September 26, 2022

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With sanctions hitting Russia, fertilizer shortages threaten global food supplies

With sanctions hitting Russia, fertilizer shortages threaten global food supplies

CHICAGO (Reuters) – Soaring fertilizer prices have prompted farmers around the world to scale back their use and reduce the amount of land they farm, as a result of the Ukraine-Russia conflict in which some veteran agro-industry experts have warned of food shortages.

Western sanctions against Russia, a major exporter of potash, ammonia, urea and other soil nutrients, have disrupted shipments of these key inputs around the world. Fertilizer is key to keeping corn, soybean, rice and wheat crops high. Farmers are scrambling to adapt.

The pivot can be seen in Brazil’s agricultural powerhouse, where some farmers are using less fertilizer on corn, and some federal lawmakers are pushing to open up protected indigenous lands to potash mining. In Zimbabwe and Kenya, small farmers are returning to using natural manure to feed their crops. In Canada, a canola grower has already stockpiled fertilizer for the 2023 season in anticipation of future price hikes.

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Farmers elsewhere are making similar moves. Reuters spoke with 34 people on six continents, including grain producers, agricultural analysts, traders and agricultural groups. Everyone expressed concern about the cost and availability of fertilizers.

In the United States alone, fertilizer bills are expected to jump 12% this year, after rising 17% in 2021, according to US Farm Bureau Federation and USDA data.

Some farmers are considering switching to crops that require fewer nutrients. Others plan to plant less acreage. Others say they will use less fertilizer, a strategy that crop experts expect will harm crops. Production is at risk in developing nations, where farmers have fewer financial resources to weather the storm, said Tony Weil, CEO of Illinois-based CF Industries Holdings. (CF.N)Leading producer of nitrogen fertilizers.

“What worries me at the moment is actually a global food crisis,” Will told Reuters.

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

The decree said the country’s acreage has fallen 0.2% since August due to higher fertilizer prices, and Peru’s import volume of grain for feed has also fallen due to cost concerns. The government is now drafting a plan to increase the country’s food supply.

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Global fertilizer prices were already soaring before Russia’s invasion of its neighbor on February 24, as record natural gas and coal prices forced some fertilizer makers to cut production in this energy-starved sector. Rockets, tanks and troops are besieging Ukrainian cities in what Moscow has called a “special operation” to disarm the country, and Russia denies targeting civilians in the conflict.

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Western countries responded by imposing severe economic sanctions on Russia, while the United States and the European Union imposed new sanctions on Belarusian President Alexander Lukashenko, who provided support for the Russian offensive.

Combined, Russia and Belarus accounted for more than 40% of global exports of potash last year, Dutch lender Rabobank said this month, one of three important nutrients used to boost crop yields. In addition, Russia accounts for about 22% of world exports of ammonia, 14% of world exports of urea and about 14% of mono-ammonium phosphate (MAP) – all major types of fertilizers.

Sanctions have disrupted sales of fertilizers and crops from Russia. Many Western banks and merchants are avoiding Russian supplies for fear of conflict with rapidly changing rules, while shipping companies are avoiding the Black Sea region due to safety concerns.

All of this amounts to a double whammy of the global food supply.

Russia and Ukraine are major grain producers. Together, they make up about 30% of global wheat exports and 20% of maize exports. Grain shipments across the Black Sea have already been disrupted. Stalled deliveries from these two countries helped spur accelerating global food price inflation. The World Bank said last week that a number of developing countries face short-term wheat supply shortages due to their heavy dependence on Ukrainian exports. Read more

Maximo Torero, chief economist at the United Nations Food and Agriculture Organization, said the fertilizer crisis is worrying in some ways because it could block food production in the rest of the world which could help offset the recession.

“If we do not solve the fertilizer problem, and the fertilizer trade does not continue, we will face a very serious problem [food] “The show is next year,” Torero told Reuters.

Brazil is in danger

Brazil, the world’s largest exporter of soybeans, relies heavily on imported fertilizers such as potash, which made up 38% of the crop nutrients it used last year. Russia and Belarus were the source of half of those shipments.

Before the conflict between Ukraine and Russia, Brazilian farmers were already limiting corn cultivation due to high fertilizer prices. Soybean farming is likely to be affected as well, as farmers are expanding more slowly than in previous years, according to Brazilian agricultural consultancy Agroconsult.

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

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Giacomelli said fertilizers are hard to come by and some traders won’t finish sales until cargo ships dock in Brazil. He still attacks himself for not completing a deal he was negotiating before Russia invaded Ukraine. “I got distracted and now I’m paying more,” Giacomelli said.

Meanwhile, lawmakers from Brazil’s agricultural states are pushing for legislation that would open up indigenous lands in the Amazon region to potash mining. The measure is opposed by members of the local Mora tribe, who say mining will damage the natural habitats on which they depend. The bill is still making its way through the nation’s convention. Read more

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

It’s the same in rural Kenya. Farmer Mary Kamau said she has also reduced her purchases of commercial fertilizers and is using manure to feed the coffee and avocados she grows on 12 acres in Moranga County. She is worried about the consequences for her family.

“If I don’t get a good harvest, I won’t get good prices. It will affect me for the next two years – not just this season,” Kamau said.

Less acre, less fertilizer

In the United States, 5G farmer in New Mexico Mike Perry has similar concerns. He recently paid $680 a ton for liquid nitrogen to fertilize a corn crop, an “expensive” price he said was 232% more than last year’s price.

Berry said he plans to cut his corn plantings in the spring to feed livestock to about 300 acres of his usual 400 to 600 acres. Berry said it would also reduce liquid nitrogen uses by about 30%, which could reduce his yield by 25%.

The bottom line: “We’ll produce less,” he said.

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

“Agriculture decisions are increasingly being made based not on market fundamentals but on the basis of production cost driven by the price and supply of fertilizer,” dozens of US lawmakers wrote in a March 17 letter to the US International Trade Commission. They were seeking exemption from duties on fertilizer imports from Morocco and Trinidad and Tobago.

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American farmer Don Bate described the grueling process of securing enough fertilizer for planting this year.

They are nuts,” said Patty, who grows corn and soybeans on 1,500 acres in Lexington, Nebraska. “By the time they get the price and quote it to you, the price changes.”

Where do I buy?

Asia is also struggling.

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

Meanwhile, Thailand is facing pressure on its premium rice crop. Thai government data showed that Russia and Belarus accounted for about 12% of their fertilizer imports last year. But buying from elsewhere can be difficult, in part because domestic price controls on fertilizers are putting pressure on Thai importers as global market prices explode, according to Plengsakdi Prakaspesat, president of the Thai Fertilizer and Agricultural Supplies Association.

“If you are a merchant, and you lose money completely, will you keep importing more things?” Plengsakdi said.

China last year imposed restrictions on fertilizer exports to protect its farmers as global prices soar due to strong demand and soaring energy prices. Gavin Gu, lead fertilizer analyst at the Shanghai office of commodity advisory CRU, said Beijing is expected to ease these restrictions this year, which could boost global supplies. But he said that is less likely now with the global market in disarray.

Fears of high inflation and the protracted Ukraine war made some farmers plan well for the future.

In Manitoba, Canada, corn and canola farmer Bert Peter recently agreed to spend more than C$500,000 to buy 80% of the fertilizer he’ll need—for 2023. Despite the price hikes, he thought things could get worse.

This “may not be over after one year,” Peter said.

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Additional reporting by Tom Polancic in Chicago and Ana Mano in Sao Paulo; Additional reporting by Dominic Patton and Emily Chow in Beijing. Batbisha Tanakasymbipat in Bangkok; Marcelo Rochabon in Lima; Nelson Banya in Harare; Aynat Mercy and Duncan Meriri in Nairobi; Jose Trombes from Paris; Michael Hogan in Hamburg; Sonali Paul in Melbourne; Editing by Caroline Stover and Marla Dickerson

Our criteria: Thomson Reuters Trust Principles.