Bad for farmers and crops
Ukraine war threatens food security
03/26/2022, 09:10 am
Fertilizer is not edible. But without fertilizer, the world’s population could not feed itself. The war in Ukraine is exacerbating the rise in fertilizer prices. Possible to probable consequences: lower harvests and more expensive food.
The Russian attack on Ukraine hits the global food supply at a sensitive point: fertilizer could become scarce and too expensive for farmers this year, especially in poorer parts of the world. In the industrialized countries, exorbitantly high fertilizer prices are contributing to rising food prices, as agricultural market experts say. In addition, in Germany and Europe it cannot be ruled out that the harvest volumes will be lower this year if less fertilization is used.
Against the background of the war in Ukraine and its effects on international trade flows, fertilizer prices have risen to a record high, according to the CRU Group in London, a market research institute specializing in global commodity markets. The rapid rise in prices began long before the war: According to the CRU, the prices for nitrogen fertilizers have quadrupled since the beginning of 2020, and for phosphate and potash more than tripled. The reason for this is the preceding rapid increase in energy prices: “Natural gas is essential both as an energy source and as a raw material in the production of ammonia, the basic material for most nitrogen fertilizers,” says Sven Hartmann, head of the plant nutrition department at the Agricultural Industry Association in Frankfurt. “The gas price therefore makes up around 80 to 90 percent of the production costs for nitrogen fertilizers, so European manufacturers in particular are very badly affected.”
Disrupted trade routes
When it comes to fertilizers, Russia plays a dual role on the world market – as an important supplier of both natural gas and nitrogen, phosphate and potash. Nitrogen is essential for plant growth, while phosphate and potash are important for root formation and flowering. “Trade across the Black Sea” – a major route for ammonia exports – “is completely blocked,” says Shruti Kashyap, CRU’s chief nitrogen analyst. And that’s not good news for arable farmers: “Nitrogen is like baby food for plants,” says Kashyap.
That’s not an exaggeration: the development of synthetic nitrogen fertilizer before World War I enabled a dramatic increase in harvest volumes. This was a prerequisite for the multiplication of the world population to seven billion people. The inventors were two German chemists: Fritz Haber developed the process in 1908, and industrial production on a large scale perfected a few years later by Carl Bosch, who later became IG Farben CEO.
Dutch environmental scientist Jan Willem Erisman and several colleagues, in a widely cited paper published in 2008, estimated that thanks to Haber-Bosch processes, one hectare of farmland can now feed more than twice as many people as it did before the First World War. In 2008, 48 percent of the world’s population owed their food to Haber-Bosch.
Fertilizer sales are falling
Fertilizer producers, traders and farmers felt the consequences of the rapidly rising energy prices last year. Large manufacturers such as the Austrian company Borealis have temporarily reduced their production, according to a company spokeswoman in Vienna. “Plant shutdowns may be considered for economic reasons.” As early as the fourth quarter of last year, many fertilizer manufacturers temporarily stopped production, says nitrogen expert Kashyap. There are currently restrictions on production in Europe, albeit to a lesser extent. “We are currently not aware of any restrictions in Germany, but that can change at any time if the general conditions deteriorate,” says Hartmann, head of plant nutrition at the Agricultural Industry Association.
Fertilizer sales at Germany’s largest agricultural trader Baywa fell by more than seven percent last year, as CEO Klaus Josef Lutz recently reported. Nobody believes that fertilizer prices could fall in the short term: “Personally, I would rather see prices rising, or at most flat development,” said Lutz. Kashyap expects high prices into the third quarter. If the farmers fertilize less, less will be harvested. “If the operational situation allows it, we recommend fertilizing as needed,” says a spokeswoman for the Bavarian Farmers’ Association in Munich. “But we also hear that fertilizer sales have dropped significantly, which is not surprising given the high costs.” The likely consequences: “Depending on the weather, this can definitely lead to lower yields or weaker quality,” says the spokeswoman for the farmers’ association.
However, according to Shruti Kashyap, the Ukraine war will have the most noticeable effects on agriculture in Africa and South America. Some fertilizers could be in short supply, on the other hand, the very high prices could mean that farmers can no longer afford fertilizer or do not want to. According to Kashyap’s assessment, this “destruction of demand” primarily affects phosphate and potash fertilizers. The analyst expects a shift in international trade flows: manufacturers in the Middle East, who have not played a role in the European market so far, would divert deliveries to the West. “Europe should get all the nitrogen it needs.” That should at least stabilize prices in Europe – assuming that gas prices do not continue to skyrocket and there are no major production stops in Europe. “It will probably be Latin American and African countries that will feel it the most.”