In the last days of May Vladimir Putin in conversations with his French, German and Turkish colleagues on the issue of food security, he said that supply difficulties arose as a result of “misguided economic and financial policies of Western countries” and sanctions against Russia. And he noted that these same Western countries can, if they wish, correct the current situation.
“Increasing the supply of Russian fertilizers and agricultural products will also reduce tension on the global food market, which, of course, will require the lifting of the relevant sanctions restrictions,” Vladimir Putin said on May 28 Emmanuel Macron I Olaf Scholz.
And, in fact, Vladimir Putin expressed the same opinion on May 30 Recep Tayyip Erdogan.
And already on May 31, the Russian government announced the extension of the quota for the export of mineral fertilizers until the end of 2022. Moreover, as before, they will not apply to the supply of fertilizers to the DPR and LPR, as well as to Abkhazia and South Ossetia.
“The government has decided to extend the quotas for the export of nitrogen and complex fertilizers. They will be valid from July 1 to December 31, 2022. The decision to this effect has been signed. For nitrogen fertilizers, the quota will be just over 8.3 million tons, for complex fertilizers – just over 5.9 million tons,” the press service of the Cabinet of Ministers said in a statement.
At the same time, it is emphasized that “the decision taken is aimed at preventing a shortage of fertilizers in the domestic market and preventing food prices from rising.”
The decision to extend, in general, planned. As early as December 1, 2021, the Government of the Russian Federation introduced quotas for the export of nitrogen and complex fertilizers as one of the measures to curb the rise in food prices in the country. Their action ended just on May 31st.
The dependence of the European market on Russian fertilizers is currently very strong: the Russian Federation provides more than 30% of the needs of local farmers in nitrogen fertilizers and 25% in phosphates. The combined share of Russia and Belarus in the supply of potassium chloride to the European market before the sanctions against Belaruskali reached 50-60%.
Nevertheless, for its part, the European Union on April 8, as part of the next package of sanctions, limited the import of fertilizers from Russia. With the proviso that the restrictions do not apply to deliveries before July 10 under contracts concluded before April 9 this year, according to the Official Journal of the EU.
That is, the main scandals in the export-import supplies of fertilizers between Russia and the European Union are yet to come.
Fertilizer reserves are probably enough for the current sowing season in the European Union. And what to expect from the European harvest in the future?
– The European agricultural sector is more dependent on the state of the fertilizer market already due to the fact that it uses them more widely in comparison, for example, with Russia. Fertilizer shortages could translate into lower yields and higher costs, ultimately pushing up food prices, he said. FG Finam Analyst Alexey Kalachev:
— According to IPEM, in January-April 2022, export shipments of chemical and mineral fertilizers in Russia decreased by 19.3% year-on-year, and in April, export shipments fell by 40.8% year-on-year. This is despite the fact that no international sanctions were imposed against the fertilizer sector, and in the United States, fertilizers were even included in the list of essential goods, which is why their import, in principle, cannot be banned.
At the same time, sanctions against the transport industries and against the financial sector of the Russian Federation create significant difficulties for Russian suppliers in terms of logistics and settlements, in connection with which Rospromtorg recommended that they reduce export volumes.
“SP”: – Will the Europeans be able to quickly find a new supplier instead of the Russian Federation? Or quickly set up your own fertilizer production?
— Russia is a rather large, but still not dominant producer of fertilizers on the global market. If the export restrictions continue for a long time, then, in addition to a general increase in prices, which is positive for our producers, this may have two long-term negative consequences.
First, other countries will increase investment in expanding their own production. More potassium chloride will be produced by Canada, the No. 1 exporter of this type of fertilizer. China, the largest producer of phosphates, will increase the production of phosphates in order to cover not only its own needs, but also sell more for export. (But their delivery will certainly cost more, which will affect the price and cost of the final product – ed.).
Not immediately, but in a couple of years, all countries that have free access to natural gas, for example, the Middle East and the USA, can increase the production of nitrogen fertilizers. Thus, the deficit in this ever-growing and therefore promising and profitable market will gradually be replaced.
Secondly, problems may begin with Russian producers, who produced about half of the fertilizers specifically for export. In recent years, just counting on the growth in demand, many of them have been expanding their capacities for the production of ammonia and urea. Our domestic market is not yet large enough to fully ensure the utilization of these capacities. If exports remain curtailed, our companies will have to reduce production, which is negative for their owners and shareholders.
“I don’t see any problems next year with the availability of fertilizers in the EU,” he said. President of the Russian Grain Union Arkady Zlochevsky:
– Firstly, there is an alternative to chemical fertilizers: biological fertilizers can also be used. It’s just that, due to the duration of processing and the initial raw materials, they are more expensive than chemical ones.
Secondly, it is no secret that several fertilizer plants were closed in Europe due to the price of gas and the unprofitability of production. Returning them to circulation is not a problem if gas prices are not prohibitive.
“SP”: – And this is exactly what is happening – the cost of gas and other energy carriers continues to break records …
– Yes. So everything depends, in fact, on the cost of fertilizers. And if the cost of fertilizers surpasses biological and alternative sources, the transition to other technologies, then, naturally, production will move to where it is more profitable. That’s all. Therefore, some kind of catastrophe from the fact that fertilizers are so expensive will not happen.
The EU itself imposed sanctions on our fertilizers. And what’s the problem? For the time being, they do not seem to notice it, but when they run into it, they will immediately lift the ban. Here is the UN Secretary General António Guterres proposed lifting sanctions on fertilizers in the European Union. Strange logic, they introduced them themselves, how do we cancel them? Will there be an indulgence for this – on other sanctions? Not very clear. Russia offers the EU to lift the sanctions that the Europeans themselves have imposed. Then it will be easier for them to live.
“SP”: – But the European Union continues the risky sanctions game, although it itself foreshadows the onset of almost global hunger in the world …
– All this hysteria is designed to pump up prices – nothing more. What kind of shortage are we talking about? This is a game to raise prices and leads to real threats to food security. There are simply no threats in terms of physical supply, the availability of food, and there simply cannot be any fears regarding a possible shortage of resources.