Fertilisers are an essential element of the agrifood chain, allowing farmers to improve the yield and quality of their crops. Due to recent events, the fertiliser market in the European Union (EU) has faced challenges regarding the availability and affordability of its agricultural inputs, which has raised concern for food security.
During a seminar held in Brussels in late March, an EC source highlighted the key issues impacting fertiliser production, accessibility, and affordability and outlined the measures taken to ensure food remains easily accessible to EU citizens. Decreasing dependence on imports of essential inputs used to produce fertilisers, including natural gas, potash, and phosphate; promoting sustainable production; and using organic fertilisers will be key in building agrifood resilience moving forward, the EC source said.
Shocks in the price of natural gas cause volatility in EU fertiliser markets
The EU depends on imports for 30%, 68% and 85% of its consumption of inorganic nitrogen, phosphates, and potash nutrients respectively, according to the EC. Russia, the world’s largest exporter of nitrogen-based fertilisers, second largest of potassium, and third largest of phosphorus, is a key power in global fertiliser markets and a major supplier to the EU.
The cost of natural gas, which is used to produce nitrogen fertilisers, is a major driver of fertiliser prices globally. Following Russia’s invasion of Ukraine in February 2022, the price of natural gas in Europe spiked at approximately $42 per metric million British thermal unit (MMBtu). This was followed by an unprecedented peak in August 2022, when gas prices in the EU rose by 1,000% compared to previous decades, EU data shows.
A price spike lasting five consecutive days from 22 to 26 August saw gas prices hit an all-time high of €300 per megawatt-hour (MWh), impacting farmers’ ability to purchase fertilisers and inciting several negative consequences for the EU economy and food security.
Since then, natural gas prices have fallen dramatically by 87% bringing relief to many EU nations, particularly the central European emerging markets of Poland, Hungary, and the Czech Republic, known as the CE3, data from asset management firm Schroders shows.
This decline was aided in part by the introduction of the EU Communication 590 (COM/2022/590) on ‘ensuring availability and affordability of fertilisers’ in November last year. Nevertheless, the high volatility and dependence on imports of the EU fertiliser market is an important issue that the EC must continue to address and adapt to moving forward, the EC source said.
EU dependence on potash and phosphorus imports threatens food security
In addition to natural gas, the EU fertiliser market is heavily dependent on imports of potash and phosphorus, with Canada, Russia, Belarus, China, and Morocco being the main sources, according to the EC. Fuelled partly by supply chain issues resulting from the Ukraine war, as well as a decline in domestic production, the EU saw a reduction in the availability and affordability of these two important inputs over the past months.
From April 2021 to 2022, the monthly average prices of the most used fertilisers in the EU rose significantly, with prices beginning to level off in September 2022 but continuing to remain higher than usual thereafter, said the EU source referring to data from S&P Global Commodity Insight. The same data shows that over a one-year period, the price of potash and nitrogen almost tripled, reaching around €800 per tonne in April 2022, while the cost of phosphorus more than doubled from €520 to €1,110 per tonne.
According to EC data, this resulted in a significant 10 to 15% decrease in the use of potash and phosphorus, as well as a less severe 5 to 10% reduction in nitrogen use, by European farmers.
The past months have shown that the dependency on imported fertilisers paired with decreasing domestic production makes the EU highly vulnerable to price increases and supply disruptions. This poses serious consequences for future food security on the continent as farmers struggle to manage increased input costs and produce consistent crop yields, the source said.
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Operational costs for EU farmers soared last year, but have since decreased
Despite the fall in the use of potash, phosphate, and nitrogen, the cost of fertilisers soared from the third quarter of 2021 to the same period in 2022. From September 2021 to 2022, the price of fertilisers for EU farmers rose by 149%, representing the greatest increase of all agricultural inputs since 2017, EU data shows.
The increased input costs for farmers have had a significant impact on their bottom line, with fertilisers accounting for around 6% of total farm input costs between 2017 and 2020. However, rising inflation and the increasing cost of agricultural goods during this period has meant that since the last quarter of 2020, agricultural goods output has maintained an upwards trajectory with the rapidly increasing input costs, rising by approximately 50% from the end of 2020 to the third quarter of 2022, the source said.
While incomes for arable farmers have remained relatively stable, cattle farmers have faced additional challenges due to the extra cost of animal feed. It is expected that both input and output prices will continue to decrease in 2023 yet predicting who will gain or lose will remain a challenge, the source said. For some European farmers, the year ahead may be a difficult one, they noted.
How the EU plans to increase the accessibility and affordability of fertilisers
The EU Communication 590, issued in November last year, aims to address these challenges by covering several areas, including energy, financial support, market transparency, and trade diversification in the short term, as well as better nutrient management, organic fertilisers, biomethane, and sustainable production in the long term.
Through a combination of measures, the EC aims to increase the availability and affordability of fertilisers, reduce dependence on imported fertilisers, promote sustainable agricultural practices, and enhance market transparency and competition within the EU.
Despite the challenges, there is some optimism for the future of fertiliser markets and its impact on food security in the EU. Since the fertiliser communication was first drafted in September 2021, the situation in Europe has improved, with fertilisers becoming more accessible and affordable in recent months, the source said. Although the EC is less pessimistic about the supply of agricultural inputs moving forward, it is still essential to be conscious of the challenges ahead, they noted.
The EC recognises that it needs to take a long-term approach to address the challenges of fertiliser markets, of which sustainable production must be at the forefront. While the communication on fertilisers is a positive step, more time will be needed to implement it and assess its efficacy.