Fertilizer 101

Why are fertilizers so important?

Fertilizers introduce nutrients into soil that are critical for plant health and growth. All plants require carbon, hydrogen, oxygen and 14 other nutrients to grow. While many nutrients already exist within soil, most forms cannot be accessed and used by plants. Fertilizers provide accessible nutrients to help plants reach their peak productivity. With increased fertilizer usage, crop yields rise sharply, enabling the mass production of food.

Wheat, corn (maize), rice, and soybeans are four of the most important crops worldwide. While all require fertilizer in order to grow, certain crops require more than others.

Source: Gro Intelligence, IFA

Without fertilizers, plant health deteriorates and crop production slows. Fertilizer shortages of even small amounts can lead to significant declines in global food supply.

Fertilizers and food security

Fertilizer shortages due to logistical bottlenecks, restrictions on natural gas (which impact the ability to produce fertilizer), and export restrictions can cause fertilizer prices to surge. High fertilizer prices raise farm input costs and place fertilizers out of reach for many smallholder farmers. With less fertilizer, crop yields will be lower and there will be less available food. The food that is available will be more expensive. Higher prices will impact countries worldwide differently, as countries with tighter agricultural profit margins will not be able to afford the ideal quantities of fertilizer.

In 2022, geopolitical and macroeconomic conditions are driving extraordinary shocks worldwide, causing major fertilizer shortages and soaring global food inflation. In May 2022, global nitrogen fertilizer prices nearly tripled year-on-year. Though prices have since declined, they remain high year-on-year. This could cause significant crop yield reductions in key producing regions, such as Brazil and the United States, posing major risks to global food security.

Source: Gro Intelligence

Major Fertilizers

While there are 14 total fertilizers, the three most important for plant growth, and the ones most commonly produced, are nitrogen, phosphate, and potassium.

Nitrogen

Of the three major fertilizer types, nitrogen is of primary concern, due to its relatively immediate impact on plant growth. It provides key elements for protein construction to support plant production and yield. As natural gas is a critical input into nitrogen production, accounting for 60-70% of production costs, changes in gas prices can directly impact the availability of nitrogen fertilizer.

Source: Gro Intelligence, CRU Group

Phosphate

Phosphate helps with plant root growth, tissue growth, and energy transformation. Phosphate fertilizers are produced by adding acid to ground or pulverized phosphate rock. About 50% of the world’s phosphate rock suitable for mining is located in Morocco; the US also has substantial reserves.

Potassium

Potassium plays an important role in water and nutrient uptake and metabolism within plants. Potash is mined to produce potassium fertilizers, with the biggest deposits in Canada, Belarus, and Russia.

Who makes fertilizer and who uses it?

Fertilizer is traded worldwide, with the largest portion of supply coming from Russia. Trade restrictions, sanctions, and port closures – often due to geopolitical conflict, such as the Russia-Ukraine war – make fertilizer both harder to access and more expensive. For example, export restrictions put in place by Russia or China - both major fertilizer exporters - would significantly reduce supply for major importers.

Source: Gro Intelligence, CRU Group

What impact could a fertilizer shortage have on global food supply?

With less fertilizer comes less domestic and local production, meaning food exports from major exporters, such as Brazil or the United States, will decline. Heavily import-reliant regions, such as North Africa, the Middle East, the Horn of Africa, and West and Central Asia, are being disproportionately impacted. Not only do they have access to less food, but food is increasingly expensive. Gro’s economic shock models show that year-to-date changes in prices of agricultural products have already affected some economies by 3% to 5% of their GDP.

Multiple consecutive seasons of fertilizer use reduction would be unprecedented. As a result, the effects would be largely unknown. However, this may be what we are facing in coming years. Fertilizer prices have been rising since mid-2020, and supply disruptions from the Russia-Ukraine war are likely to continue into next season. Gro expects the current fertilizer crisis to impact global food security and inflation for the next three to five years at a minimum.