EActually, Burkhard Lohr has good news to announce. “The prospects for our business are consistently positive,” says the CEO of the mining company K+S – and, after a good year in 2021, announces significantly better figures for 2022.
The operating result of the salt and fertilizer group from Kassel should increase to 1.6 to 1.9 billion euros in the current financial year, Lohr reported when presenting the balance sheet. “That is more than double the number of the previous year. What’s more, it would be the best result in our company’s history.”
Nevertheless, Lohr sounds anything but enthusiastic. On the contrary: the manager speaks in a hushed voice and clearly concerned. “There’s a lot of talk about energy prices and energy security right now,” says Lohr, referring to the war in Ukraine and the sanctions against Russia. “I think we need to give at least as much thought to agricultural production and, as a result, to the global food supply. That really bothers me, it worries me a lot.”
Lohr is alluding to the sharp rise in fertilizer prices. True, this trend existed before the attack on Ukraine. The war, however, fueled inflation once again. In Brazil, for example, a standard potash product, which, along with nitrogen and phosphorus, is one of the most important types of fertilizer, now costs around $900 per ton. For comparison: before the start of the war it was still 800 dollars and at the end of 2019 it was only 300 dollars. “It’s a dramatic development,” comments Lohr.
K+S, after all the world’s fourth largest supplier of potassium, one of the main nutrients for plants, is benefiting from this in terms of sales and earnings. And the share price of the M-Dax group, which has been shaken for a long time, has been moving up significantly for weeks.
But Lohr is already thinking about the possible consequences: “I’m afraid that if the world community doesn’t help, especially in Africa, then we’ll have a terrible famine and with it a new refugee movement.”
The reason for this is the role of Russia and Ukraine in the global supply of food such as wheat or corn. Together they represent around a third of the grain traded worldwide. Currently, however, the goods are not reaching their destinations, which mainly include countries in Africa and the Arab world, but also the United Nations refugee program, due to the war-related closed ports.
According to the German Farmers’ Association, around 25 million tons of wheat and corn for the 2021 harvest from the region have already been contracted, but cannot currently be delivered. “These are dramatic numbers,” says Christian Janze, partner at the business consulting firm Ernst & Young (EY) and responsible for agribusiness there. “If the Black Sea region fails, the world’s supply will be severely affected.”
Especially since it has long been about the coming harvest – far beyond the region. Because Russia and Belarus are important suppliers of fertilizers. Around a third of global potash production comes from the companies Uralkali and Belaruskali, the numbers two and three on the world market. “There is a significant drop in production,” says K+S boss Lohr.
In any case, Belaruskali recently reported force majeur and can hardly deliver because exports are not possible via ports in the Baltic States or via the Black Sea region, and many shipping companies avoid Russian ports. And now Uralkali is also having logistics problems. At the same time, the Russian Ministry of Commerce recently recommended a temporary halt to fertilizer exports.
This mixed situation is now causing panic in many places. For example in Brazil, which, along with China and India, is one of the main buyers of fertilizers from Russia and Belarus. “Brazil’s agricultural industry is dependent on fertilizers from Eastern Europe, especially for the production of soybeans, corn and coffee, which are so important for the country,” says EY expert Janze.
And that ultimately affects consumers all over the world – as long as they drink coffee and eat meat. Because soybean meal from Brazil is used in many places as animal feed. Janze predicts that both will now be scarce and expensive. “Because without the necessary fertilizer, the harvests are likely to be significantly smaller.”
And replacements are hard to come by. Neither K+S nor other potash producers see themselves in a position to compensate for the short-term losses of Belaruskali and Uralkali. “You cannot increase production at will within months,” explains CEO Lohr. Only small steps are possible. For example, more than a decade has been scheduled for the planned doubling of the annual output of the new K+S plant in Bethune in Canada from two to four million tons.
And potash is only part of the fertilizer problem. The additional nitrogen products required have also become massively more expensive because they are produced using natural gas. And its price is literally galloping away – after it had been steadily increasing before. Not every farm can or wants to follow suit. Poor harvests are therefore inevitable.
The farmers’ association is already sounding the alarm. “We are entering a phase of uncertainty,” says Udo Hemmerling, the association’s general secretary. Especially since the fertilizer problem is global and affects every region of the world.
The price is only one dimension. Europe is also dependent on the gas drip. “If the gas supply is interrupted, it is critical for fertilizer production,” says farmer representative Hemmerling. In the European Union (EU), around 80 percent of the required quantities are produced in-house. However, Hemmerling knows that the gas from Russia is required for this production. “Politicians must therefore develop an emergency scenario so as not to endanger production.”
Advisor Janze would also like more awareness of the political dimension of the fertilizer issue. “Agricultural policy is security policy – at least as much as energy policy is,” says the EY expert. That must now also reach the decision-makers. “Unfortunately, the topic has not been viewed from strategic perspectives for far too long. Otherwise, many countries would have created fertilizer reserves, as is the case with energy with state oil reserves,” criticizes Janze.
In Germany, according to the consultant, this is related to the “much too one-sided” discussion about fertilizers. Only the environmental impact is looked at – although the use of data-supported smart farming has long since been optimized and thus greatly reduced. “In any case, we will still have to question a few things about climate and agricultural policy in Germany if the food supply is to remain secure,” says Janze. His suggestion: particularly intensive agriculture on high-yield areas with simultaneous renaturation and mooring of fields that usually have low yields.
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