Why the Fertilizer Market Could Be Russia’s Hidden Lever

Economists and policymakers say Russia could have hidden leverage over Ukraine – and the world’s food supply – so far.

They fear self-imposed fertilizer export restrictions by Russia, the world’s main supplier of the product, could further drive up food costs and hurt global crops in 2023 and beyond.

Russia’s invasion of Ukraine was a factor in the 30% rise in international food prices and 10% in US food prices over the past year, as supply chains continue to collapse in the wake of the coronavirus pandemic.

But the price pressures exerted on agricultural markets by Ukrainian exports like wheat and sunflower oil have so far been mainly caused by transport problems, with cargo ships stuck in blocked ports which, according to the Russian authorities, must be cleared.

A change in Russia’s fertilizer policy could go further, leading to problems with food production in addition to distribution.

“If the fertilizers don’t flow, the world will produce less,” the UN’s Food and Agriculture Organization (FAO) chief economist, Máximo Torero, said in an interview. “That’s why we’re saying next year we might have a food availability problem, and also food access like what we have today.”

Less fertilizer use leads to lower crop yields, regardless of supply chain issues, Torero said.

“That’s what’s going to create the food availability problem [in addition to] access to food. This is what worries us, it is for us the most dramatic scenario. And that is what we must avoid,” he added.

Even without export restrictions, international companies have been reluctant to buy fertilizer from heavily sanctioned Russia, which is the world’s largest exporter of soil additives containing nitrogen, as well as phosphorus and potassium – all by-products of Russia’s vast energy industry.

In 2019, Russia exported 5.5 billion kilograms of these fertilizers, more than double the amount of the second-largest exporter, the European Union, and almost four times as much as the third-largest exporter, Belgium, figures show. of the World Bank.

This commercial hesitation prompted the United States to offer “letters of comfort” last week to companies considering buying Russian grain and fertilizer. These notices assure buyers that they will not be penalized for using unauthorized products.

“As you know, fertilizers have become a huge problem, and Russia is a big exporter of fertilizers. They just need to open up their own markets and end this war, end the blockade they are responsible for and allow food to flow,” said US Ambassador to the UN Linda Thomas- Greenfield at the BBC last month.

At a May UN Security Council meeting on food security, Secretary of State Anthony Blinken pointed out that “sanctions imposed by the United States and many other countries deliberately include exclusions for food, fertilizer and seeds from Russia, and us” I work with countries every day to make sure they understand that sanctions are not impeding the flow of these items.

The countries most dependent on nitrogen-based fertilizer exports from Russia and Russian-allied Belarus are Singapore, Mongolia and Panama, with the United States receiving more than 20% of its imported fertilizer from both. country, according to German market research firm Statista.

Russia, for its part, sees a contradiction in the Western stance of imposing aggressive sanctions on the country while at the same time demanding trade access to its agricultural products and energy by-products.

“The EU has openly declared an all-out economic and trade war against our country — in total oblivion of Russia’s position as a key global supplier of agricultural commodities (wheat, barley, sunflower, mineral fertilizers and crops fodder), including for poor countries. income countries, which are at risk of food shortages,” the Russian Foreign Ministry said in a statement. “Instead of making baseless claims, European leaders should instead focus on correcting systemic miscalculations in their own macroeconomic, monetary, trade, energy and agribusiness policies.”

“We are deeply concerned about a possible food crisis and are well aware of the importance of the supply of socially important basic products,” added the Foreign Ministry. “Russia expects to have a good wheat harvest this year, which will enable our country to offer 25 million tons of grain for export from August 1, 2022. Our fertilizer export capacity from June to December 2022 will amount to at least 22 million tonnes (20% of world consumption over this period).

US lawmakers, however, are less inclined to trust Russian assurances.

Rep. Josh Harder (D-California) introduced legislation last month that would extend a government assistance program for farmers facing rising input costs.

The Department of Agriculture’s funding arrangement, known as the Environmental Quality Incentive Program, “provides agricultural producers and non-industrial forest managers with financial resources and individual assistance to plan and implement improvements” that can lead to “healthier soil and better wildlife habitat, while improving agricultural operations.

Harder’s bill would institute a temporary cost-sharing agreement of up to 100% between farmers who adopt the program and the Department of Agriculture.

Program farmers who work “to develop and implement a nutrient management plan for their operation will have access to these payments,” Harder told the House Agriculture Committee in May.

“It’s more critical than ever, because we’ve seen the cost of everything around us rise, and we know how much it hurts our growers, especially when they’re trying to buy inputs like fertilizer,” did he declare. “So as fertilizer prices rise, people need alternatives, and this is going to help solve that problem. This will also promote conservation practices. This will reduce fertilizer use and reduce costs.

While Russia has denied that its invasion contributed to a food crisis, the UN’s FAO blames the conflict unequivocally.

“It is clear that the war has resulted in a massive and deteriorating challenge to food security,” the agency said in a March assessment. “It has already significantly disrupted livelihoods during the agricultural growing season, due to physical access constraints and damage to homes, productive assets, farmland, roads and other civilian infrastructure.”