Munich / London The war in Ukraine is exacerbating the rise in fertilizer prices. Possible or probable consequences: more expensive food and lower yields.
The Russian attack on Ukraine hits the global food supply at a sensitive point: fertilizers could become scarce and too expensive for farmers this year, especially in the poorest parts of the world.
In industrialized countries, exorbitant fertilizer prices are contributing to rising food prices, agricultural market experts say. Furthermore, in Germany and Europe it cannot be excluded that harvest volumes this year will be lower if less fertilization is used.
Against the backdrop of the war in Ukraine and its effects on international trade flows, fertilizer prices have soared to record highs, according to the London-based CRU Group, a market research institute specializing in global commodity markets.
Price increases even before the war
The rapid price increase began long before the war: according to the CRU, nitrogen fertilizer prices have quadrupled since the beginning of 2020 and phosphate and potassium prices have more than tripled. The reason for this is the rapid increase in previous 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 Frankfurt Agricultural Industry Association.
“The price of gas therefore represents around 80-90 percent of the production costs of nitrogen fertilizers, so European producers in particular are severely affected.”
When it comes to fertilizers, Russia plays a dual role on the world market: as a major supplier of natural gas and nitrogen, phosphate and potash. Nitrogen is essential for plant growth, while phosphate and potassium are important for root formation and flowering.
“Trade across the Black Sea” – one of the main routes for ammonia exports – “is completely blocked,” said Shruti Kashyap, chief nitrogen analyst at the CRU.
“Baby food for plants”
And that’s not good news for farmers: “Nitrogen is like baby food for plants,” says Kashyap. This is no exaggeration: the development of synthetic nitrogen fertilizers before the First World War allowed for a dramatic increase in crop 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 large-scale industrial production perfected a few years later by Carl Bosch, who later became CEO of IG Farben.
Dutch environmental scientist Jan Willem Erisman and several colleagues, in a widely cited article published in 2008, estimated that thanks to Haber-Bosch processes, one hectare of agricultural land can now feed more than twice as many people as it was before World War I. . In 2008, 48% of the world’s population owed their food to Haber-Bosch.
Fertilizer producers, traders and farmers have suffered the consequences of the rapid increase in energy prices last year. Large manufacturers such as Austrian firm Borealis have temporarily reduced their production, according to a company spokesperson in Vienna. “The closure of the plants may be considered for economic reasons”.
Accelerators and restrictions
Already in the fourth quarter of last year, many fertilizer producers 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 this 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, CEO Klaus Josef Lutz recently reported. Nobody believes fertilizer prices could fall in the short term: “Personally, I’d rather see prices rise, or at best flat development,” Lutz said. Kashyap expects high prices in the third quarter.
If farmers fertilize less, less will be harvested. “If the operational situation allows, we recommend fertilizing as needed,” says a spokesperson for the Bavarian Farmers’ Association in Munich. “But we have also heard 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 a weaker quality,” says the spokesperson for the farmers’ association.
However, according to Shruti Kashyap, the war in Ukraine will have the most noticeable effects on agriculture in Africa and South America. Some fertilizers may be in short supply, on the other hand, very high prices could mean that farmers can no longer afford fertilizers or do not want to. According to Kashyap’s assessment, this “destruction of demand” mainly affects phosphate and potash fertilizers.
The analyst predicts a shift in international trade flows: Middle Eastern producers, who have not played a role in the European market so far, would divert their deliveries to the West. “Europe should get all the nitrogen it needs.” This should at least stabilize prices in Europe, assuming that gas prices do not skyrocket further and that there are no major production stoppages in Europe. “It will probably be the countries of Latin America and Africa that will hear it the most.”
© dpa-infocom, dpa: 220326-99-679218 / 4