Dependence on Russian fertilizers, the economic “second shock” of this war
Here is a very good explanation by Agence France-Presse (AFP) of what it calls the “second economic shock” caused by the Russian invasion of Ukraine, the “fertilizer shock”.
What is fertilizer?
Fertilizers contain nutrients to nourish plants and stimulate their development. They can be of organic origin (nettle dung, slurry, chicken manure, etc.) or mineral origin: from nitrogen (N) in the air or minerals extracted from the subsoil such as phosphorus (P) and potassium (K). .
The vast majority of European farmers use NPK mineral fertilizers, especially nitrogen ones. The International Fertilizer Association (IFA), which unites the global fertilizer industry, estimates that 85% of the world’s soils are deficient in nitrogen, an element that “drives plant growth.”
Nitrogen fertilizers are made from ammonia obtained by combining nitrogen from air and hydrogen from natural gas. Almost 80% of the cost of ammonia production is associated with the use of gas. There are several types of these fertilizers: in liquid form (nitrogen solution) or in granules (ammonium nitrate and urea).
“In 2021, Russia was the leading exporter of nitrogen fertilizers and the second largest supplier of potash and phosphate fertilizers,” recalls the Food and Agriculture Organization of the United Nations (FAO).
“Forty percent of Europe’s gas supply currently comes from Russia,” which provides “25% of Europe’s supply” of nitrogen, potassium and phosphate, Svein Tore Holseter, head of Norway’s Yara, warned on March 1. The world’s largest producer of mineral nitrogen fertilizers.
The European Union consumes “more than 11 million tonnes of synthetic nitrogen” every year, according to a recent report by Green MEPs. Therefore, it depends on Russia for both gas and direct fertilizer imports; Brazil remains the leading importer of Russian nitrogen fertilizers.
The price hike continues
Prices for mineral fertilizers continued to rise due to the sharp rise in natural gas prices. “Prices for urea, a key nitrogen fertilizer, have more than tripled in the past twelve months,” FAO said.
The Russian invasion of Ukraine has raised gas prices again, and nitrogen solution, which cost about 600 euros a tonne at the end of October on the European market, has now reached 800 euros, a “record”, insists consultant Isaure Perro. in Agritel.
Under these circumstances, Yara announced temporary production cuts in France and Italy, and its president deemed it “essential” that the international community “work to reduce dependence on Russia.”
The potential risk of shortages is still being overshadowed by fears of supply capacity due to the astronomical cost of fertilizer: “In Western Europe, farmers are usually covered by spring sowing, but the question of the 2023 campaign arises,” warns Edvard de Saint-Denis, broker at Plantureux et associés.
Today, “despite the increase in grain prices, it is unprofitable to buy fertilizers at 800 euros per ton,” adds Isaure Perro.
Europe will have to turn to other sources: “There is gas in Algeria, in the US, but at what price? – and also in Iran or Kazakhstan – but will we want to buy in these countries? asks Miss Perrault.
For potash, almost 40% of which is imported from Russia and Belarus, Europe can turn to Canada, which is already its main supplier, but at higher prices, or to Israel and Jordan, grain brokers say.
The EU could also increase its supply of phosphates, of which China, Morocco and the United States are top producers, but they note that this will not replace the nitrogen on which Europe’s high yields are based.
If the crisis continues, Isor Perro said alternative paths will be dug, such as crop modification in favor of legumes, sunflowers or soybeans, which consume less nitrogen than wheat and corn.
For its part, Yara wants to produce 30% of its ammonitrates from hydrolysis of water, rather than from gas, by 2023. And “green hydrogen” is still very expensive, but it will allow us to overcome both fossil fuels and dependence on Russian gas.
