Russia, Ukraine, Fertilizer, and Food Prices

Alternate Title: “U.S. Sanctions on Russia”, or, “How To Saw The Limb upon which You Are Sitting”

Fertilizer supplies may soon dwindle:

Fox Business News: “Russia, which accounts for about two-thirds of the world’s ammonium nitrate production according to commodity analysts at S&P Global, has halted exports until April to guarantee supplies for farmers at home.” [Source]

Ammonium Nitrate (AN) is the main source of nitrogen in artificial fertilizer. What happens if Russia resumes exports of AN? The effects of U.S. sanctions on Russia, as well as voluntary actions by U.S. financial companies may make it nearly impossible for the U.S. to buy AN from Russia, as there would be no practical way to pay for it. Russia has been banned from the bank-to-bank messaging system used to transfer funds, called SWIFT. This will certainly reduce the ability of Russia to import and export even items not specifically prohibited by sanctions.

What will the the consequences of reduced or absent AN exports from Russia?

“Russia is responsible for two-thirds of the 20 million metric tons of ammonium nitrate produced annually in the world and is, by far, the largest exporter of this commodity in the world. Declines in corn and wheat yields due to supply disruptions in ammonium nitrate-based fertilizers will increase food inflation, already above 6 percent in the United States. Russia is also the world’s largest exporter of wheat, while Ukraine is the third-largest exporter of corn and a top exporter of barley and rye, making the impact of this crisis especially hard on food markets.” [Source]

Fertilizer is essential to crop yields. From my book HungerMath: “In the developed world, 40 to 60% of crop yields are directly attributable to the use of artificial fertilizers.”106

[106] W. M. Stewart, et al., “The Contribution of Commercial Fertilizer Nutrients to Food Production”, Agronomy Journal, vol. 97, Jan-Feb, 2005, n. 1

Without fertilizer, crop yields could fall by about half, or more. The developed world, including the U.S., has higher crop yields for all the major commercial food crops than ever before. These very high yields depend heavily on the application of high amounts of fertilizer, as well as on the timing of that application. Delays in getting fertilizer to farmers means crops may be planted later than usual. The timing of planting is one of the factors substantially affecting yields. So even if fertilizer arrives, any disruption in the timing of arrival could lower yields.

And neither the U.S. nor much of the developed world has excess cropland available to offset lower yields. If yields fall by 50%, we cannot plant twice as much land to produce the same total amount of crop. We don’t have the land or the seed supply. For the U.S., vast amounts of crop seed is needed to produce vast amounts of corn and soybean for livestock feed, wheat, oilseed crops (for vegetable oil), rice, potato and other crops. Even a yield shortfall of 10 or 20% cannot be offset by planting a larger land area, for those reasons.

Worse still is the fact that farmers plant crops to make a profit. It doesn’t matter of people do not have enough food. A farmer and especially a large agricultural corporation is not going to plant and harvest a crop, if lower yields will mean a financial loss. A 50% lower anticipated yield will mean that many farmers will not plant at all. Even a modest decrease in yield could put the farmer’s calculation of profit or loss into the red. So without fertilizer, yields will not merely be lower, they could be zero.

Now you might think that lower supply will mean higher prices, allowing farmers to make a profit. But there are many farmers, and few buyers at that level of production and distribution. So it will still be a crop buyer’s market. The higher prices will not likely be high enough to offset lower yields, and therefore many farmers will not plant and harvest.

The result could be a run on the supermarkets, bare shelves for months or longer, and hungry people in wealthy developed nations, including the U.S., Canada, and the E.U. among other nations.

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