fertilisation field

Tight international supplies means the UK could struggle to replace its domestic shortfall

A fall in global fertiliser availability looks set to compound shortages already seen in the UK and add to upward pressure on soaring food production costs.

Internationally traded fertiliser supplies were poised to contract sharply during the final months of 2022, said S&P Global Market Intelligence – which this week predicted a 16% year-on-year fall in global exports in the fourth quarter.

The projected drop follows an 8% contraction of global fertiliser exports in the first six months of the year compared with the same period in 2021, according to a S&P report. 

The fall was attributed to a range of factors, from high input costs such as gas, to reduced shipments from key fertiliser suppliers such as Belarus, China and Russia. The volume of Russian fertiliser exports is down 30% year on year, with that of China down by more than half, after the two countries restricted overseas sales of fertiliser or components last year.

Changing demand – perhaps attributable to high fertiliser prices – could be another factor contributing to the drop in exports. The world’s two biggest fertiliser-importing countries, Brazil and India, accounted for 35% of purchases last month, compared with 45% in September 2021, S&P said. 

So-called demand destruction across the markets was being influenced by “looming fears of leftover high-priced inventory, coupled with harsh weather and declining crops and commodities’ futures prices”, said Pranay Shukla, lead bulk commodities analyst at S&P.

A fall in demand could hint at reduced planting over the coming months, or an expansion of crops that are less fertiliser-dependent, such as soybeans, with a record crop of the latter expected in Brazil, according to the US Department of Agriculture’s latest global farm output projections.

Farmers in the UK and beyond have since last year faced rising prices of fertiliser and other inputs such as fuel, electricity and feed, with those costs in turn helping fuel food price inflation at the consumer end.

Fertiliser prices and supply hinge on currently volatile inputs such as gas, the price of which had begun to rise in mid-2021 before spiking in the wake of the invasion of Ukraine by Russia, Europe’s biggest source of gas.

Gas prices started to come down again in July, in what Norway-based Rystad Energy this week labelled “a continuous fall”. The recent drop was put down, in part, to European storage levels topping 90% ahead of winter after an increase in gas sourced from countries such as Qatar and the US.

Food production under threat amid “eye-watering” surge in farm costs

“The market seems less concerned about supply in the near term, but is much more concerned about 2023 supply and the region’s ability to build adequate storage ahead of the 2023/24 winter in the absence of Russian supply,” Dutch bank ING explained in a report this week.

But gas nonetheless this week remained around twice as expensive as it was a year ago, shortly after major fertiliser makers such as CF Industries in the UK and BASF in Germany announced cuts to production. CF later closed of one of its two factories in England and announced over the summer that it planned to shutter the second, at Billingham on Teesside, due to rising energy costs making the plant  “uneconomical”.

Levy board AHDB reported last week that the CF shutdown was already forcing British farmers to try source more fertiliser from abroad in an increasingly tight and ever more expensive global market.

“In September imported ammonium nitrate (AN) increased by 5% to £870/tonne compared with August and has increased by 120% compared with September 2021’s price of £395/tonne”, the board said.

But AHDB’s update came after Fertilizers Europe, the continent’s main industry body, last month said high gas prices had forced “some 70% of European ammonia production to standstill”, meaning there would be less fertiliser available on the continent for the UK to import.

Fertilizers Europe said “a physical supply of competitively priced gas” was needed to allow factories across the continent ”to restart production”.

Copa-Cogeca, a pan-European agriculture body made up of national farming unions, including the NFU, this month called on European nations to drop tariffs on fertiliser imports from Trinidad and Tobago and the US, after the latter said it would fund increased production.

“Fertilisers must be available and affordable in order for the farmers to guarantee sufficient food production”, Copa-Cogeca implored, a day after EU agriculture commissioner Janusz Wojciechowski told the European Parliament the Commission would announce a “communications plan” for fertilisers.