War risks disrupting world fertiliser stocks
Sanctions against Russia may affect SA agricultural output
Russia is one of the major players in global agricultural markets. The country is a significant exporter of grains, and is integrated into global agriculture as a supplier of inputs, particularly fertiliser. The country is a leading world supplier of the key ingredients in a range of them.
It is therefore important to keep track of the impact of Russia’s invasion of Ukraine on various transmission channels, and the knock-on effects they could have on Africa’s agricultural markets.
So far, the focus has been on the supply and price of grains and oilseeds. The war presents upside risks to both because Russia and Ukraine make significant contributions to global exports of wheat, maize and sunflower oil.
There are also risks for countries that export to Russia. The country is the 13th-largest agricultural products importer in value terms. The key products Russia imports include citrus, cheese, bananas, wines, soy beans, apples, pears, beef and palm oil.
These are mainly sourced from a range of countries such as Belarus, Turkey, Brazil, Germany, China, Ecuador, Italy, Indonesia, France and Germany.in the case of South Africa, Russia accounted for 7% of its citrus exports in value terms in 2020. And it’s South Africa’s second-largest market for apple and pear exports.
But there’s a great deal more at play. Russia is the world’s leading exporter of fertiliser materials in value terms, followed by China, Canada, the US, Morocco and Belarus. These fertiliser mixtures include minerals or chemicals ranging from nitrogen to phosphorus and potassium.
In South Africa, fertilisers account for about 35% of grain farmers’ input costs.
As with the grains and oilseeds market, the actual disruption of export activity is yet to unfold.
But the sanctions that Western countries have imposed on Moscow, including the agreement to exclude some Russian banks from some global payment systems such as Society for Worldwide Interbank Financial Telecommunication (SWIFT), could negatively affect Russia’s trading activities.
This disruption could push fertiliser prices even higher than the spike experienced in the past 18 months. In some cases, for example with ammonia, prices rose by 260% between December 2020 and December 2021. This meant that farmers had to absorb substantial costs for the 2021/2022 crop across the world. The generally higher commodity prices, specifically grains and oilseeds, provided financial flexibility to absorb some of these costs, but not fully. The Russia-ukraine war will now be an added upside risk on prices for farmers.
For consumers, the knock-on effects will typically be through the size of the final harvest of the crop. Farmers are price takers and might therefore not necessarily pass on the input costs to consumers.
Fertiliser prices increased sharply last year and remained elevated this year. For instance, in January, the international prices of a range of key fertiliser ingredients shot through the roof.
Since January last year the price of ammonia has gone up by 220%, urea by 148%, di-ammonium phosphate by 90% and potassium chloride by 198%.
A range of factors have been behind these sharp input cost increases. These include supply constraints in critical fertiliser-producing countries such as China, India, the US, Russia and Canada. Rising shipping costs, and high oil and gas prices have also been contributing factors, along with firmer global demand from agriculture producers.
The Russia-ukraine conflict will add to these price pressures, particularly if Russia’s exports suffer as a result of the war and sanctions. The primary markets for Russia’s fertiliser material are Brazil, Estonia, China, India, the US, Finland, Mexico, Poland, Romania and Latvia.
Even countries with small direct fertiliser imports from Russia, such as South Africa, will feel the price pressures.