European farmers are facing skyrocketing fertilizer prices which leave them no other choice than to cut down production and pass the costs on to consumers.
Responsible for the current fertilizer crisis are persistent gas shortages, export curbs, and trade embargoes.
Fertilizers supplying winter crops have become remarkably more costly in recent months, which will lessen the returns per hectare significantly coming spring harvest, particularly if unfortunate weather circumstances, like freezing temperatures or droughts, come into play, posits a Jan. 21 article by Bloomberg.
Natural gas limitations
Nitrogen-based fertilizers are essential for spring growth in Europe. In the manufacturing process, natural gas is a key element, but has become particularly expensive in Europe over the last months due to the energy crisis.
Due to limited gas supplies “coupled with the lack of imported fertilizers, the impact will be felt even more strongly,” Romanian fertilizer producer Azomures told Bloomberg. “Crops will suffer in terms of quality and final quantity.”
This may mean food production will face increasing financial stress, which forces farmers to choose between paying up or slashing fertilizer usage; both scenarios may likely lead to worldwide food inflation.
“This is an ongoing story. All the nitrogen producers in Europe will be reviewing what they do,” Allan Pickett, of IHS Markit’s fertilizer group, a big UK-based player on the fertilizer market, told Bloomberg in a September article on the brewing crisis.
“With gas prices where they are, we would confidently expect that there will be significant pressure on many of the ammonia producers related to the fertilizer industry,” Pickett added.
Carbon dioxide—a valuable waste product
Furthermore, nitrogen-based fertilizer production creates carbon dioxide as a byproduct, which in turn serves as a key ingredient for various industrial applications in food and livestock production.
However, after two fertilizer plants closed in the UK last year, many producers were in desperate need of waning CO2 supplies, which urged the UK government to strike a provisional deal to maintain output to prevent an instant crisis for the sector.
But the agreement is surely just an emergency solution. The parent company of the British plants, CF Industries, said that CO2 consumers need to look for new suppliers, Bloomberg Intelligence analyst Jason Miner told the newspaper.
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“Clearly, they’re running close to margins; otherwise they wouldn’t have shut down,” Miner said, adding that it’s “pretty likely that other plants will shut down unless natural gas prices change.”
Plant closures in the UK underlined how vulnerable the situation is when global demand had already been shrinking before factories were compelled to shorten production in the aftermath of a massive hike in the cost of natural gas, a pivotal feedstock.
Shortage in numbers
According to VTB Capital, a Russian investment bank, Bloomberg reported that Europe could face a first-half shortage of about 9 percent, or up to 7 million tons, of its annual nitrogen fertilizer needs in 2022.
“Grain prices at the moment are enough to compensate for the fertilizer price,” James Webster, a senior analyst at The Andersons ANDE Centre in the UK said.
“How long that stays the case depends on the future direction of markets. While it compensates, there’s still a hefty bill to be paid.”
This year’s shortage of nitrogen fertilizers in Europe will be approximately ten percent, according to expert assessments, but it differs from country to country.
In Hungary, for instance, nitrogen fertilizer usage will dip around 30 to 40 percent this season, Gyorgy Rasko, an agricultural economist who operates farms in the country, estimated for Bloomberg.
“If there’s a drought around the end of April and May, the effect could be even more devastating, since nitrogen helps plants survive dry days,” Rasko said.