Commercial fertilizers have risen in price as a result of the conflict between Russia and Ukraine, which will reduce agricultural yields, French risk insurer Coface projected.
Already since last year, fertilizer prices had increased. According to the World Trade Organization (WTO), prices for urea, a key nitrogenous fertilizer, have more than tripled in the past 12 months. For example nominal Black Sea spot price quotations (bulk ) have increased from USD 265/tonne in January 2021 to USD 846/tonne in January 2022.
Another indirect effect for the agri-food industry would come as a byproduct of increased natural gas, which is a crucial input for fertilizers. Sky-high prices will lead to lower fertilizer production and/or higher prices, lowering agricultural yields.
Additionally, lower fertilizer production means less CO2 is available to stun cattle before slaughter, as well as for some beverages.
Therefore, Coface concludes that high gas prices will exacerbate pressures on world food prices through several channels.
Fertilizer prices are on the rise. In fact, the three main nutrients in commercial fertilizers (nitrogen, potassium and phosphorous) are expected to be affected by current developments.
Nitrogen prices rose sharply after Russia invaded Ukraine.
Fertilizers
Russia is a key nitrogen exporter with 7m tonnes of urea exported annually in a 55m tonne market.
The conflict will add to supply concerns, especially related to China‘s fertilizer export ban until June 2022 to secure domestic food supplies.
The significant increase in prices and the current turmoil will not encourage the Chinese authorities to lift the export ban.
Last but not least, with production losses like those in Western Europe, it is worth noting that inventories are running low, especially in India, a key importer.
Furthermore, fertilizers are essential for India to feed its agricultural sector, which employs 60% of the country’s workforce and accounts for 15% of GDP.
About a third of India’s potash imports are met by Russia and Belarus, Coface says. A disruption in the supply of fertilizers would hamper productivity in the agricultural sector.
