THE FERTILIZER CRUNCH
“Higher fertilizer prices present a significant burden to farmers, especially smallholder farmers with limited resources.” Ruth Hill, Director of the Markets, Trade and Institutions Unit, Food and Nutrition Policy Department, IFPRI
OFQ : At what point do price increases become unsustainable for the most vulnerable countries raising fears of turbulence from famine to political turmoil? RH: Higher fertilizer prices present a significant burden to farmers, especially smallholder farmers with limited resources. If sustained over a longer period, they can lead to decreased agricultural production and contribute to a rise in food prices. We are not at the point of famine yet: there may be increased supply from other countries (see p.8), application rates may not reduce as much as expected (they did not reduce too much in the Ukraine crisis) and even if application rates fall, their impact on production may be marginal for major producers where use is very high and marginal reductions can be managed through greater efficiency in application or substituting with other nutrients at the margin. These are all things we need to monitor carefully. OFQ : Are there any viable short- term reactions, for instance finding alternative producers from different regions, and long-term responses? An obvious idea would be to boost capacity. But given the environmental impact, is this really a viable solution? RH: If countries such as China and Russia
relax some of their fertilizer export restrictions, prices would decrease (see p.8). Some fertilizer producers have the capacity to increase production in the short run and some can expand capacity relatively swiftly. This will help reduce the upward pressure on fertilizer prices, though it is clearly not sufficient to compensate for the present supply reductions caused by the war. New production sites require long lead times and substantial investment and are likely to remain concentrated in regions with access to low-cost natural gas or significant mineral deposits. OFQ : Are there feasible and practicable alternatives? RH: Truly alternative solutions such as crops bred to procure nitrogen from the air (in the way legumes can) or microbial fertilizers are in the works but require further development, testing and scaling. However, there is a lot that is ready to scale on improving fertilizer use efficiency by changing the mix of fertilizer and other inputs, or the way in which fertilizer is applied. The benefits of integrated organic and mineral fertilization approaches increase as fertilizer prices increase, so there is more to be gained from altering the mix of nutrients applied than before. This is not replacing fertilizers but applying them with increased amounts of other
inputs so that the same amount of crop output can be achieved for marginally lower rates of fertilizer application. Similarly, the benefits of agronomic practices such as microdosing that increase the gains from using fertilizer but can often be quite labor-intensive become more cost effective as fertilizer prices go up and provide an important means by which more can be gained from each unit of fertilizer applied. Additionally, there is an important role of new technology in developing alternatives to current fertilizer production. “Green ammonia” powered by electrolysis from renewable energy has been technically feasible for a long time, but recent investments are moving this towards becoming cost effective. Once it is cost effective, it will importantly sever the reliance on natural gas or coal for the production of ammonia. This is hugely important because ammonia has many other applications too in other chemicals, industry and energy. OFQ : Once a cessation of hostilities is firmly in place, how long will it take for a normalization of markets? RH: Fertilizer market normalization will not be immediate since there is a huge backlog of shipments, but also because the war has damaged some fertilizer production sites in the Gulf region.
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