We are currently witnessing the beginning of a global food crisis, fueled by the ripple effects of a pandemic and more recently rising fuel prices and conflict in Ukraine. There were already obvious logistical problems with transporting grain and food around the world, which will now be considerably worse because of the war. But a more subtle relationship lies in the connection to the nutrients needed to generate high crop yields and quality around the world.
Crops are the foundation of our food system, whether they feed us or feed animals and without secure supply in terms of volume and quality, our food system is bankrupt. Crops depend on a good supply of nutrients to provide high yields and quality (as well as water, sun and healthy soil), which in modern farming systems come from manufactured fertilizers. As you sit and read this article, the air you breathe contains 78% nitrogen gas – this is the same source of nitrogen used in the production of most manufactured nitrogen fertilizers.
However, extracting this gas from the air and putting it into a bag of fertilizer requires an enormous amount of energy. The Haber-Bosch process, which converts nitrogen and hydrogen into ammonia as a crucial step in creating fertilizer, uses between 1 and 2 percent of all the energy generated in the world by some estimates. Therefore, the production cost of nitrogen fertilizers is directly related to the cost of fuel. This is why the UK price of ammonium nitrate has soared to £1,000 a tonne at the time of writing, from £650 a week ago.
Fertilizer inputs to agricultural systems represent one of the largest variable costs of producing a crop. When investing in fertilizer, a farmer must balance the return on that investment with the price he receives at harvest. Adding more fertilizer, for a small yield improvement, may not pay off at harvest.
This calculation between the cost of fertilizer and the value of the harvest produced – the “breakeven ratio” – is typically of the order of six for a cereal crop (6 kg of cereal needed to pay for 1 kg of nitrogen fertilizer) , but with the increase in the price of fertilizers it is currently around ten. To remain profitable, farmers will need to carefully monitor their production costs and potentially use less fertilizer. However, using less fertilizer will reduce yields and quality, adding pressure on the food system as a whole.
The bigger picture
The global food system was already under pressure. During the pandemic, as many economies emerged from lockdown and recovered, the rapid rise in activity increased demand for energy. Soaring gas prices have triggered a pause in fertilizer production at some UK facilities in 2021, causing prices to rise.
Given that many farmers buy fertilizer in advance, some may have escaped this rise and is therefore unlikely to have an immediate impact on food supply and prices. But while fertilizer production has restarted, global fuel prices have failed to recover and continue to climb.
This brings us to the current conflict in Ukraine. The latest sharp rise in fuel prices has a direct impact on fertilizer prices, which explains why the Food Price Index of the United Nations Food and Agriculture Organization (FAO) reached its value highest on record in February – and rising at the fastest pace since the 2008 financial crisis.
Even so, the February data only partially reflected the effects of the invasion, since it occurred late in the month and some price increases will be delayed: rising fertilizer prices will force farmers to either make an equivalent increase in crop prices at harvest or use less fertilizer. Higher grain prices at harvest will exacerbate inflationary pressures in the economy as the supply chain will eventually pass the costs onto the consumer in the form of higher food prices.
Russia and Ukraine are also major producers and suppliers of fertilizers and their raw materials. For example, the Norwegian group Yara, the largest producer and supplier of fertilizers in Europe, manufactures a large part of its products in Ukraine. Reduced Western trade with Russia and disruption of supply lines to Ukraine will therefore add a new layer of pressure to fertilizer production and supply.
Russia is responsible for almost a tenth of the world’s nitrogen fertilizer production. Russia also has a comparable share of phosphate fertilizers and, together with Belarus, about a third of potash production, although in many cases these are not applied to the soil every year and have much higher energy costs. lower, they will therefore have less immediate impact on yields and food production.
Vladimir Putin has explicitly linked the disruption in the fertilizer trade to an upcoming spike in food prices. The Russians have just announced a suspension of fertilizer exports to the West. With major markets in Brazil, China and the United States for Russian fertilizers, these global grain suppliers around the world will be affected.
Ukraine is also a huge agricultural producer in its own right, supplying significant quantities of grains and oilseeds to world markets (12% of world wheat and the world’s largest supplier of sunflower oil). So, at a time when many crops in Ukraine need to be sown or those already in the ground await fertilizers and pesticides, the disruptions will put further pressure on this year’s harvest and drive up food prices. Egypt, Turkey and Bangladesh are particularly at risk from Ukrainian and Russian grain cuts.
When you combine this with the impact of the pandemic and climate change (including extreme weather), it all adds up to a growing threat to food security. Even in 2019, before the pandemic, the FAO estimated that 690 million people, or 9% of the world’s population, faced food insecurity and suffered from hunger. Since then, the food price index has increased by 39%.
In this context, asking for immediate state intervention in the market is therefore natural. Yet government budgets are stretched sharply post-COVID, leaving little room for direct monetary support and contribution. Given recent promises to remove all Russian oil and gas from our imports, tough decisions lie ahead for governments, farmers and consumers.
In the medium term, it highlights the need to transform our food system, using more green energy. We should also encourage more sustainable diets, which contain fewer grain-fed animal products; and regenerative agricultural practices, which improve soil health and crop nutrient use efficiency.