New Fertilizer Production Cuts Heighten Concerns for Global Food Supplies

Fertilizer producer Yara International last week announced further production cuts in the face of rising natural gas prices. Yara said the cuts will bring its European capacity utilization for ammonia, the main ingredient in all nitrogen fertilizers, to just 35%. 

The move, which followed cutbacks by fertilizer companies in the UK, Lithuania, Hungary, and Poland, renews fears for global agricultural production at a time when the world’s supplies of many commodities remain tight and the Russia-Ukraine war is severely limiting grain exports from the Black Sea region. The latest fertilizer production cuts could impact supplies and prices when Southern Hemisphere countries begin planting in the next few months. 

Europe-wide, fertilizer production capacity utilization, excluding Ukraine, is running at an estimated 50% for ammonia and at about 33% for nitrogen fertilizer, according to CRU Group, an independent fertilizer consultancy. Europe’s fertilizer industries are especially hard hit as Russia reduces supplies to the region of natural gas, a critical feedstock in fertilizer production. 

• European natural gas prices (TTF Netherlands) have increased by 407% since this time last year.
• UK prices (ICE UK Natural Gas NBP futures) gained 207% over the same period.
• US Henry Hub natural gas prices have risen 103% year over year.

A Gro analysis, using Gro’s Global Fertilizer Impact Monitor, finds that reduced farm fertilizer usage because of tight supplies and high prices would have profound effects on food production in some parts of the world, decreasing harvests and increasing the urgency of emergency food aid relief. 

• In many African countries, for example, fertilizer usage already is minimal and cutting it further would have an outsize effect on crop production. 
• Other countries would see a much smaller impact from cuts to fertilizer usage, Gro’s analysis shows. 
• Overall, total world food production would be reduced by a small fraction even under some of the most pessimistic scenarios for reduced fertilizer usage, but that outcome masks the sharply uneven effects from one country to another. 

Most of the fertilizer that European countries produce is used domestically or exported to other countries in the EU bloc. Sizable exports also go to South America, Mexico, Southeast Asia, and Africa. In March, for instance, Ghana and Brazil were among the biggest buyers of fertilizer from Belgium, the EU’s third-largest exporter. View a display in the Gro Portal of European fertilizer production and exports.

For farmers, that could mean hard-to-get fertilizer supplies, and higher input costs. 

• Prices of ammonia, used to make all nitrogen fertilizers, have risen manyfold in the past couple of years. 
• Recent trading has been volatile, with ammonia prices dropping sharply from a March 2022 peak, then increasing anew in the past month amid European plant cutbacks. 
• The Western Europe ammonia spot price is currently around $1290 per tonne, up 3% since late July and almost six times the level of August 2020.   

Gro’s Global Fertilizer Impact Monitor quantifies the impact of reduced nitrogen fertilizer usage on production of four staple crops — corn, rice, soybeans, and wheat — in countries around the world. The Monitor, which was built with support from the Bill & Melinda Gates Foundation, and in partnership with the International Fertilizer Association (IFA) and CRU Group (CRU), models a total of seven different fertilizer application scenarios, based on application rate forecasts and scientific inputs from IFA and CRU. 

The Monitor shows that worldwide production of the four staple crops combined would decrease between 0.42% and 2.11% compared with 2021 levels, depending on the fertilizer usage scenario. 

The outcomes for individual countries vary widely. 

• France could see combined production of the four crops drop between 0.62% and 4.08%. Those estimates, based on various fertilizer usage scenarios, don’t take into account other variables such as weather conditions, which can further impact production and yield, as shown by this display in Gro’s Climate Risk Navigator for Agriculture. 
• By comparison, production in Brazil could be down as much as 1.44% or up 0.70%, depending on the fertilizer usage scenario. 
• For some African countries, cutting fertilizer usage could have a substantial impact. Kenya’s production, for instance, could be down between 0.41% and 6.22%. Intense drought in Kenya, as shown in this display from the Gro Portal, could impact crop production to a much greater extent. 

Gro’s analysis shows that the impact of the fertilizer crisis globally is less severe than estimates by other sources had feared. Still, because of the uneven impact of the crisis, continued cuts to fertilizer production in Europe and elsewhere, especially combined with drought conditions in many parts of the world, could disproportionately affect certain countries and possibly lead to increased levels of food insecurity.