The era of fertiliser diplomacy

When diplomats, politicians, journalist and food security experts say that the price of food is going to go up and up like a rocket. They don’t really shed light on the subject. Let me explain the technical aspect of the WHY’s. The crux is not scarcity of arable land or for that matter even lack of opportunity cost or even climate shock. Yes all these factors do certainly play a part in food shortfalls, but to lump them all under the umbrella term cost misleads and fails to acknowledge scale.

Let me start from the basics, to grow anything commercially (matters not what it really is), 3 main components of fertilizers are inescapable. They are nitrogen, phosphorous and potassium. All fertilizers in all their multitude of variations and forms are derived from these three periodic components.

Let us break down the first of these three, nitrogen. To manufacture nitrogen fertiliser, you absolutely need Russian gas simply because the process is energy extensive. It begins by mixing nitrogen from the air with hydrogen from natural gas at high temperature and pressure to create ammonia. The ammonia is used to make nitric acid, with which it is then mixed to produce nitrate fertilizers such as ammonium nitrate or it can be mixed with liquid carbon dioxide to create urea. You can do this with Saudi gas, but the cost will be at least six times more. The only country that can circumvent the complication of the gas hubris is the US and Canada. As a biproduct of shale oil is cheap gas. The rest of the countries are screwed. This includes China, EU and in the screwed list.

The second is phosphates. This has nothing to do with gas, but since only a few regions in the world have reserves of phosphates. If these countries encounter supply chain issues, they can disrupt supply. Both Russia and Ukraine supply 30% of the global demand for phosphates. One reason why phosphate supply is likely to run out is because most producers of this vital raw material have imposed a no export moratorium to ensure either price stability for the local market or because they foresee supply disruptions and have decided to stockpile.

The third and arguably the most important fertilizers component is potassium that really only exist in Belarus, Russia, Canada and Egypt (low grade, but still usable). Canadian and US growers guaranteed a steady supply, but the rest of the growers outside this geo sphere are likely to be screwed BC both Belarusian and Russian potash supplies have been so seriously affected by the war in Ukraine that normal trade conditions r unlikely to stabilise soon.

The primary reason why most sourcers and stockist and consumers remain unaware of the looming food crisis is BC at the present moment most of us are chowing on last year’s AGRI produce. But as fertilizer cost continue to go up and up, farmers all round the world will either switch to less fertilizer intensive crop or broadcast less of it. Either way global yield for 2022 is likely to be severely affected.

3 countries will emerge as exceptionally stable cereal crop producers thru out 2022 and beyond. The US, Canada and Australia (due to their special arrangement with the US). The remainder of the countries will see serious degradation in their AGRI outputs.