2024-05-06 23:57:50
Since its inception war in Ukrainethe EU may have reduced its dependence on Russia for natural gas from 45% to 15%, but it continues to buy another strategic commodity in bulk from Moscow: the fertilizers.
Russia exported 20.65 billion dollars worth of fertilizers to the EU last year, far outstripping second place Canada (13.73 billion) and China (11.38 billion).
Fertilizers are key element for the development of the agricultural sector and is therefore a critical good for the EU economy.
According to official data from Eurostat, the total imports of nitrogen fertilizers in the EU showed increase the 2022-2023 growing season and one third came from Russia.
Imports have increased even more this year and according to Eurostat, in February alone the EU bought 521,000 tonnes of Russian fertiliser, 16% more than last year and the highest figures since December 2022.
The European Commission explains that, although many fertilizers are subject to sanctions, “there is no ban on many categories of these products”.
Europeans are worried
The European companies in the sector have expressed concern about this trend. In December 2023, Norwegian chemical company Yara even claimed that “Russia and Putin are using fertilizers and food as weapons.” Svein Tore Holsetter o, the company’s general manager, said that “we should not be naive and we know what can happen next … if there are shocks in the supply we should not be surprised.”
Holsetter argued that Europe is in the same situation with fertilizers today as it was with energy just before the war in Ukraine. At the time, Germany and other countries in the center and east of the continent had turned to cheap Russian gas, making their markets more competitive. However, the conflict revealed that such a decisive commitment would leave these countries in a bad position if Russia decided, in the context of a geopolitical conflict, to turn off the tap.
“Europe has been able to reduce its energy dependence on Russia in a very short time, yes, but also at a huge cost and pain for households and companies,” Yara’s CEO explained, adding: “I am very concerned because almost as if sleepwalking, we are repeating exactly the same mistakes as with energy, with fertilizers.”
In theory, member states must revise their plans to gradually reduce their dependence on Russian fertilizers, which has not happened in the last year.
Vicious circle
Experts at the Energy Policy Center argue that it is precisely this nexus between energy, fertilizer, global food security and inflation that prevents more action from being taken and makes weaning off Russia impossible. “It’s a vicious cycle, electricity and fuel are consumed for irrigation, processing and packaging, while fertilizers increase crop yields.” Consequently, higher energy increases the price of fertilizers and, consequently, that of crops.
“The distortions that occurred in 2022 in the fertilizer market could cause a global crisis,” so it makes sense to want to mitigate this damage at any cost,” the Energy Policy Center reports. From lows in 2021, fertilizer prices shot up 165% in 2022, according to Bloomberg data. Since then, as the market has normalized after years of war, the value of this product has fallen by 48%. And, although they are still 30% above their pre-war levels, the reality is that they are already trading in a range much closer to their historical average.
Fertilizers and climate change
Heing Jaa de Zeuv, energy analyst at Rabobank, explained in a recent report that “European industry is experiencing a moment of drastic change, particularly in nitrogen, with an ambitious new climate regulation”. These factors mean that the sector is entering a completely decisive moment where it is already suffering from higher gas prices and is therefore also on the verge of significant risks.
The World Economic Forum goes a step further and argues that the war “caused shortages of essential crop fertilizers, undermining food security around the world.”
In this sense, the foundation points out that for this reason the same sanctions as with other critical products from Russia have not been imposed. “For these reasons, fertilizers have not been included in other measures designed to isolate Russia.” And, although there was a clear desire to reduce dependence on Moscow at the outset, the shortage has intensified “due to export restrictions imposed by China throughout 2023.”
The Asian country has cut fertilizer sales by 50% in 2022 and, to secure its supply, has banned some exports abroad. China accounts for nearly 30% of the world’s fertilizer supply.