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Podcast July 22, 2022

Fertilizer volatility and the food crisis

Q&A: Why are fertilizers essential and what are the causes and effects of the fertilizer shortage on the global food system?

(This Q&A is excerpted and adapted from an episode of the Table for 10 Billion podcast)

Fertilizers provide crops with the nutrients to grow better, making them essential to the world’s food supply. As such, when shocks occur, such as when fertilizer prices increase or when supply is disrupted, the impact is felt by the global food system in its entirety. This explains what we are seeing today: the war in Ukraine, high-energy prices, and restrictive trade policies have caused fertilizer supply to go down and prices to go up. While the effects of this shortage will be felt across the globe, developing countries are among the worst hit.

Alzbeta Klein, CEO and Director of the International Fertilizer Association and John Baffes, Senior Economist at the World Bank Group, explain the crisis at hand, what we can expect in the short and medium term, and the impact on farmers and the global community.

*Please note that the interviews below were recorded at the end of June

Alzbeta Klein digs into the history of fertilizers, solutions to address spiraling costs, and the real-world consequences on impacted communities, such as farmers.

 

Q. When we talk about fertilizers, how important are they for global food security and what are they?  What we actually mean when we talk about fertilizer?

A. More than half of what we eat today we are eating because of mineral fertilizers. What are the three key mineral fertilizers? They are nitrogen, potash, and phosphate.

What do these three minerals do? They generally come from the ground or air around us, and they are applied to crops to make them grow. They are like the vitamins that we take; they help keep crops healthy.

When it comes to the three major minerals, potash is a commodity that comes from deep mines; it is processed so it can be used on plants. Phosphate is also a mined commodity; it comes from shallow, surface mines. Nitrogen is all around us; it is in the air we breathe but plants cannot use them, therefore they need to be processed into ammonium nitrate or other commodities that plants can “digest.”

Q. How did fertilizer get discovered? What's the history of fertilizer?

A. Interestingly enough, fertilizers are not that old. Farmers have long used whatever they could to help plants grow. When you think of the word “potash,” it really means pot ash, which references ash at the bottom of the fire that farmers used to better grow crops.

Nitrogen fertilizers started around 1905, with the discovery of the so called “Haber Bosch” process. Two gentlemen literally discovered how to turn air into bread. Why? Because as mentioned, even though nitrogen is in the air around us, plants cannot use it. The Haber-Bosch process discovered the technology to break the nitrogen in the air and transform it into something that plants can use to grow.

We have been using this technology for well over 100 years. Every country uses it, although in different proportions, (since the kind of fertilizer we use is dependent on soil type). One hundred years ago, we didn’t have the tools to look at our soil and have precision in terms of the kind of fertilizers we need – today, we have that technology (this is where precision agriculture comes in). Different kinds of soil need different kinds of fertilizers. For example, soil in Brazil is potash deficient, therefore they need to import more of that mineral.

This is how we grow food, and so far, we haven’t found a better way to do it.

Q. Why is fertilizer sometimes controversial?

A. This is important to understand. When we started this conversation, we went over the three mineral fertilizers. They come from the ground and go back into the ground. Often, we think we should use organic-only or steer clear of using fertilizers, but we don’t have unlimited resources of land.

When you look at today’s world, and today’s global food crisis, we are working under several major constraints: getting grains out of black seaports (due to the War in Ukraine), the environment, how much land we can use, pollution, etc. Due to this constrained environment, the question is do we intensify our agriculture (produce more with less), or extensify (go more organic and use more land to produce same amount of food).

A lot of the discussion has been misguided due to the perception that the three minerals we discussed are unhelpful or unnatural. That is not the case – they are extremely important, and again, we haven’t come up with a better way to produce reliable crops.

Q. Can you explain the effects of the fertilizer shortage, price spike, and supply issues?

A. We have a full-blown food crisis in front of us. The other problem we have is that Russia and Belarus produce a significant amount of global fertilizers. Between the two countries (in which there are sanctioned companies and entities that can no longer export), they produce 40% of global potash. How did we end up with such a concentration? Well, potash is a mineral, and it is where it is. It happens to mainly be in the ground in Russia, Belarus, and Canada. That material is not making it out of Russia and Belarus, and therefore not making it into the global markets. Russia also accounts for 23% of globally traded ammonium nitrate. Many other fertilizers that they produce, because of ample resources of gas, are not getting into global markets.

To recap, we have a crisis today because we are not exporting grains out of Russia and Ukraine. And we have a brewing food crisis because we don’t have fertilizers to fertilize lands all over the world so that we can produce for the next harvest and the one after.

Q. How much does the energy story play into this? And how does a lack of fertilizer or cost issues impact the behavior of farmers globally?

A. Fertilizer prices went up because prices of energy went up. This was already on the back of a tight situation after COVID-19 because governments prioritized the fertilizer industry. So, there was a lot of production already happening during the pandemic in 2020-2021. Then, there was the curtailment of supplies from Belarus (if you take 20% of potash from the market, prices go up). And now, we have sanctions on company shareholders in Russia, therefore the Russian potash is not getting out. So suddenly, we are missing 40% of potash supplies. This means the price goes up and availability is affected as well.

This has an impact on how farmers behave, what they plant, what they do not plant, how they tend their fields. Soy requires less fertilizer than corn, so we have seen a tilt towards more soy and less corn, which has an impact further down the value chain.

This also has an impact on small farmers. A blueberry farmer in Chile recently said that she only fertilizers the rows that look healthy, and not the rest because she doesn’t have enough to fertilize her entire greenhouse of blueberries. The impact unfortunately will be global and felt in every part of the value chain. Our food system is extremely interconnected and global.

Q. What kinds of solutions might there be to mitigate spiraling costs?

A. New technologies are the key, and they are essential. We discussed planetary boundaries at the beginning of this conversation, which is our environment. At the moment, not all fertilizers are used effectively. In this business, we use the term nutrient use efficiency, which is how much of a particular fertilizer a plant can take, and how much is wasted into the environment. The goal is to ensure that whatever plant we are nourishing takes all the fertilizer it can to limit discharge into the environment.

Some of the technologies that are being used today: fertigation, which marries irrigation and fertilizer and is used in measured quantities determined by sensors. It is used only as much as is needed for a particular plant in a particular stage of growth. There is a lot of research and practice into coated fertilizers, which release less product into the environment and more into the soil.

There are also agricultural technologies such as no-till farming (already being done in parts of South America and part of the United States), which is good for the environment because it keeps carbon in soil.

There are several technologies, some of them already being used and others being developed, that are critical. Right now, we don’t have the science to create an alternative, so we have to use what we have much more carefully. When fertilizers are pricy, it forces farmers to develop their technologies on the field so they use every drop as effectively as they can.

My company [International Fertilizer Association] has developed a Smart & Green platform, where we host startup companies in Agtech who can present their innovations to established players in the industry, bringing the science forward.

It’s high time to continue developing this science so we can get better outcomes on the farm and better outcomes in the environment. This crisis has shown us that there is not one solution that fits all: we must continue developing our science and technologies, keep trade flows open, and make sure farmers farm their plots and feed themselves.

John Baffes discusses the fertilizer shortage and its impacts on the international community

                                                                                

Q. How much of an issue is [the food fertilizer shortage] globally, and what is causing this shortfall?

A. Fertilizer markets have been through turmoil recently. Most of the world’s food needs are met by the following four commodities: three grains (wheat, rice, maize/corn), and soybeans. These four commodities accounts for between two-thirds to three-fourths of global calorific intake. That is why fertilizer is more important for these commodities.

Q: Are there certain parts of the world where it’s particularly important to have a good supply of fertilizer for these staple crops?

A. Given that most of the food supply come from the commodities above (wheat, rice, maize/corn, soybeans), it’s important that those commodities use an adequate amount of fertilizer to meet the world’s food needs.

Q. How is the war in Ukraine affecting the world’s supply of fertilizers?

A. When combined Russia and Belarus account for 20% of global fertilizer supplies, making them very important on the supply side. The problem is that because of sanction on Belarus, supply from that country has been constrained. We also have supply disruptions issues, through supply chain reductions, which has reduced the amount of fertilizers that are being produced [in Russia and Belarus], and reduced the amount of fertilizers that are being shipped out of these countries.

Another side of the problem is that some fertilizers, especially nitrogen-based fertilizers, use natural gas as the main input. Because natural gas supplies have been affected by war in Ukraine (and even prior to the war), there has been a reduction in the supply of fertilizers elsewhere, apart from Belarus and Russia. We also have other issues, such as export restrictions. So today we see a global problem that relates directly to the war, and indirectly to policies and high energy prices.

Q. Have we already seen the high fertilizer prices passed onto all the food we are buying now?

A. The food that we are consuming today was produced 6 months ago, but it was using fertilizer which was purchased one year ago, when it was more affordable. High fertilizer prices or disruptions in fertilizer prices that we are experiencing today will contribute to problems that we will see 6 months to a year from now. There is a long cycle between producing fertilizer and putting food on our plates. It takes a year or perhaps a year and a half.

Q. Where in the world is particularly vulnerable when we are talking about disruptions?

A. Everybody that produces food and uses fertilizers will pay a higher price, as fertilizer is subject to global supply and demand forces. On the other hand, although countries in Africa do not use as much fertilizer as other places in the world, it’s still very important for them as they rely on home-grown food production. Because countries in West Africa depend on fertilizer imports from Russia and Belarus, they have two problems: 1) that they have disrupted supplies from the countries above, and 2) higher prices are more severe for them. Farmers in the US, Europe, Australia can afford high fertilizer prices because they get higher prices for the commodities they sell. But for poor African countries, the problem is worse.

Q. Have we seen anything like this before? Are there lessons we can learn from the past? Any comparable situations in terms of fertilizer supplies?

A. When we look at fertilizer prices, we had a similar spike in 2007-2008. Fertilizer prices back then increased by a similar amount. But going even further back, the most comparable period is back in 1973-74, when fertilizer prices increased even more in percentage than today. That was also because they were responding to high energy prices with oil crisis of the 70s. That also caused high food prices. For a good comparison then, we would have to go back to the 1970s in terms of what conditions caused fertilizer prices to go up (such as higher input costs, higher energy costs, and higher food prices).

Q. Will the price of food and fertilizer shortage be the status quo for the next 6 months to a year?

A. For the next six months to a year, we don’t see how prices can come down. When we published the Commodity Prices Outlook, we projected fertilizer prices throughout this year (2022) to be 70% higher than what they were in 2021. We expect some moderation next year, but it will be a small decline. The reason we think prices will stay high are because of expectations around energy prices. The energy environment will be subjected to high prices and high pressures, which will impose pressure on fertilizers. For short term and medium term (at least for the next two years), we will see high fertilizer prices.

 

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