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What's behind the surge in fertilizer prices?

(c) B. Das/CIMMYT
05 Nov 2021

Fertilizer prices have increased sharply over the past twelve months, putting further upward pressure on food prices. The price spike has been dramatic for all types of chemical fertilizers, with prices for ammonia, urea, and DAP up by 200 percent, 145 percent, and 90 percent compared to a year ago. Likewise, the price of natural gas, which is a key input for energy-intensive fertilizer production, was up by 180 percent.

Why are prices going up?
Stronger demand and higher input costs are the main drivers of the recent spike in fertilizer prices. In anticipation of greater revenue, rising agricultural commodity prices earlier this year encouraged farmers to increase their use of fertilizer. This further tightened fertilizer markets that had already been affected by recent supply disruptions. In addition, rising prices in global energy markets have pushed up the cost of fertilizer production to a point where many plants decided to cut production or even shut their doors altogether.

Recent weather events have also played a role in driving up energy prices and contributed to fertilizer supply disruptions. Hurricane Ida shut down fertilizer plants in Louisiana (US), and an exceptionally hot summer worldwide increased demand for air conditioning and, hence, energy.

Trade-related actions have further intensified supply concerns. New hurdles in the form of additional inspection requirements for fertilizer exports were recently introduced by China - a key supplier of urea, sulphate, and phosphate. Other trade measures contributing to higher prices include the decision by the United States International Trade Commission to impose countervailing duties on imports of phosphates from Morocco and Russia as well as the economic sanctions imposed by the European Union, the US, and other countries on Belarus, which include restrictions on imports of potash from that country – a major potash producer.

Implications for global food security
The upward trend of fertilizer prices due to continuously rising input costs and recurrent supply disruptions is stoking concerns about global food security in the coming year. From maize producers in Brazil to wheat farmers in France, there is worry that fertilizer supply will not be sufficient for the next planting season. Recent reports indicate that Viet Nam’s Plant Production Department is encouraging rice farmers to cut fertilizer use by as much as half. If farmers cut back on fertilizer application because of high prices and shortages, smaller harvests may be forthcoming, which could drive up crop prices at a time when food prices have already reached levels not seen in a decade.

The outlook for fertilizer prices is hard to predict, though there are signs they could stay high at least over the next six months, as natural gas and other energy prices show little sign of easing. In Europe, wind power generation has been down because of low wind speeds, while liquefied natural gas production has fallen among major producers. Also, energy demand is expected to increase further to the extent economies continue to recover from the COVID-19 pandemic. Fertilizer prices may thus be expected to continue putting upward pressure on food prices in the near future.