August 30, 2022
Fertilizer producer Yara International last week announced further production cuts in the face of rising natural gas prices. Yara said the cuts would bring its European capacity use of ammonia, the main ingredient in all nitrogen fertilisers, to just 35%.
The move, which follows cuts by fertilizer companies in the UK, Lithuania, Hungary and Poland, rekindles fears for global agricultural production at a time when global supplies of many commodities remains tense and where the Russian-Ukrainian war is severely limiting grain exports from the Black Sea region. The latest cuts in fertilizer production could impact supplies and prices when southern hemisphere countries start planting in the coming months.
Europe-wide, capacity utilization for fertilizers, excluding Ukraine, is estimated at 50% for ammonia and around 33% for nitrogen fertilizers, according to CRU Group, a independent fertilizer consultancy. European fertilizer industries are particularly hard hit as Russia cuts the region’s supply of natural gas, a key raw material in fertilizer production.
- European natural gas prices (TTF Netherlands) have risen since this time last year by 407% to 248 euros per MWh.
- Prices in the UK (ICE UK Natural Gas NBP futures) gained 207% to $51.85/MMBTU year-over-year.
- In contrast, U.S. Henry Hub natural gas futures are currently priced at $9.02/MMBTU.
A Gro analysis, using Gro’s Global Fertilizer Impact Monitorfinds that reducing the use of agricultural fertilizers due to limited supplies and high prices would have profound effects on food production in some parts of the world, decreasing harvests and increasing the urgency of food aid d ’emergency.
- In many African countries, for example, fertilizer use is already minimal and reducing it further would have an outsized effect on agricultural production.
- Other countries would see a much smaller impact from reductions in fertilizer use, according to Gro’s analysis.
- Overall, total global food production would be reduced by a small fraction even under some of the most pessimistic scenarios of reduced fertilizer use, but this result masks the very uneven effects from country to country. other.
Most of the fertilizers produced by European countries are used domestically or exported to other countries in the EU bloc. Significant exports are also destined for South America, Mexico, Southeast Asia and Africa. In March, for example, Ghana and Brazil were among the biggest buyers of fertilizer from Belgium, the EU’s third-largest exporter. See a view in Gro portal of European fertilizer production and exports.
For farmers, this could mean hard-to-obtain fertilizer supplies, and higher entry costs.
- Prices for ammonia, used to make all nitrogen fertilizers, have increased several times over the past two years.
- Recent trading has been volatile, with ammonia prices falling sharply from a March 2022 high, then rising again over the past month amid European plant cuts.
- The spot price of ammonia in Western Europe is currently around $1,290 per tonne, up 3% since late July and nearly six times the August 2020 level.
Gro’s Global Fertilizer Impact Monitor quantifies the impact of reducing nitrogen fertilizer use on the production of four staple crops – corn, rice, soybeans and wheat – in countries around the world. The monitor, which was built with support from the Bill & Melinda Gates Foundation, and in partnership with the International Fertilizer Association (IFA) and the CRU Group (CRU), models a total of seven application scenarios of different fertilizers, based on application rate forecasts and scientific input from IFA and CRU.
The monitor, which is free for everyone, shows that global production of the four staple crops combined would decline between 0.42% and 2.11% from 2021 levels, depending on the fertilizer use scenario.
Results vary considerably from country to country.
- France could see the combined production of the four crops drop between 0.62% and 4.08%. These estimates, based on various fertilizer use scenarios, do not take into account other variables such as weather conditions, which can further impact production and yield, as shown in this display in Gro Climate Risk Navigator for Agriculture.
- By comparison, production in Brazil could drop to 1.44% or increase to 0.70%, depending on the fertilizer use scenario.
- For some African countries, reducing fertilizer use could have a substantial impact. Production in Kenya, for example, could decline between 0.41% and 6.22%. Intense drought in Kenyaas this shows view from Gro portalcould have a much greater impact on agricultural production.
Gro’s analysis shows that the impact of the global fertilizer crisis is less severe than feared by estimates from other sources. Yet, due to the uneven impact of the crisis, continued reductions in fertilizer production in Europe and elsewhere, particularly combined with drought conditions in many parts of the world, could disproportionately affect some countries and eventually lead to increased levels of food insecurity.