The current global increase in fertilizer prices is unprecedented in the last 70 years. Although at the end of 2007, for some time there was almost a doubling of prices for all major groups of fertilizers. In 2022, fertilizers rose in price mainly due to the disruption of international logistics chains, which began to recover only in the second half of the year.
The global demand for fertilizers remains high. Some countries have reduced the use of fertilizers since 2007 (for example, the share of the United States in global demand for fertilizers decreased from 20 to 10%), but many continued to increase their consumption.
A sharp rise in natural gas prices in mid—2021, especially in Europe, led to a reduction in the production of ammonia, a key component of nitrogen fertilizers. The increase in coal prices in China has also led to rationing of electricity consumption, as a result of which some fertilizer plants have reduced production. As a result, China has introduced a quota for the export of fertilizers, especially phosphorous, until June 2022, citing the need to ensure the domestic market and maintain food security. The suspension of fertilizer exports by China has significantly reduced global supplies.
These factors have exacerbated pre-existing supply chain disruptions caused by COVID-19. Another significant factor is the sanctions of a number of countries against Russia and Belarus.
Russia had to reduce exports of nitrogen, phosphorus and potash fertilizers, which actually reduced world supplies by 15%. In particular, the Russian Federation has imposed restrictions on the export of nitrogen and complex nitrogen fertilizers. However, since May 23, 2022, the government has increased the current six-month quotas for the export of certain fertilizers. Thus, quotas for nitrogen fertilizers were increased by 231 thousand tons, up to 5.7 million tons, and for complex or compound nitrogen—containing fertilizers - by 466 thousand tons, up to 5.6 million tons.
China, Russia, the United States, India and Canada produce more than 60% of fertilizers in the world. At the same time, China produces about 25% of fertilizers, and Russia and the United States — less than 10%.
Nitrogen fertilizers are mainly produced by the Haber—Bosch method. The Haber—Bosch process is the main industrial ammonia production technology combining nitrogen from air with hydrogen at very high pressure and temperature. The process requires a large volume of natural gas. Accordingly, countries with high free reserves of natural gas have a competitive advantage.
Phosphorus and potassium are part of the extracted minerals, which are not found in many countries. China produces more than one-third of the world's phosphorus, followed by the United States, India, Morocco and Russia. Together, these five countries produce more than three-quarters of industrial phosphorus.
Potassium production is the most concentrated. Two-thirds of the total potash supply is provided by only three countries: Canada, Russia and Belarus. Canada produces about one-third of the world's potash supply, while Russia and Belarus together produce the other third.
The use of fertilizers depends on the composition of the soil and on the crops grown. Some countries consume more fertilizers per hectare than others. China is the largest consumer of fertilizers per hectare (more than 340 kg). Brazil is the second largest consumer (about 246 kg/ha), almost twice as many fertilizers are used here as in the United States. Sub—Saharan Africa has the lowest level of fertilizer consumption (on average less than 20 kg/ha).
The market for the production and export of fertilizers is very concentrated — there are very few major exporters. Five countries/regions export more than 60% of all fertilizers in the world — Russia, Canada, the European Union, China and Belarus.
The decline in the availability of fertilizers is primarily due to sanctions against two key producing countries: Russia and Belarus.
According to Trade Data Monitor, there has been no data on fertilizer exports from Russia since January 2022. However, many countries, including the USA and Brazil, reported the import of fertilizers from Russia until April 2022. Uncertainty regarding the supply of fertilizers from Russia will keep world prices high due to the fact that increasing fertilizer production from scratch takes an average of three to five years if the necessary resources are available. At the same time, it should be borne in mind that in some countries the reserves of phosphorus and potassium are limited.
Many producers in the United States managed to avoid a spike in fertilizer prices in 2022, because the fertilizers used for sowing this year were purchased in advance. If fertilizers were purchased in 2022, manufacturers basically had to change the composition of their mixtures and minimize the cost of scarce components.
Some producers have increased soybean crops, as soybeans require less fertilizer. This is due to the fact that soybeans have a natural ability to fix nitrogen. Accordingly, this reduces the area for corn and other crops.
Nitrogen fertilizers are usually used in large volumes for growing corn. Due to the high costs of them, some producers decided to reduce the total sown area or change the structure of crops. With the current relatively high commodity prices (corn, wheat and soybeans), it is possible to make a profit, despite the high cost of resources.
Manufacturers from other countries have faced similar problems as in the USA. Brazil saw a 15 percent reduction in fertilizer imports in the first quarter of 2022 compared to the same period last year. This may negatively affect the production of the second corn crop in 2022. In sub-Saharan Africa, the use of fertilizers is also declining due to a shortage of stocks and high prices. In these countries, fertilizer application rates are already very low, and a further decrease in these indicators may negatively affect yields, which will pose a threat to food security. If fertilizer supplies remain limited, high prices will have an even greater impact on decisions about the volume and structure of crops in 2023 in different countries.
