Last year saw up to 70% of Europe’s fertilizer plants shut down, as natural gas prices soared after the Russian invasion. Today, as the New York Times reports from Nigeria:
“Suleiman Chubado is not entirely clear what caused the price of fertilizer to more than double over the past year, but he is bitterly aware of the consequences. At his farm in northeastern Nigeria, he can no longer afford enough fertilizer, so his corn is stunted and pale, the scraggly plants bending toward the powdery earth.”
Unfortunately, these shortages were entirely predictable. And, in fact, they were predicted, as we noted here in April last year:
“Understandably, the World Bank and IMF’s warning about the risk of famine failed to hit the headlines…. But it is no less important because of that. Millions of people are set to starve as Russian/Ukrainian wheat output (29% of global production) is hit by the war, and fertilizer costs rocket along with gas prices.”
As the I.C.I.S. chart shows, Europe’s fertilizer output has had a very difficult 18 months:
- The problem is that natural gas is a key feedstock for most fertilizer
- It is the primary raw material for ammonia with 33 million BTU needed to produce 1 tonne
- And ammonia is the basis for nitrogen-based fertilizers, which are used to replenish nitrogen in the soil
With up to 70% of capacity shut down, farmers have faced an impossible dilemma::
- They either stop buying fertilizer, and see their crop yields drop
- Or they buy what they can afford and hope their customers can afford the higher prices
As a result, food and cereal prices have soared, as the Food & Agriculture Organisation charts show:
- Food prices reached a record 160 level last year, and are still equal to previous all-time high levels
- Cereal prices have seen the same effect, reaching a record 174 level, and are also equal to previous all-time highs
Everyone around the world is being affected by the problems. But it hasn’t been really noticed until recently, as fertilizer is used for next year’s crop.
But now it is being noticed, as food prices stay high in the shop, and consumers start to cut back. As the chart shows:
- The EU index – most affected by Ukraine – has risen from 100 to 150
- The US food price index has also been impacted, rising from 280 to 320
- Even the Japanese index has risen from below 100 to around 115
And, of course, the problems are not over. Natural gas supplies are still reduced in Europe and prices have recently spiked again to €55 MWh ($16/MMBTU).
With interest rates and energy prices still rising, consumers in the West – particularly poorer ones – face a major risk. Can they afford to heat their home over the winter and feed their family?
In the UK, for example, the use of food banks is soaring. One charity expects to provide 1m free food parcels between December and February next year:
“One in seven people in the UK face hunger because they don’t have enough money to live on.”
People in poorer countries such as Nigeria are already facing this dilemma, as the New York Times adds:
“Since February 2022, the price of fertilizer has more than doubled in Nigeria and 13 other countries…a sense of bewilderment is palpable alongside desperation.
“Farmers are shifting from growing staples like rice and corn to less valuable crops like soybeans and peanuts, which require less fertilizer. Thieves are stealing harvests. Wives are leaving husbands and returning to families with greater access to food. Parents are pulling children out of school for a lack of tuition money. Upward mobility has yielded to the imperative to hang on.”
Unfortunately, the problems look set to get worse rather than better. And the oil price rise caused by the Israel/Gaza crisis adds to the risks created by the Ukraine invasion. A difficult winter, and 2024, lie ahead.