Europe is facing a fertilizer crisis.
Prior to Russia’s military invasion of Ukraine earlier this year, crop nutrition prices were already on the rise. However, as gas is a key input in nitrogen fertilizers and Russian supply is now limited in Europe, fertilizer prices have skyrocketed.
As a result, farmers find it difficult to buy plant food and what they can find is often very expensive. Using less fertilizer can have a negative impact on crop yield and, therefore, food production.
How can European companies and regulators mitigate the impacts of the Ukraine-Russia war on the fertilizer industry?
“Europe must be more resilient”
Russia is the world’s second largest producer of natural gas, behind the United States. According to 2021 figures, the country produced 762 billion cubic meters (bcm) of natural gas and exported about 210 bcm by pipeline.
Since nitrogen fertilizers are produced from natural gas, sanctions on Russia’s supply to Europe have a significant impact on the cost of fertilizer inputs.
“The war on Ukraine has many direct and indirect consequences on the entire food value chain, and fertilizers are at the very beginning,” according to Tiffanie Stephani, Director, European Government Relations and External Communications, Yara.
Yara is considered the biggest player in crop nutrition in Europe. The company is “deeply disturbed” by the conflict between Ukraine and Russia and “strongly condemns” the Russian military invasion, Stephani told delegates at the European Food Forum (EFF) event on last month.
For the head of European government relations, the effect of the war on the fertilizer industry is “pretty clear”: “It revealed that the European and global fertilizer markets were too dependent on one country: Russia.
Russia supplies around 45% of the world market for ammonium nitrate, around 20% of the world market for potash and 14% of world exports of phosphate fertilizers.
“The current situation shows that our food system in Europe needs to be more resilient.”
Mitigating the effects of war
How can Europe reduce its dependence on Russian resources? According to Yara, the first solution lies in diversifying its sources of raw materials.
The “precondition” for sourcing natural gas elsewhere is that Europe requires “continuous and uninterrupted” access, we were told. “For now, gas remains the main critical input factor for nitrogen fertilizer production.”
Regarding other relevant inputs, most compound fertilizers contain three essential elements for growth: nitrogen, phosphorus and potassium. Together, these nutrients are called NPKs.
Last year, Russia was the biggest exporter of NPK, which means that fertilizer producers have to look elsewhere for these inputs. “New production capacities can be developed in the medium term”, suggested Stephanie. “But since we’re talking about minerals, which can be mined, you can’t just start a new mine. [immediately].”
The second solution, according to Yara, is to decarbonize the activities of the sector. The company is working to replace natural gas in fertilizer production with renewable energy, which it says could be a game-changer by reducing dependence on Russian resources.
Of course, this would also serve to decarbonize the agri-food system.
“The precondition here is that investment in renewable energy and new infrastructure in Europe is really essential and should be accelerated.”
Yara expects its first non-fossil fertilizer to hit the market in 2023 and has signed its first commercial contract for the product with Swedish agricultural cooperative Lantmännen.
Instead of using fossil fuels such as natural gas to produce ammonia – the cornerstone of mineral fertilizers – Yara’s “green manures” will be produced with ammonia from renewable energy produced in Europe , such as Norwegian hydropower. The company expects these fertilizers to have an 80-90% lower carbon footprint.
The third solution designed to mitigate the impacts of war on the fertilizer sector lies in accelerating circular economy practices. Many industry players are already working to optimize resources and recycle by-products back into production processes, but Stephani suggested more could be done.
“The use of organic matter from fertilization can be further expanded and we can recover more quality nutrients from the treated waste.”
“We must impose taxes on Russian gas”
Others believe that more drastic measures should be taken.
Oil and gas are crucial for agricultural production, said Petri Krogman, chairman of the board of management company Agromino in Ukraine and owner of the Czech agricultural association Spojené Farmy (United Farms).
“Ukraine was able to sow about 70-80% of its area for agricultural production, but we have to realize that all the remaining areas that have been sown will have lower yields. There is not enough fertilizer, he told delegates at the EFF event.
At the same time, without oil, farmers will struggle to harvest these crops. “There’s not enough oil and gas to run the machines…if you don’t have oil, you [cannot] to harvest.”
Diversifying Europe’s oil and gas inflows for Krogman means blacklisting Russia. The agricultural expert argued that taxes “must” be imposed on Russian gas and oil, in order to send the “right” signal to businesses.
Companies will not voluntarily ban Russian oil and gas, he continued. It must come from above – from the European Commission or from individual Member States.
If Ukraine loses the war and Russia enters the EU, Krogman fears that the Kremlin will take control of agricultural production in Eastern and “Middle” European countries.
“Through starvation and migration, they will easily destabilize the political system of EU countries.”
Krogman continued: “We must stop producing fertilizers in the middle of Europe with Russian gas.
Instead, he thinks production should be shifted to coastal states with liquefied natural gas (LNG) terminals and made with non-Russian gas. Or “even better”, be imported “from North America and elsewhere”.