Rising energy and raw materials costs over the last 18 months, combined with commercial, geopolitical and climatic factors, have caused a spike global fertilizer prices that threaten to disrupt agricultural markets worldwide.
After a difficult few years for US farmers there was hope in some circles that higher commodity prices might help bolster farmers' finances, but rising energy prices soon put paid to those hopes. The price of natural gas tripled between July 2020 and October 2021, having an almost equivalent knock-on effect on the price of most nitrogen fertilizers, for which gas represents the primary raw material and power source in production. Such is the impact of these price increases that many plants in Europe have simply shut down, with uncertainty about if or when they will start up again and the impact this will have on long-term prices.
Against this backdrop, and a time of unprecedented supply chain disruptions and labor shortages due to the pandemic, in May of 2020, American chemical company Mosaic petitioned the US Department of Commerce (DOC) and the US International Trade Commission (ITC), claiming that the Moroccan and Russian governments' subsidies on phosphorous gave these countries' manufacturers an unfair advantage over their American counterparts. On March 11, 2021, the ITC concluded that these subsidized fertilizer imports from Morocco and Russia had indeed harmed the US phosphate industry, deciding to impose countervailing duties on phosphate imports from Morocco and Russia for at least five years. The net result of this decision was for Moroccan producer OCP, and Russian producers PhosAgro and EuroChem, to withdraw from the American market, mechanically putting more tension on demand and raising prices.
The fallout following a diplomatic crisis with Belarus, which produces approximately 20% of global potash exports, has also had far-reaching, unforeseen consequences that have continued into late 2021. The USA and the EU effectively accused Belarus of hijacking a passenger jet in order to arrest a dissident journalist who was onboard, and the resulting sanctions imposed by the international community have meant that potash exports from Belarus to the U.S. have slowed to a trickle. Sensing the potential for future fertilizer shortages, another major exporter, China, also put the brakes on phosphate exports in late September, to ensure sufficient supply for its domestic production.
As if these economic and geopolitical factors weren't bad enough, Hurricane Ida also hit the south of the USA in August, causing nitrogen fertilizer production in Louisiana to shut down for several weeks and putting more strain on an already overstretched supply chain. This came off the back of Mosaic's decision to idle production at the end of 2019 due to low demand and prices. Things change quickly, and the unstable context of the past two years has underscored the risk of monopolistic markets; only a few dominos had to fall before the situation became critical.
In the short term, some American farmers, who had already been hit hard by President Trump's trade war with China - as well as growing competition from Brazil and a disastrous 2019 harvest - face potentially unsustainable pressure on their income. Agricultural export markets are shrinking (to zero in the case of soybean exports to China) and profits are dwindling due to rising land and farm equipment prices; with anhydrous ammonia prices up 208 % in the past year, diammonium phosphate up 84% and potash up 129%, farmers will be forced to decide whether fertilization is economically viable. "When all prices are going up, the tendency is to be more prudent in your input use," said Gary Schnitkey, professor of economics at the University of Illinois. In some cases it will no longer be profitable for many farmers to grow certain large-scale field crops. "If we maximized the yields and had some of the best yield that we ever had, we still wouldn't break even," said Rich Hillman, a farmer of nearly 30 years from Carlisle, Arkansas.
In an open letter to the ITC, the American Soybean Association, the National Corn Growers Association and the National Cotton Council of America jointly warned that the countervailing duties would "adversely affect crop production and farmer livelihoods... decreasing farmer income by over $800 million." Likewise, in a letter to the US Department of Justice, The Family Farm Action Alliance called attention to the "alarming spike" in prices charged by fertilizer manufacturers, going on to claim that "these corporations are using their monopoly power to raise and lower the price charged to farmers not based on basic supply and demand, but rather on the price the farmer is paid for their commodity crops," adding that "such abuses [leave] the farmer with no hope of profitability."
President Joe Biden addressed this concern directly in an executive order dated July 9, 2021, aimed at promoting competition in the American economy. In this executive order, he reiterates the importance of a "fair, open, and competitive marketplace" in "preserving America's role as the world's leading economy" and implores the Secretary of Agriculture to take prompt action.
The American Farm Bureau Federation's President, Zippy Duvall, has since urged the Biden administration to look for ways to bring fertilizer prices down by "resolving supply chain disruptions and removing import duties, so farmers can continue growing the food, fuel and fiber America relies on."
It is not that the government has completely abandoned agriculture; 40% of the agricultural sector's income comes from government subsidies, but according to the American Enterprise Institute, 70% of all subsidies flow to the largest 10 percent of all farms, which further consolidates the position of larger farm operations.
One can only hope that legislators can take appropriate action to protect all farmers' ability to make a living by fostering a truly robust and fair agricultural sector - it goes to the very viability of the American agri-food system.