Grain prices have fallen sharply from record highs reached after Russia’s invasion of Ukraine, but another threat to global food security remains: a shortage of fertilizers.
The conflict sparked famines in poorer countries that depend on agricultural supplies from Ukraine and Russia, two nations responsible for almost a third of world wheat exports last year.
Wheat prices peaked at almost 440 euros ($440) a tonne in the European market in mid-May, double the level a year ago when key Ukrainian supplies were stuck in port due to a Russian naval blockade of the Black Sea.
But prices fell to around 300 euros in August.
“The situation began to calm down in late May, early June with the first reassuring harvest forecasts for Europe and the resumption of Ukrainian exports, first by road and rail, then by sea,” said Gautier Le Molgat, analyst at Consulting Agritel.
Kyiv and Moscow, brokered by the United Nations and Turkey, reached an agreement in July that allowed Ukraine to resume grain shipments in the Black Sea.
The agreement opens a transport corridor for 20 million tons of corn, wheat and sunflower seed oil stored in Ukraine. According to the Joint Coordination Center that manages the sea corridor, more than 720,000 tons have already left Ukraine.
“Thanks to intensive international cooperation, Ukraine is on track to export up to four million tons of agricultural products in August,” a senior US State Department official told AFP on Tuesday.
– strong ruble –
In addition to bringing more supplies to markets and contributing to lower prices, the agreement has resulted in a reduction in insurance premiums and a reduction in transportation costs.
But the easing of tensions is benefiting Ukraine more than Russia right now, which is expecting a bumper crop of 88 million tons of wheat.
According to estimates by the Russian market research company SovEcon, Russian wheat exports in July and August were 27 percent below the previous year’s figure.
That’s because of fierce competition in the international grain market, the strong value of the ruble, and a high Russian export tax.
“As a result, farmers remain hesitant sellers,” said Andrei Sizov, Managing Director of SovEcon.
The low volume of Russian exports is one of the main reasons why wheat prices have remained so high, Sizov said.
– Fertilizer costs a growing problem –
One of the reasons prices haven’t fallen further is because of the surge in energy prices due to the post-pandemic and war recovery.
Higher oil prices affect transportation costs, while natural gas is a feedstock for making the chemical fertilizers most farmers use today.
“Fertilizer prices have tripled in the last 18 months and the hard part of my job is predicting what they’re going to do over the next 18 months,” Joel Jackson, fertilizer analyst at BMO Capital Markets, said at an analyst conference in July United States.
With European gas prices rising to over 300 euros per megawatt hour, compared to an average of 20 euros over the last few decades, “we have a big problem because it’s unsustainable for ammonia producers,” said Nicolas Broutin, head of Yara’s French subsidiary. the Norwegian company that is Europe’s largest fertilizer producer.
Yara announced on Thursday that it is again reducing its production in Europe of ammonia, which is made with hydrogen derived from natural gas and supplies the nitrogen in synthetic fertilizers.
The company will only use 35 percent of its production capacity in Europe. A number of other European manufacturers have either reduced or stopped production.
Although fertilizers are not covered by international sanctions, farmers also face the risk of shortages of another key element of fertilizers – potassium or potash – as both Russia and Belarus are major producers.
Joel Jackson of BMO Capital Markets said fertilizer manufacturers fear high prices will prompt farmers to reduce or stop their inputs altogether.
“We’re already seeing that across Europe,” said Nicolas Broutin of Yara.
CyclOpe, a France-based raw material research company, said: “It is in 2023-2024 that the increase in fertilizer prices and eventually their reduced use will be felt.”
Farmers will try to pass higher fertilizer costs on to consumers, driving up food costs.
Meanwhile, reduced fertilizer use will result in lower crop yields and harvests, which will also push up food prices.
In particular, CyclOpe anticipates “significantly reduced” production volumes in Africa, where both farmers and consumers are more price-sensitive.
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