Thursday, 21 September 2023

Ganizo | Agriconomy

The Nitrogen Fertilizers Gap: Russian Sanctions, Africa, and Global Food Economy

Sanctions, or talk of sanctions, toward Russia create opportunities for the African Agricultural Economy, especially fertilizer production amongst other things. Throwing threats and executing them are two different things, and what lies between must be an impact assessment on the Global Economy, instead of just thinking of immediate harm to the Russian economy. A post Russian sanctions simulation is necessary to bring perspective.


Without starving its people, US, UK, or EU, cannot afford to impose sanctions on Russia, and Nitrogen Fertilizers is amongst the top reasons, as Russia is the leading exporter of this essential raw material.


Nitrogen fertilizers are the most used straight fertilizers in Europe, and the US, where the largest food exporter countries and in the world are. Nitrogen fertilizers are supplied in three forms, ammonia, nitrate, and urea.


The background to Russia being a major player in the global agricultural economy today is centred on past sanctions as ones that are about to be imposed again. During the past two decades, Russia has been a larger agricultural importer than exporter in value terms, because it exports mainly bulk crops while it imports high value products, such as livestock goods (meat and dairy), fruit and vegetables, and processed food, Russian Journal of Economics wrote. 


However, the economic crisis and import ban of 2014–2015 cut the country’s agricultural imports by about a third, so that the country currently has only a small agricultural trade deficit. High growth in domestic meat production since 2000, as well as various trade controls, is also reducing imports. This is evidence of a country able to take in any sanction imposed and turn it into an advantage and future weapon.


Today, sanctions imposed include nitrogen fertilizers. 


The world will not be able to meet its food production goals without biotechnology and improved genetics, and without fertilizer; commercial fertilizer is responsible for 40 to 60 percent of the world’s food production, Crop Manager reported. The FAO estimates that 37 countries are facing a food crisis. The Millennium Project (2008) State of the Future report attributes the food crisis to increased demand for food in developing nations, high oil prices, biofuels, high fertilizer prices, low global cereal stocks and market speculation. 


Whilst there is conversation and research around alternatives, the current reality and state of the global agricultural economy requires the use of nitrogen fertilizers, and the equation must not be disturbed. 


The world produces most of its food using Nitrogen, Phosphorous, or Potassium fertilizers. Of these, nitrogen fertilizers account for over 50% of the use. 


In 2019, the top exporters of Nitrogenous Fertilizers were Russia ($3.05B), China ($2.7B), Egypt ($1.41B), Netherlands ($1.32B), and Qatar ($1.29B). Whilst China, United States, and India are the top three producers of nitrogen fertilizers, with Russia the fourth, they still buy from Russia as their consumption of the products is very high to meet their desired agricultural goals. 


The United States needs Russian fertilizers. The US top imports from Russia in 2019 were mineral fuels ($13 billion), precious metal and stone (platinum) ($2.2 billion), iron and steel ($1.4 billion), fertilizers ($963 million), and inorganic chemicals ($763 million). The US Agricultural economy depends on not only its own fertilizers, but the Russian fertilizers as well. 


Europe needs Russian fertilizers. The EU’s imports were worth €95.3 billion and were dominated by fuel and mining products – especially petroleum (€67.3 billion, 70.6%), agriculture and raw materials (€4.3 billion, 4.5%), chemicals (€4.1 billion, 4.3%) and iron and steel (€4.0 billion, 4.1%). 


To avoid the effects of US and EU sanctions, Russia made an agreement with China, Indonesia, and Brazil on mutually trading market access for ammonia, which is used in the production of fertilizers. This move will change the export of agricultural commodities, as Europe and US production costs become higher. 


The United States has now issued sanctions against imports of this commodity to force Russia to make better deals with the USA. Extensive research was undertaken by a group from Harvard University on their effects on global food prices. The study was carried out in 2016 and found that America's decision to impose sanctions have resulted in a moderate increase of fertilizers costs which would have otherwise been negligible.


The recent wave of sanction threats will raise the costs of agricultural production even further. From an African perspective, this will give opportunity for investment in fertilizer production, and even exports. 


Africa has the potential to become a major fertilizer market, Gulf Petrochemicals & Chemicals Association reports. The region is endowed with mineral reserves of the three major plant macronutrients: nitrogen (N), phosphate (P) and potash (K). Moreover, the continent is subject to rapid population and income growth and changing food consumption habits. The pace and diversification of Africa’s food needs will require the region’s farmers to increase agricultural production and yields, which boost fertilizer demand. 


The African fertilizer market is projected to register a CAGR of 5.1% during the forecast period (2021-2026), Mordor Intelligence reports. COVID19 has a direct negative impact on the value chain of the African fertilizer market. Blockades in various countries of the region have adversely affected transportation systems. This has led manufacturers to use urgent stock of raw materials for further production. 


The use of fertilizers is key to Africa's food security as it increases agricultural production. The region continues to offer the greatest growth opportunities in fertilizer sales. However, some challenges, such as uncertain political conditions, restricted access to funds, and restricted infrastructure, have hindered growth to some extent. 


In Africa, fertilizer market growth opportunities can be achieved by successfully combining certain aspects such as improved regional trade cooperation, increased private sector involvement, and improved infrastructure and transportation arrangements to support the growth of market potential.


Africa has the highest population with the largest area of arable land. For instance, the Sub-Saharan Africa region has 13.0% of the world population and has approximately 20.0% of the global agricultural land by area. 


However, the region faces severe food insecurity, which is primarily attributed to inadequate food production due to a lack of access to modern mechanization and limited use of fertilizers. The governments are consistently implementing various policies for improving agricultural productivity to reduce undernourishment in the region. By focusing on this, governments are partnering with private entities to boost fertilizer production in the region.


There is an increase in domestic fertilizer production (including potassic fertilizers) in the region due to the investments to develop new fertilizer manufacturing plants. Favourable tax slabs promoting the domestic mining of ammonia and potash have further augmented the investments across various regions.


An attack on Russia, using sanctions, will create this evident opportunity for investing in the production of fertilizers in Africa, to not only meet the demand gaps created by the confusion, but also to increase capacity for other food in demand. 


Either way you look at it, the threats of or the implementation of sanctions on Russia, are creating opportunity for Africa in Agriculture, and fertilizers are key.


Sources: Fertilizer Europe, Russian Journal of Economics, Crop Manager, Mordor Intelligence, Gulf PCA, European Union, US Trade