July 4, 2022 | 00:42 GMT +7

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Wednesday- 13:19, 08/06/2022

Why the fertilizer market could be Russia’s hidden leverage

(VAN) Economists and policymakers say Russia may have some thus far hidden leverage on Ukraine — and the global food supply.
William Terry, of Terry Farms, looks at strawberries at his farm Thursday, March 31, 2022, in Oxnard, Calif. Photo: AP

William Terry, of Terry Farms, looks at strawberries at his farm Thursday, March 31, 2022, in Oxnard, Calif. Photo: AP

They worry that self-imposed export restrictions on fertilizer by Russia, the top global provider of the product, could further drive up the cost of food and damage global harvests in 2023 and beyond.

Russia’s invasion of Ukraine has been a factor in the 30 percent surge in international food prices and 10 percent rise in U.S. food prices over the last year, as supply chains continue to sputter in the wake of the coronavirus pandemic.

But the price pressures exerted on agricultural markets by Ukrainian exports like wheat and sunflower oil have been so far mostly caused by issues with their transportation, with cargo ships stuck in blockaded ports that Russian authorities say need to be cleared of mines.

A shift in Russian fertilizer policy could go a step further, leading to problems with food production in addition to distribution.

“If the fertilizers don’t flow, then the world will produce less,” United Nations Food and Agriculture Organization (FAO) chief economist Máximo Torero said in an interview. “That’s why we’re saying that next year we could have a problem of food availability, and also of food access like what we have today.”

Lower use of fertilizer results in lower crop yields regardless of supply chain issues, Torero said.  

“That’s what will create the problem of food availability [in addition to] food access. That’s what worries us, that’s for us the most dramatic scenario. And that’s what we need to avoid,” he added.

Even without an export restriction, international companies have been hesitant to purchase fertilizers from heavily sanctioned Russia, which is the world’s top exporter of soil additives containing nitrogen, as well as those with phosphorus and potassium — all byproducts of the vast Russian energy industry. 

In 2019, Russia exported 5.5 billion kilograms of these fertilizers, more than double the amount of the second biggest exporter, the European Union, and nearly four times as much as third biggest exporter, Belgium, according to figures from the World Bank.

This commercial hesitancy caused the U.S. to offer “comfort letters” last week to companies considering purchasing Russian grain and fertilizer. These notices assure buyers that they won’t face penalties for using unsanctioned products.

“Fertilizer has, as you know, has become a huge problem, and Russia is a large fertilizer exporter. They just need to open up their own markets and end this war, end the blockade that they are responsible for and allow food to flow,” U.S. Ambassador to the U.N. Linda Thomas-Greenfield told the BBC last month. 

At a meeting of the U.N. Security Council in May on food security, Secretary of State Anthony Blinken stressed that “the sanctions imposed by the United States and many other countries deliberately include carveouts for food, for fertilizer, and seeds from Russia, and we’re working with countries every day to ensure that they understand that sanctions do not prevent the flow of these items.” 

Countries most reliant on nitrogen-based fertilizer exports from Russia and Russian-allied Belarus include Singapore, Mongolia and Panama, with the U.S. receiving more than 20 percent of its imported fertilizers from the two countries, according to German market research firm Statista. 

Russia, for its part, sees a contradiction in the Western position of levying aggressive sanctions against the country while at the same time demanding commercial access to its agricultural commodities and energy byproducts. 

“The EU openly declared an all-out economic and trade war against our country — in full oblivion to Russia’s standing as a key global supplier of basic agricultural products (wheat, barley, sunflowers, mineral fertilizers and fodder crops), including to low-income countries, that are subject to risks of food shortages,” the Russian foreign ministry said in a statement. “Instead of making groundless allegations European leaders should rather turn their attention to redressing the systemic miscalculations in their own macroeconomic, monetary, trade, energy and agro-industrial policies.” 

“We are deeply concerned about a possible food crisis and are well aware of the importance of supplies of socially important commodities,” the foreign ministry added. “Russia expects to have a good wheat harvest this year, which will allow our country to offer 25 million tonnes of grain for export from 1 August 2022. Our capacity for exporting fertilizers from June to December 2022 will amount to at least 22 million tonnes (20% of global consumption over this period).” 

U.S. lawmakers, however, are less than keen to rely on Russian reassurances. 

Rep. Josh Harder (D-Calif.) introduced legislation last month that would extend a government relief program for farmers dealing with rising input costs.

The Department of Agriculture funding arrangement, known as the environmental quality incentives program, “provides agricultural producers and non-industrial forest managers with financial resources and one-on-one help to plan and implement improvements” that can lead to “healthier soil and better wildlife habitat, all while improving agricultural operations.” 

Harder’s bill would institute a temporary cost-sharing agreement of up to 100 percent between farmers who take up the program and the Agriculture Department. 

Farmers in the program who work “to develop and implement a nutrient management plan for their operation will be getting access to these payments,” Harder told the House Agriculture Committee in May. 

“This is more critical than ever as we’ve seen the cost of everything go up around us, and we know how much it’s hurt our producers, especially when they’re trying to buy input like fertilizer,” he said. “So as fertilizer prices surge, folks need alternatives, and this is going to help address this. It’s also going to further conservation practices. It’s going to reduce fertilizer use, lower costs.” 

While Russia has denied that its invasion has contributed to a food crisis, the U.N.’s FAO blames the conflict in no uncertain terms.

“It is clear that the war has resulted in a massive, and deteriorating, food security challenge,” the agency said in a March assessment. “It has already significantly disrupted livelihoods during the agricultural growing season, through physical access constraints and damage to homes, productive assets, agricultural land, roads and other civilian infrastructure.”

Tr.D

(The Hill)

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