every country, even those in Europe, is facing a food crisis. Speaking at the recently held World Economic Forum in Davos, Switzerland earlier this month, Svein Tore Holsether, President and CEO of Yara International, a Norwegian fertilisers giant, also warned that countries needed to cut their reliance on Russia after its invasion of Ukraine hit global food supplies and prices.

A BBC report on the issue noted that with Russia being a top exporter of fertilisers and chemicals used to make them, the war has caused supply issues and driven up the price of natural gas, which is key to fertiliser production. The report said that global fertiliser prices have hit record levels and forced farmers to raise food prices, putting pressure on consumers worldwide.

Holsether has accused the Russian President Valdamir of weaponizing food. “Putin has weaponised energy and they’re weaponising food as well,” Holsether told the BBC at the start of the Forum in Davos. “It’s the saying, ‘fool me once, shame on you. Fool me twice, shame on me’.”

Also speaking to the BBC was the International Monetary Fund (IMF) managing director, Kristalina Georgieva who said that the world should “move attention today to fertilisers, because this is where we see particular threat for food production and therefore food prices in 2023″. She added that “Fertiliser prices remain very high. Production of ammonia in the European Union, for example, shrank dramatically. All of this is connected, of course, to the impact of Russia’s war on gas prices and gas availability.”

US business magazine, Fortune, said that if fertilizer is in short supply or prices remain unaffordable to many countries, farmers may be unable to keep their soil fertile enough for crops. “Concerns over fertilizer have taken center stage in recent weeks in Africa, which is heavily reliant on Russian food imports, and where agricultural production has taken a blow in recent years due to drought in many countries. The eastern Horn of Africa—including Somalia, Sudan, and Kenya—has been particularly hard-hit, as it is likely on the verge of a sixth straight failed rainy season, the worst drought conditions in 70 years of recorded data.” The magazine said that securing additional sources of fertilizer was the cornerstone of a $2.5 billion U.S. food assistance package to Africa signed last month, while Treasury Secretary Janet Yellen noted the importance of stabilizing fertilizer supply in Africa multiple times during a visit to Zambia last week.

Last year, Guyana too had to cushion high fertilizer prices. President Irfaan Ali had announced that the Government would be purchasing and distributing, free of cost, $1 billion in fertilizers to both cash crop and rice farmers across the country. The Government said that it would have intervened to absorb rising global costs for the commodity and to prevent the costs from being passed on to consumers at the market. The $1 billion was drawn from a $5 billion sum the government had set aside in the 2022 national budget to implement measures to ease the cost of living for citizens. The Government had said that of the $1 billion, $900 million would go towards the procurement of fertilizer for the rice industry, while the remaining $100 million would have gone to cash crops farmers.

 

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