The fertilizer supply chain is a mess

High demand, and heavy reliance on a limited number of suppliers

Supply chain and geopolitical turmoil caused a shortage of fertilizers available to farmers around the world resulting in skyrocketing fertilizer prices in 2022. If growers are unable to access the necessary amounts nutrients required to maintain crop production the global food supply is at risk of a drastic shortage. A sundry set of factors and circumstances over recent years have coalesced and manifested into a looming global catastrophe which could affect the food security of billions of people. Currently about 800 million face food supply insecurity and 44 million are facing hunger, a number that is expected to grow over the coming months. The U.S. is the third-largest producer of fertilizer globally, however, it still requires the importation of all three nutrients, especially nitrogen and potash, to fully meet demand. The result is that U.S. fertilizer dealers and producers pay the price defined by the global market for fertilizer and fertilizer materials, plus transportation.

Today, the U.S. only accounts for about 10% of global fertilizer use while fertilizer costs account for about 15% of total cash costs in the U.S. Despite producing a significant amount of nitrogen and phosphate fertilizers, the U.S. imports nearly 20 percent of all its fertilizer. This is mostly potassium-based fertilizers but also includes nitrogen and phosphorus fertilizers, some of which is manufactured into compound fertilizers to be re-exported.

According to the USDA:

  • China, Russia, the United States, India, and Canada combined produce more than 60 percent of the world’s fertilizer nutrients.
  • Russia and the United States each produce less than 10 percent of global fertilizers, while China produces approximately 25 percent.
  • China produces more than one-third of the world’s phosphorus, followed by the United States, India, Morocco, and Russia,
  • Two-thirds of all potassium reserves are supplied by only three countries: Canada, Russia, and Belarus.
  • The United States purchases 14 percent of its imported fertilizer from Russia and 3 percent from Belarus.

Because crop production uses these three macro fertilizers in some combination, almost every country relies on obtaining their fertilizers from the few countries with available fertilizers.

In 2021, growers saw fertilizer prices increase 165% from 20203, in 2022 some areas in the U.S. have reported fertilizer sticker prices increases as high as 300% with delivery times being at best uncertain.

Which factors are driving high fertilizer prices?

The high cost of fertilizer today is a result of various factors beginning with ongoing issues associated with the COVID-19 pandemic in which shutdowns, changes in operating procedures and ensuing labour shortages are still impacting agriculture and other industries. This coupled with increased global fertilizer demand has led to bottlenecks at ports and disruptions within the distribution network. Fuel prices are up increased along with trucking rates, while, at the same time, there has been an increase in the number of goods shipped at all stages (raw, processed and consumer-ready) and demand for goods delivered directly to end-users. This clogs distribution chains still catching up from pandemic slowdowns.

Natural gas is a vital component in the manufacturing process of ammonium-based fertilizers. By 2022, natural gas prices had risen over 300% prompting many fertilizer manufacturing plants (particularly in Europe) to shutdown. These plants take years to build and cost about $3-5 billion. The impact is the response time to fulfill a future surge in fertilizer demand will be delayed years and will carry a considerable price tag. The issue is further complicated as the EU grapples with ongoing debate to reduce its reliance on Russian natural gas.

Furthermore, various factors have reduced the quantity of fertilizer supplied by a number of the worlds most prominent fertilizer supplying nations. An ongoing heatwave in China resulted in greater residential energy use. Coal prices increased in China which led to the rationing of electricity causing fertilizer manufacturing plants to decrease production. China then imposed a quota on fertilizer exports in 2022 citing the need to ensure domestic availability and food security. This significantly reduced the global fertilizer supply. Moreover, the largest producer of phosphate in the U.S., Mosaic, won an anti-dumping case against companies from Morocco and Russia and after the trade duties were applied, imports to the U.S. from both countries declined. To make matters worse, in late August, Hurricane Ida shut down nitrogen production in parts of the United States, primarily Florida.

The conflict in Ukraine has caused a significant disruption to the fertilizer supply chain as numerous countries have imposed sanctions and import restrictions on Russia and Belarus. Russia has also enacted its restrictions on exports further reducing the availability of fertilizer. Add into the equation that Ukraine is a major grain and oilseed exporter who has historically relied on Russian fertilizer for its crop production. Prior to the pandemic, Ukraine exported more than $140 million of wheat to the U.S. A decrease in Ukrainian grain production would likely have significant on global food security. This is in addition to reductions in food production experienced by other major food producing nations.

The U.S., Brazil, China, and India are four of the world’s top five food producers, all of which in recent years have experienced severe drought conditions reducing global food supply. Meanwhile, Russia could experience bumper crops this year. Although food exports from Russia are not sanctioned, many firms are hesitant to trade with the country. Shortages in the global food supply of course result in elevated food prices, high food prices have never been a conduit for inexpensive fertilizer. If growers are unable to source enough fertilizer, global food production will likely continue to be depressed.

How will growers navigate soaring fertilizer costs?

In short, the factors effecting the global supply chain constraints and high fertilizer prices include:

  • Fallout from the Covid-19 Pandemic
  • Labour shortages and overworked food supply chains
  • High costs of energy sources such as fuel and natural gas
  • Increased global demand for fertilizer and decreased fertilizer availability
  • Severe droughts in multiple major food producing countries including the U.S. which has also damaged by hurricanes
  • International conflict and trade restrictions

The outlook for 2023 doesn’t appear to be much better, leaving growers with few options to navigate the soaring cost of fertilizer. Options include:

  • Applying less fertilizer might be the simplest solution by reducing input costs however growers may risk a reduction in yield.
  • Growers might elect to seed more acres to leguminous crops such as soybeans which would reduce their nitrogen requirement.
  • Look for alternative, domestic, or locally sourced fertilizers.

Fertify aims to fill this space by providing alternatives to conventional synthetic fertilizer, particularly P fertilizer. Fertify fertilizer blends rock phosphate with chicken litter in the form of a pellet to provide growers with a relatively inexpensive source of P as well as organic matter and other nutrients such as nitrogen, potassium and calcium. All Fertify ingredients are locally sourced and as such, Fertify is less constrained by international supply chain issues.

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