Global Food Security has piqued interest in global news since the commencement of the war between Russia and Ukraine as both countries contribute hugely to the global agriculture industry. The war between both countries raises the vulnerability of the many countries which include many of the Low-income Food-deficit countries (LIFC) that depend on both of them.
The Russian Federation is considered the largest exporter of Nitrogen fertilizers (including Urea, accounting for around two-thirds of the world’s annual 20M metric ton ammonium nitrate production) and the second-largest producer of both potassic (K) fertilizer after Canada and phosphorous (P) fertilizer after China in 2021, and the countries that import from Russia rely on it for more than 30 %. The figures below show the Russian Federation's export global share in 2021 of Nitrogen (N), phosphorous (P), and potassic (K) fertilizers. The agriculture sector highly depends on fertilizers which have been already increasing to all-time highs as a result of the supply chain disruptions and soaring natural gas prices induced by weather, and the pandemic prior to the war. However, the war has further magnified the prices. Organic fertilizers contain nitrogen which is composed of Urea, phosphorous, and potassium (which can also be referred to as potash fertilizer since potassium fertilizers contain potash).
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Source: Food and Agriculture Organization of the United Nations (FAO) (2022). The importance of Ukraine and the Russian Federation for global agricultural markets and the risks associated with the current conflict.
Prices of Nitrogen fertilizers increased 4 times 2020 prices, and phosphate and potash increased 3 times offsetting the price hikes witnessed during the Financial Crisis in 2008. The chart below shows the unprecedented price hike in Urea in USD/ metric ton. Furthermore, The American Farm Bureau and US Department of Agriculture showed that US fertilizers bills increased by 17% during 2021, and they are expected to further increase by 12% during 2022. Higher input prices mean higher production costs and consequently higher food prices; hence, higher global inflation figures, which could either lead to farmers planting crops that use less of these fertilizers leading to a shortage of some crops such as corn, soy, rice, cotton, and wheat furtherly waning the global food security.
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Urea Monthly Prices in USD/ Metric Ton| Source: Index Mundi (2022)
Moreover, the increasing fertilizers prices are also reflected on the stock market, as seen below. Nutrien Ltd. (NTR) stock price, with the largest market cap in the fertilizers industry of USD 58.92 B, has increased by around 120 % since early 2021 and increased around 54 % since the beginning of 2022.
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Price Chart of Nutrien Ltd. (NTR)| Source: TradingView (March, 2022)
Another example is the Mosaic Company with the third-largest market cap of USD 25.25B. As seen below, the stock price has increased by around 200 % since 2021, and around 90% since early 2022.
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Price Chart of the Mosaic Company (MOS)| Source: TradingView (March, 2022)
The conflict doesn't stop at increasing prices, but it spills over to other related products and causes increased government spending that was earlier allocated to other investments. For instance, the US, a second or third top importer for each of the three major components of fertilizer from the top producers including China, Russia, Canada Morocco, and Belarus, initiated a USD 250M support program to farmers and producers of American fertilizers.
Trade Imbalance between the Russian Federation and other countries has happened before especially following the annexation of Crimea in 2014 which has had long-term effects that stayed for years post the conflict on both micro and macro scales. For instance, the import ban by Russia on agricultural products in 2014 on EU countries cost around USD 7.9B in 2014, USD 12.9B in 2015, and USD 13.9B in 2016, as per the European Parliament estimates in 2017. Therefore, main importers including Brazil and 5 other South American countries are advocating excluding the fertilizers sector from the sanctions skeptical of the scenario to reoccur.
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