The Fertiliser Trap | IATP

KEY FINDINGS

  • The cost of chemical fertilisers in both the global North and South has skyrocketed over the past two years and is putting severe economic strain on farmers’ and public budgets.
  • G20 nations paid almost twice as much for key fertiliser imports in 2021 compared to 2020 and are on course to spend three times as much in 2022 — an additional cost of at least US$ 21.8 billion. For example, the UK paid an extra US$ 144 million for fertiliser imports in 2021 and 2022, and Brazil paid an extra US$ 3.5 billion.
  • Nine developing countries are on course to pay three times more in 2022 than they did in 2020. These countries include Pakistan, which paid an extra US$ 874 million, and Ethiopia, which paid an extra US$ 384 million in 2021 and 2022.
  • The world’s largest fertiliser companies are making record profits as farmers struggle to cope with increased prices. Nine of the world’s largest fertiliser companies are expected to make US$ 57 billion in profit in 2022, up more than fourfold from two years ago; their profits in 2021 and 2022 are on course to come to a total of US$ 84 billion.
  • Actions must focus on reducing the consumption of chemical fertilisers and supporting alternative technologies — not increasing production. This will cut costs, and the damage which chemical fertilisers cause to the environment and the climate.

INTRODUCTION

The global food system is addicted to chemical fertilisers. For the past 50 years, these fertilisers have been heavily promoted by global institutions, governments and agribusiness as the means for increasing crop yields, while other options for increasing soil fertility and food production have been ignored or undervalued. As a result, worldwide use of chemical fertilisers has increased tenfold since the 1960s.1 Some credit chemical fertilisers for enabling global food production to keep up with population growth, but their use has come at a high cost.

Chemical fertilisers are, today, major sources of water and air pollution. Overuse is widespread and an important cause of soil health degradation; proper use requires support and extension services that are rarely available.2 Chemical fertilisers account for 2.4% of global emissions, or one out of every 40 tonnes of global greenhouse gas emissions.3

This year, the bill for these energy-intensive products has hit new heights. With the world in the midst of an energy and climate crisis, prices for chemical fertilisers are at record levels. Fertiliser corporations are using their market power to capture mega profits, while farmers and governments are scrambling to try and cope with the added costs, especially in the global South. High fertiliser prices are putting food production at severe risk in many places. In early October 2022, the United Nations warned that, if immediate action is not taken to bring fertiliser prices down, there could be a global shortage of food.4

The response so far from many governments is to look for ways to increase chemical fertiliser production. Not surprisingly, this is also the solution that the world’s largest fertiliser companies are promoting. When the G20 nations meet in Bali, Indonesia in November 2022, increased global fertiliser production is expected to be a major part of the agenda. In fact, the French President Emmanuel Macron plans to convene a preparatory meeting with the CEOs of the leading fertiliser companies ahead of the G20 gathering to find ways “to scale up production as fast as possible”.5

But increased production of chemical fertilisers will not resolve this crisis. The era of cheap fertilisers is over, and the costs have become too much to bear — both in terms of the financial burden for farmers and public budgets, the severe environmental and health impacts, and the long-term risks to food security. While some short-term actions can be taken to cut waste and address excess profit taking by fertiliser companies, it is critical that governments focus on reducing consumption in the long-term, including programmes to support farmers to transition towards environmentally-sound and more cost-effective alternatives.

HOW HIGH AND FAST ARE FERTILISER PRICES RISING?

A combination of factors, including the high cost of natural gas, the war in Ukraine and the oligopoly power of fertiliser companies, have caused prices for chemical fertiliser to double and in some cases even triple in the last two years.6 For example, in January 2020 Canada was paying US$ 225 for a tonne of urea from the Baltic, and by January 2022 it was paying US$ 814. Likewise, in January 2020 Mexico was paying US$ 280 for a tonne of diammonium phosphate from the US, and by January 2022 this had risen to US$ 810.7

To better understand the impact of these rising prices, we examined the wholesale costs of the three fertilisers imported in the greatest quantities to the G20 and a sample of developing countries for which data was publicly available (see Annex I for more detail about our methodology). Domestic costs and domestic production are not analysed because the data is not as readily available. This means that our findings only tell part of the story — the full extra global cost to governments and farmers is even higher than the numbers we show.

From our calculations, we estimate that G20 members (Argentina, Australia, Brazil, Canada, China, EU (including France, Germany, Italy), India, Indonesia, Japan, South Korea, Mexico, South Africa, Turkey, the UK and the US) paid at least US$ 21.8 billion extra for the three chemical fertilisers they import in the greatest quantities over 2021 and 2022, compared to 2020 prices. For these G20 members, this meant a 189% increase in costs for the sample of imported fertilisers in 2021, and on course for a 288% increase in 2022.

The developing countries sampled (Ghana, Ethiopia, Pakistan, Senegal, Kenya, Bangladesh, Zambia, Tanzania and Nigeria) together spent 186% more in 2021 and 295% more in 2022 for the same sample of fertilisers (a total extra bill of US$ 2.9 billion).

…(read more).

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