Harvests of important crops are in jeopardy after scarce supplies and high fertilizer prices mean farmers save on vital plant nutrients, putting global food security at risk and increasing fears of inflation.
Fertilizer costs soared this year due to increasing demand and lower supply. Record prices for natural gas and coal Production cuts in the energy-intensive fertilizer sector were the trigger. The world market price for urea increased by more than 200% this year, while the prices for diammonium phosphate (DAP) have doubled.
With global food prices at their highest level in more than a decade, rising fertilizer costs will only put further pressure on food affordability, especially in import-dependent economies. The tight budgets leave little room for government subsidies, said Frederic Neumann, HSBC's co-head of Asian economic research.
"At a time when COVID-19 has already decimated the lives and livelihoods of countless millions of people, rising food costs are hitting the poor particularly hard," he said. "This means that there is a risk that higher fertilizer costs will not only hit farmers, but will also be passed on to consumers through higher food prices."
With the Food and Agriculture Organization of the United Nations (FAO) food price index hitting its highest level since 2011 - when high food prices fueled the “Arab Spring” riots - farmers around the world are already under pressure to improve food supplies.
Analysts believe the fertilizer shortage will worsen early next year. European, North American and North Asian farmers all need to increase their purchases before spring sowing, while major producers China, Russia and Egypt have curtailed fertilizer exports to ensure domestic supplies.
"Most urea supplies are now secured, which means that global producers will be 'sold out' by January 1st," said Josh Linville, Director of Fertilizer at StoneX Group Inc., USA. They will be consumed by significant global demand in the first quarter as the US, Canada, Brazil, Europe and Asia all rush to buy. "
In response, farmers around the world are either postponing purchases or reducing fertilizer use to save money.
India and Egypt - both large agrarian economies - increased government subsidies in November, with India's fertilizer ministry increasing supplies to regions with low inventory levels to ensure winter crop availability.
So far, the high producer prices have cushioned the blow for many farmers. Some will switch from nitrogen-hungry wheat and corn to soybeans in the next season.
But few crops or farmers will be spared in 2022, analysts say.
In Germany, farmers who are affected by price increases are likely to reduce the use of fertilizers, which could reduce harvest quantities "depending on the size," said Bernhard Krüsken, Secretary General of the German Agricultural Association DBV.
"Varieties that have achieved higher producer prices in the past few months can be considered for sowing," continues Kruesken.
Brazil, the world's leading soybean grower and third largest corn producer, feeds 10% of the world's population. The country has warned of a fertilizer shortage over the next year that is expected to slow economic growth in soybean, corn and cotton farms.
"Soy was partially avoided because a lot of inputs had already been purchased in advance, but the second corn crop of the cycle will directly intervene in this increase in fertilizer costs," said Andre Pessoa, partner at the Brazilian agricultural consultancy Agroconsult. "For the 2022/23 cycle, I would say that we will have some problems. I told the farmers that the problem is not even the price anymore. It is all about availability now."
Even in North America, home to some of the richest farmers in the world, growers have delayed their purchases, which they usually make before spring planting, in hopes that prices will fall.
Although weather conditions, disease, pests, and water supplies are critical to plant development, fertilizers are among the most powerful factors of production that farmers control.
But many farmers, and especially the millions of smallholders who produce a third of the world's food, will have no choice but to reduce fertilizer use in 2022.
In Southeast Asia, which produces most of the world's palm oil, growers are preparing for higher production costs as industry players are already seeing disruptions in fertilizer sourcing and lower imports.
"Malaysia imports 95% of its fertilizer requirements. The production of fruit and vegetables is particularly affected because it requires higher quality fertilizers," said Teo Tee Seng, Malaysian managing director of the agrochemicals supplier Behn Meyer AgriCare.
"If fertilizer prices go up, they won't go down," said Wawan. "That is the challenge for the farmers of the future."
The recent falls in oil prices might bring some relief to fertilizer makers, but any future energy shocks caused by unexpected cold spells would trigger higher food prices, according to a November FAO report.
"We need to understand that all policies that raise energy prices raise food prices," said Josef Schmidhuber, deputy director of the FAO's trade and market department. "This must not mean that we put less emphasis on measures to mitigate climate change, but we have to find ways to increase the efficiency of fertilizer use ... and critically review our energy policy."
Source
Hansa Terminhandel GmbH