Impacts and Repercussions of Price Increases on the Global Fertilizer Market

June 30, 2022 | International Agricultural Trade Report

Report done by USDA Foreign Service

Executive Summary

Global fertilizer prices are at near record levels and may remain elevated throughout 2022 and beyond. Fertilizer prices account for nearly one-fifth of U.S. farm cash costs, with an even greater share for corn and wheat producers. Fertilizer accounts for 36 percent of a farmer's operating costs for corn, and 35 percent for wheat. These elevated prices could have implications for crop production in 2022 and 2023.The Russian invasion of Ukraine has exacerbated the already limited fertilizer supply situation and has triggered import-export restrictions that will compound shortage concerns.

The United States is a significant producer of nitrogen and phosphorus yet imports large quantities of potassium-based fertilizers. Although fertilizer prices began increasing in 2021, many U.S. producers were able to avoid the later surge in fertilizer prices caused by Russia’s invasion of Ukraine, because fertilizers for 2022 plantings were purchased in 2021. However, as the Russia-Ukraine war continues, the impact of fertilizer prices could likely take a heavier toll on 2023 agricultural production decisions, domestically and abroad.

This report examines the global fertilizer landscape, with a focus on the three main macro-fertilizer groups—nitrogen, phosphorus, and potassium (NPK). We look at (1) the major suppliers; (2) the major users; (3) the major exporters and importers; (4) the impact of the Russian invasion of Ukraine; and (5) discuss how the United States fares relative to other countries.

Introduction

Current fertilizer price increases are reminiscent of the Great Recession period (Chart 1), when prices nearly doubled across all major fertilizer groups at the end of 2007. At that time, fertilizer prices were fueled by rising demand in many emerging markets, increased use of corn and other crops for biofuel production in the United States, Brazil, and Europe, the surge in energy prices, and Chinese fertilizer export tariffs. However, fertilizer price increases during the Great Recession were short-lived once the demand for fertilizer fell, due to a decline in global agricultural trade coupled with slowing economic growth and low commodity prices.

Much like the period of the Great Recession, similar issues have fueled higher fertilizer prices in 2022. Global fertilizer demand remains strong. Some countries have reduced their fertilizer use since 2007, but many have continued to increase their crop nutrient use. While the United States’ share of global fertilizer demand has dropped from 20 percent to 10 percent since 2007, many of the emerging markets have stepped up their use of fertilizers.

The surge in natural gas prices in the middle of 2021, especially in Europe, resulted in a reduction in producing ammonia—a key input of nitrogen fertilizer production. Coal price increases in China also led to a rationing of electricity usage, causing some fertilizer production plants to decrease production. This resulted in China imposing a quota on fertilizer exports, particularly phosphates, until June 2022, citing the need to ensure domestic availability and food security. China’s suspension of fertilizer exports significantly diminished the global supply.

Numerous factors have worsened existing supply chain disruptions caused by COVID-19. These include export restrictions enacted by Russia and China, plus international sanctions on Belarus and on Russia. Russia and its ally, Belarus, are both major fertilizer suppliers to the global market. Recently, many countries have imposed restrictions on Russian imports. In response, Russia imposed initial restrictions on nitrogen and complex nitrogen fertilizer exports through June 2022. As of May 23, 2022, the Russian government increased the current six-month quotas on some fertilizer exports. Thus, expanding nitrogen fertilizers by 231 thousand tons to 5.7 million tons, and expanding complex or compound nitrogen-containing fertilizers by 466 thousand tons to 5.6 million tons. A decree released on June 1, 2022, codified the Russian government’s intent to maintain fertilizer export quotas through the end of 2022. Supply issues may contribute to elevated fertilizer prices for a prolonged period, as the conflict between Russia and Ukraine continues.

Fertilizer Supply Outlook

Combined, China, Russia, the United States, India, and Canada produce more than 60 percent of the world’s fertilizer nutrients (Chart 2). Russia and the United States each produce less than 10 percent of global fertilizers, while China produces approximately 25 percent. The degree of concentration in production increases with individual components of the NPK complex. Ten countries produce 71, 86, and 95 percent of N, P, and K fertilizer, respectively.

Nitrogen fertilizers are primarily made from nitrogen in the air and produced by the Haber-Bosch process. The Haber-Bosch process is the main industrial procedure to produce ammonia, combining nitrogen from the air with hydrogen under extremely high pressures and temperatures. The process requires lots of natural gas. Given the availability and price of natural gas, many countries are limited in their capability to engage in such extensive production.

Phosphorus and potassium are mined minerals; such reserves are not available in many countries. China produces more than one-third of the world’s phosphorus, followed by the United States, India, Morocco, and Russia, respectively. Combined, these five countries produce more than three-quarters of the global supply of phosphorus.

Potassium production is the most concentrated. Two-thirds of all potassium reserves are supplied by only three countries: Canada, Russia, and Belarus. Canada produces approximately one-third of the global potassium supply, while Russia and Belarus combined produce the other third. Because crop production uses these three macro fertilizers in some combination, almost every country relies on obtaining their fertilizers from the few countries with available fertilizers.

Where and How are Fertilizers Used?

Although fertilizer production is highly concentrated, fertilizer use is dictated by soil composition and the crop being produced. As a result, fertilizer use is widely distributed globally (Chart 3). Some countries are heavier users of fertilizers on a per hectare basis than others. Based on the 3-year average data (2017-2019) from the International Fertilizer Association (IFA), China is the largest user of fertilizer, using nearly one-quarter of global fertilizer supplies. India, another large fertilizer producer, is the second largest user. Much of India’s usage is fueled by the Indian Government’s heavy subsidization of fertilizers. The United States accounts for approximately 10 percent of global fertilizer usage with most of it being used in grains and oilseed production. The share of global usage of individual NPK components does not significantly differ from the share of overall fertilizer use.

A country’s fertilizer usage is affected by many factors, including, but not limited to the type of crop, and a fertilizer’s price, availability, and adoption rate. China is the largest consumer of fertilizer on a per hectare basis, consuming more than 340 kilograms. Brazil is the second largest user, consuming 246 kilograms per hectare, nearly twice what is consumed by the United States. Sub-Saharan Africa (SSA) remains the smallest consumer of fertilizer, consuming less than 20 kilograms per hectare on average.

Fertilizer usage does not only vary by country and by crop, but also by the method of application (Table 1). Most of the direct application of ammonia happens in North America. Fourteen percent of all U.S. fertilizer application is in the form of direct ammonia, which accounts for nearly one-quarter of all nitrogen fertilizer application. Mexico and Canada apply 11 and 10 percent of their fertilizers as direct ammonia, respectively. Ammonia accounts for 17 and 16 percent of Mexico and Canada’s used nitrogen, respectively. Ammonia is typically used in grain production’s pre-planting stage. Brazil, Argentina, and China have yet to adopt direct ammonia application. Australia’s use of direct ammonia is negligible. China continues to be a heavy user of blended fertilizers, consuming nearly half of its fertilizer in some combination of nitrogen, phosphorus, and potassium.

Major Fertilizer Exporters and Importers

The main fertilizer exporters fall along the line of the highly concentrated producers (Chart 4). The fertilizer sector is vulnerable to disruptions, because there are few exporters. Five countries/regions export more than 60 percent of all fertilizers—Russia, Canada, the European Union, China, and Belarus. Five countries/regions export approximately 60 percent of nitrogen fertilizers—the European Union, China, Russia, Qatar, and Saudi Arabia Five countries/regions export more than 75 percent of phosphorus fertilizers—China, Russia, the European Union, Morocco, and the United States. Five countries/regions export more than 90 percent of potassium fertilizers—Canada, Russia, Belarus, Morocco, and the United States. Russia and Belarus command nearly 25 percent of the global export market share of all fertilizers. Combined, they supply more than one-third of global potassium exports, a vital product that few other countries have at their disposal on which most countries rely to make fertilizer blends. However, Canada is the largest exporter of potassium fertilizers, accounting for approximately 35 percent of all exports. Disruptions from any of these major exporters may cause significant fertilizer shortages and increases in prices.

Fertilizer imports are normally dictated by a country’s crop production area, and the type of crops being produced. A country’s blending facilities influences its imports, since it needs nitrogen, phosphorus, and potassium to manufacture blended fertilizers. Large crop producing areas—such as Brazil, Canada, and Mexico—heavily depend on imported fertilizers; Brazil, Canada, and Mexico each import more than 60 percent of their fertilizer. The United States imports nearly 20 percent of all its fertilizer, despite producing a significant amount of nitrogen and phosphate fertilizers. Much of its imports are potassium-based fertilizers, but it also imports nitrogen and phosphorus. Some of these imports are likely being used by manufacturing and blending facilities to make compound fertilizers, some of which are re-exported (Chart 5).

Except for the aforementioned countries, the rest of the world imports approximately 25 percent of its fertilizer. The relatively small volume of imports is likely due to two factors. First, most of the countries in the ‘rest of the world’ category have low fertilizer application rates. In comparison, on a per hectare basis, Sub-Saharan Africa (SSA) uses 7 percent of the fertilizer used by the United States and 5 percent of the fertilizer used by China. Second, Qatar, Saudi Arabia, and Iran are in the top ten global nitrogen producers, while Morocco is a leading phosphorus producer.

Russia and Belarus play critical roles in the global fertilizer market, accounting for nearly 20 percent of global exports. Mexico and Brazil receive more than 25 percent of their imports from Russia and Belarus—a considerable dependency. The United States purchases 14 percent of its imported fertilizer from Russia and 3 percent from Belarus. Because Russia and Belarus are two of the limited suppliers of potassium-based fertilizers, economic sanctions on Russia and direct sanctions on Belarusian potash are negatively impacting the global potash supply.