Stunted growth
Making fertiliser affordable is an urgent need to avoid a food inflation crisis. European producers are stopping and starting output because of soaring natural gas prices. The spiking cost of the input for churning out ammonia and urea means the crucial crop nutrients are unaffordable for many farmers. State aid can help if it arrives on time.
Ammonia and urea help farmers turbocharge their output, enhance leafy growth, and make plants look lush. Supplies are under threat because Russia is the second largest producer of ammonia, urea and potash. Elsewhere, Norway’s $14 billion Yara International, one of the world’s biggest fertiliser makers and present in more than 50 countries, has just restarted production in Italy and France after curtailing it last month. Austria’s Borealis cut its ammonia production around the same time and was considering a halt for economic reasons.
Cash-strapped farmers operating on wafer-thin margins are compounding the disruption. Urea Egypt futures prices are at $1,010 per metric tonne. In 2020 the price was $246. A large farm in Europe, of say 120 acres, would need to spend over $1,000 on urea in 2022, assuming it uses 20 pounds (9.1 kg) of urea per acre. In 2020, the same farm would have paid about $270.
To avoid the hefty costs, farmers are stretching out their existing stocks and hoping yields don’t suffer. Given that urea is typically spread on crops in the winter months in Europe, lower yields may only become apparent next year. Production cuts, even temporary ones, will spur a vicious cycle. If less fertiliser is available, that will further drive up prices.
To ensure steady supply, rich-world governments could subsidise the costs of Yara and other fertiliser makers, as politicians in poorer countries routinely do. Taking emergency action to bring urea prices back down to non-stressed levels where they were two years ago would cost over $140 million per month based on Europe’s consumption in 2019. But urea only accounts for some 20% of nitrogen-based fertiliser consumption, per Fertilizers Europe, so the actual bill would be a lot higher.
The stop and starts of private companies make efforts to construct aid harder, and European governments are laser-focused on immediate crises like keeping the continent’s lights on. But officials will rue their inertia if they wait for crops to fail.