Rising costs linked to higher gas prices mean greater risks and could lead to lower production
Last modified on Tue 8 Mar 2022 01.02 EST
British food producers are facing surging prices for fertiliser, animal feed and CO2, which is used in packaging and the slaughter of livestock, as war in Ukraine disrupts exports from Russia and ramps up production costs.
Fertiliser prices are surging towards £1,000 a tonne, up from about £650 last week, linked to a surge in the price of gas – key to the production process – and panic-buying by farmers fearing the price will rise further in the coming weeks. The NFU said prices for nitrogen fertiliser were already up 200% year on year.
Farmers said they were likely to offset the price rises by buying less fertiliser than usual this season for cereal crops, potentially leading to lower production at a time when there is a threat to supplies from Ukraine, in peacetime responsible for 12% of the world’s wheat.
Matt Culley, a Hampshire wheat and oilseed farmer who is head of the crops board at the National Farmers’ Union, said the new surge in fertiliser prices was adding to pressure on farmers already hit by rising labour, fuel and feed costs. “We’ve been suffering agricultural inflation,” he said.
Culley said higher fertiliser prices meant greater risks for farmers because it would mean more investment in the face of other potential threats to the growing season, such as poor weather or a drop in demand without a guaranteed price for crops.
He said he planned to use 20% less fertiliser, but would plant a greater area of land with crops in order to try to maintain yields and support UK production. Culley said some farmers may try to use more organic fertilisers by partnering with livestock producers or those running anaerobic digesters, which make energy from organic matter.
While the UK produces about 40% of its own fertiliser, there are fears that plants may shut down operations as gas prices soar. That would also put a squeeze on the production of CO2 – released as a byproduct of the process – which is currently partly protected under an industry deal due to last until May.
Yara, one of the world’s biggest producers of fertiliser, which operates in 50 countries including the UK, has said it is making day-to-day evaluations on how to maintain supply and that it is too early to say if more shutdowns may be on the cards.
“Things are changing by the hour,” its boss, Svein Tore Holsether, told the BBC. “We were already in a difficult situation before the war … and now it’s additional disruption to the supply chains.”
Meanwhile, Russia is the world’s biggest exporter of synthetic fertiliser, supplying more than a fifth of urea, a key fertiliser used in the UK. It has put restrictions on exports, and supplies are also being dented by ships avoiding Russian ports while insurers will not cover the cargo amid fears it will be hit by a trade embargo.
Julia Meehan, head of fertilisers for the commodity price agency ICIS, said: “All everybody is talking about is availability. There are huge concerns.”
She said prices had been suspended for exports from the Black Sea region as distributors tried to judge the correct new price – an unprecedented situation that could also have a huge effect on costs for north African and Turkish importers.
“The only plus is that crop prices are now so high, farmers will be able to sell at a high price and technically they will have the money to pay for fertilisers,” Meehan said.
The situation is likely to throw the spotlight on a €455m deal by EuroChem, a conglomerate controlled by the Russian billionaire Andrei Melnichenko, to buy the nitrogen fertiliser business of Austria’s Borealis, which was agreed last month and is awaiting regulatory approval. The deal would extend the reach into Europe of EuroChem, which is a major producer of fertiliser in Russia, despite being headquartered in Switzerland.
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