If you sell to people who eat, your prices are going up! The rush to ban or reduce Russian Natural Gas is going to push food prices up.
85% of Nitrogen demand is estimated to be for fertilizer. Natural Gas is a major source of nitrogen. So, the ban or reduction of Russian Natural Gas will directly affect fertilizer prices. It has already happened. Yara, one of the world’s biggest producers of fertilizer is already curtailing its production of feedstocks for fertilizer due to higher gas prices. (see story here)
Agricultural producers will either maintain their fertilizer use and raise prices or decrease their fertilizer use and sell their reduced output at higher prices. Either choice leads to higher food prices. Recent experiences show that Increasing fertilizer prices directly reduce crop yields by up to 20% as farmers reduce fertilizer use to reduce costs.
Land use and fertilizer use in the EU will be especially hit: 15% of land use for agriculture is wheat and 26% of fertilizer consumption is used for wheat. With the absence of Russia and Ukraine as middle eastern suppliers (increasing demand) price increases will increase even more with fertilizer costs driving usage down and yields lower.
Let’s not forget that the reduction of Russian Natural Gas also lowers total energy available. The production of fertilizers from natural gas is energy intensive. More than 20GJ/MT are consumed in the production process. The EU is currently dependent on natural gas usage for chemical and fertilizer plants (often using Russian pipelines as sources of natural gas). Yet the EU will be prioritizing heating as a use for natural gas, so there will be further pressure on pricing for the components of fertilizer.
If your enterprise will be affected by price changes and shortages, the time to prepare is now. Basic chemical stocks and energy shortages will affect not only consumers but manufacturers and suppliers.
If you’re an executive looking for help in presenting the challenges that this situation is creating, consider setting up a free session with a Senior Analyst at EkaLore – www.ekalore.com/contact
This is the fifth in a series of Back of the Envelope articles about the implications of Europe’s proposed reduction/ban of Russian Natural gas. Earlier posts explored the size of the shortfall, along with the logistics of replacing it from different parts of the globe.
We hope you’ve enjoyed the series.
Here are a few references for the article listed above:
An article on energy usage in US agriculture
An article about the priority of heat over other uses for natural gas in europe
Historical price spikes for nitrogen fertilizers
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