The war in Ukraine and its effects on fertilizer exports to Brazil and the United States
The Russian invasion of Ukraine greatly increases the risk of disruptions to the global fertilizer trade. Russia is the world’s largest fertilizer exporter, accounting for 23% of ammonia exports, 14% of urea exports, 10% of processed phosphate exports and 21% of potash exports, according to data from the Fertilizer Institute. . The main destinations for fertilizers from Russia are Brazil (21%), China (10%), the United States (9%) and India (4%).
Compared to the United States, Brazil will be more directly affected because it imports 85% of its fertilizers, according to an economist from the University of Illinois. Supply to the United States should be less of a problem, as the United States has robust domestic production. However, US farmers are likely to face higher prices due to the global interdependence of the global fertilizer industry. On March 11, the two countries announced their intention to support additional fertilizer production to meet rising costs.
Brazil Fertilizer Sources
Brazil is responsible for 8% of global fertilizer consumption and is the world’s fourth largest fertilizer importer, behind China (24%), India (14.6%) and the United States (10.3 %). About a fifth of Brazilian imports come from Russia. The addition of fertilizers from Belarus – closely linked to Russia – brings the amount imported by Brazil to almost 30%. In terms of direct import from Russia and Belarus, potash is the largest fertilizer import, with Russia and Belarus accounting for 44% of potash imported by Brazil. Brazil will likely source more potash from Canada, which is currently its main supplier.
Brazil imports 95% of its nitrogen fertilizers and Russia is the main supplier, accounting for 21% of the quantity imported, followed by China, Qatar and Algeria. In 2020, Brazil produced 224,000 tonnes of nitrogen fertilizer, which satisfied just over 4% of the country’s demand. Brazil currently has only three nitrogen producers.
Brazil imports 75 percent of its phosphate needs, the lowest percentage of the three essential fertilizer components. The main supplier is Morocco, followed by Russia, Saudi Arabia, the United States and China. These countries represent more than 70% of the world production of phosphates.
The distribution of fertilizers applied in Brazil: potassium (38%), phosphorus (33%) and nitrogen (29%). The production of soybeans, corn and sugar cane accounts for more than 73% of the country’s fertilizer consumption.
Sources of American Fertilizer
The United States is the world’s third largest fertilizer importer and is responsible for 10.3% of global consumption. Unlike Brazil, the United States has a robust fertilizer industry. Yet it could also be affected by global supply and relative to prices. The United States, the European Union and other countries have imposed economic sanctions on Russia, which could hamper Russian exports of natural gas, potash and nitrogen. Belarus, an ally of Russia, is already subject to European and American sanctions restricting its potash exports. Together, Russia and Belarus control 40% of the world’s potash supply. In 2021, the United States imported approximately 93% of potash requirements. Canada supplies 83% of the potash used in the United States; Russia and Belarus supplied 12% used in the United States in 2021.
US dependence on nitrogen and phosphate imports is much lower, 12.5% and 9%, respectively. Ammonia (fixed nitrogen), for example, was produced by 16 companies at 35 plants in 16 U.S. states in 2020. About 60% of total U.S. ammonia production capacity was in Louisiana, Oklahoma and in Texas because of the huge reserves of natural resources in these states. gas, the main ingredient of ammonia. The phosphate was extracted by five companies in 10 mines, in Florida, North Carolina, Idaho and Utah.
Before the conflict in Ukraine, farmers around the world were struggling with much higher prices and supply disruptions. The United States imports a significant amount of all three components and therefore US prices are likely to be tied to world fertilizer prices. Price increases in the global market will likely result in similar price increases in the US market. Since the start of the Russian-Ukrainian conflict, the fertilizer prices shown in the Illinois Cost of Production report have increased.
Brazilian Dependency Reduction Plan
On March 11, the Brazilian government put in place a plan to reduce its dependence on imports after Russia’s invasion of Ukraine caused a bottleneck in the global supply chain. The program, which aims to reduce Brazilian fertilizer imports from the current 85% to 45% by 2050, includes a new fiscal policy for the sector and helps private companies increase their fertilizer production capacity. In 2021, Brazil imported over 41 million tons of fertilizer, a record 21% more than last year. The increase in fertilizer consumption is mainly driven by the growth in area in recent years.
The Brazilian plan includes 80 objectives and 130 specific actions to increase national fertilizer production. The program also includes: (a) incentives to increase the use of organic fertilizers; (b) financial investments in research; and (c) visits to producers across the country by the Brazilian Agricultural Research Corporation (Embrapa) to promote more efficient use of fertilizers and inputs in the field. The government says Embrapa’s efforts alone are expected to reduce Brazil’s demand by 20% during the 2022/23 harvest. Experts say that some soils have residual fertilizer from last season. If properly analyzed, it is possible to carry over a percentage of the component to the next crop, but with a potential drop in yields. Brazil has two, sometimes three, harvests a year.
American plan to support local production
On March 11, the US Department of Agriculture announced that it would support the production of additional fertilizers for US farmers to meet rising costs. This summer, the USDA will provide $250 million through a new grant program to support independent, innovative, and sustainable U.S. fertilizer production. Additionally, to address growing concerns about competition in the agricultural supply chain, the USDA will launch a public survey seeking information on seeds and agricultural inputs, fertilizers, and retail markets.
The USDA will use Commodity Credit Corporation funds in September for Market Disruption to develop a grant program that provides funding to encourage new independent production. The application process will be announced in the summer of 2022, with the first awards expected before the end of the year. It is essential to stress that the actions proposed by the United States are unlikely to have an impact on the availability and price of fertilizers this year, and that their impacts could be felt several years from now.
The Russian-Ukrainian crisis has caused further disruption and concern in the global fertilizer industry. Farmers should expect higher fertilizer prices, which will drive management decisions regarding the profitable use of fertilizers. Given the geopolitical consequences of the conflict, these disturbances could last for many years.