Universal fertilizer: is Russia at risk of losing harvest in 2022 | Articles
The energy crisis in the world tangentially touched other industries, producing a domino effect. Among others, the most problematic was the mineral fertilizer industry, which is heavily dependent on the sharply increased price of natural gas. Businesses across Europe and beyond have suspended operations, with some shutting down indefinitely. Russia, which is a major exporter of fertilizers, also posed a potential threat. There are fears that a deficit will arise in our country, since it will be more profitable for domestic producers to sell good products abroad, which is stronger in the national agro-industrial complex. Izvestia has analyzed to what extent such a threat is justified.
Back in mid-September, when gas prices were reaching $ 700 per thousand cubic meters, a large fertilizer producer, the American company CF Industries announced the temporary closure of factories in the north of England, which together provide about 40% of fertilizer consumption in agriculture in the United Kingdom. The company immediately announced that the stop was made for an indefinite period.
Soon, the continent faced similar problems. German SKW Stickstoffwerke Piesteritz in early October due to high prices reduced production by 20%. Measures were also taken by other manufacturers. October 13 Jacob Hansen, CEO of Fertilizers Europe, an association of 17 EU fertilizer producers, in an official statement warnedthat if the energy crisis is not resolved quickly, production interruptions will turn from temporary to permanent, and hinted at the need for government assistance. Producers of fertilizers, especially nitrogen fertilizers, have become hostages of the current prices for energy carriers – in their costs, gas raw materials account for 70 to 90%.
Unlike the UK, which is largely dependent on foreign food supplies, the European Union is self-sufficient in the agrarian sense. Moreover, it is one of the key suppliers of Food in the world. Highly productive agriculture on the continent can do without large quantities of fertilizers, and a shortage of fertilizers could wreak havoc on European farmers. When up to 40-50% of the internal capacities of agrochemical enterprises do not work, the likelihood of such an outcome increases markedly.
Problems also started far from the European continent. In India, fertilizer shortages have been found in several states. Somewhere happened riots involving farmers and even plundering warehouses. As a result, the government began distributing fertilizer to peasants directly through police stations.
In the United States, prices for fertilizers and their components in the past few months have grown one and a half to two times. Gas in America is cheaper than in Europe and Asia.
In this situation, the eyes of consumers turned to Russia. … Total supply in monetary terms big $ 8 billion. Note that production in the country is a multiple of the needs of even the current rather rapidly growing agricultural market: over 70% of the output is shipped abroad. Despite the surplus of fertilizers in Russia, the prices for them have started to rise since last year, and for the first time the problem emerged before this year’s sowing season.
After disputes and meetings of manufacturers, including the best market players (Uralchem, Uralkali, Fosagro), they decided to freeze prices (already quite high) until the end of the harvesting campaign, that is, until October 31 of this year. Farms were given a 5% discount.
A few weeks before the period of fixed prices, agricultural producers again began to express fears about the probable shortage or at least a significant increase in the cost of fertilizers. The Ministry of Agriculture expressed concern about a sharp increase in supplies abroad (by the way, the key consumers of Russian fertilizers are not Asian countries and Brazil) – from 18 million to 24 million tons.
The following media reported that Russia could “be left without a crop” next year. In turn, fertilizer producers supply the Russian agro-industrial complex to meet the entire demand for the current year by 95% by mid-October. Moreover, the Russian Association of Fertilizer Producers (RAPU) stated that farmers are already purchasing for the spring. Industrialists, that the share of fertilizers in the cost of the Russian agro-industrial complex is not so great, government regulation can put an end to its development.
Now the government is working out scenarios for the Russian economy protection from the energy crisis. At the last meeting on October 25 with Prime Minister Mikhail Mishustin, various options were discussed, including continuing to freeze prices until May, keeping prices at an average level minus transportation costs and monthly quotas for the supply of fertilizers to the domestic market.
There is no threat to the harvest-2022 at the moment, the analytical center Rusagrotrans told Izvestia in an interview. The center noted that part of the stocks of fertilizers for the spring have already been accumulated. Winter sowing will be lower, but mainly due to under-sowing in the Volga region due to drought. In the south, sowing is in excess of last year’s record. Current levels of grain prices allow operating with sufficient profitability even taking into account fertilizer prices from the end of last year. Grain harvest next year.
According to Denis Ternovsky, a leading researcher at the Center for Agri-Food Policy of the Institute for Applied Economic Research (IPEI), RANEPA, the government is unlikely to agree to such tough restrictions as an embargo on the export of fertilizers.
– The share of domestic volume in the volume of production in recent years has been in the range of 1 / 3–1 / 4. Talking about the export embargo, there are no conditions on the domestic market for a multiple increase in consumption. Duties on the redistribution of income from rising prices for ease of use of agricultural producers and the state, as well as restrictions on trade, can entail losses for the economy, the specialist explains.
Ternovsky believes that extending the price freeze is the best solution for everyone: farmers will receive fertilizer at affordable prices, and fertilizer producers will be protected from potential tightening of export policies that could jeopardize their core income.
Director of Corporate Ratings at Expert RA Philip Muradyan suggested that taking into account the experience with fertilizer producers in the domestic market new agreements on freezing prices for agricultural producers can be expected to be signed.
– The domestic automotive fuel market faced a similar situation earlier. Then the decision was also made to freeze prices, which can be used as a replacement for the damping mechanism of compensation payments. It cannot be ruled out that something like this may one day appear on the fertilizer market.
In turn, the chief analyst of TeleTrade Petr Pushkarev allowed the limitation of fertilizers, since the situation is “very serious”.
“But it is necessary to introduce export-restraining regulation very thoughtfully, not hacking from the shoulder, using fine-tuning,” he said. – Errors in the system of control over pricing and food supply have already turned into problems for many citizens of the country, especially those with low incomes, and aggravating them would be fraught with consequences. It is unlikely that it will be possible to cope with the problem of a probable shortage of fertilizers, since the customs duties, which are loved by the Cabinet of Ministers lately, are unlikely to be overcome, since the duty cannot be overcome with internal prices for fertilizers and world prices, it is too high.
According to Pushkarev, export duties are too high, it is only possible to deprive domestic fertilizer producers of their, in general, well-deserved additional income, which can work and use the further development of the plans of manufacturing plants, and for the Russian budget in tax form – which means, ultimately, for the social needs of the population and the goal of accelerating the rest of the country’s economy.
The analyst believes that, having satisfied the desire of fertilizer producers to obtain excellent export profit margins, it would be absolutely correct and honest to put in exchange a prerequisite on the part of the government.
– It is necessary to establish strict quotas on export volumes for each plant and wholesale company, and in proportion to the volume of fertilizers sold by them for the reporting period within the country to their agricultural producers and already at a low internal price regulated from above, says Pushkaryov.