You may have never heard of it, but this chemical compound is on the list of scarce products in the world and can have a significant impact on supply chains.
Urea shortages are already being felt in many parts of the world, including India, South Korea and Australia.
The first to suffer are farmers and truck drivers, but supply problems related to this product can affect all consumers.
Let’s explain why.
what is urea
It is a chemical compound found in urine, among other places.
This particular urea is produced in the liver.
But urea is also produced industrially for different uses, mainly as a fertilizer.
And also as a key ingredient in a product for diesel vehicles, needed to reduce pollutant emissions.
The main raw material to obtain this compound is gas, which through a chemical process is first converted into ammonia and then dehydrated to form urea.
What is happening
Urea is one of the most popular fertilizers, and world fertilizer prices have soared this year to levels not seen in more than a decade, according to the World Bank.
There are several factors that explain this unprecedented price increase.
First, it is driven by the high cost of energy, especially gas, an essential raw material for the production of fertilizer.
Furthermore, according to the World Bank, rising thermal coal prices in China have led to rationing of electricity use in some provinces and forced fertilizer factories to reduce production.
And in response, China and Russia, two of the world’s leading fertilizer producers, have imposed restrictions on fertilizer exports, seen as a measure to cool prices and secure domestic supplies.
On the other hand, we must take into account the impact of hurricane Ida, in August, off the coast of Louisiana, in the United States, which affected the production of natural gas and caused the suspension of the activity of chemical plants in the region, increasing shortages. of fertilizers on the market.
In this regard, the World Bank also highlights the impact of Western sanctions against Belarus, as this country is a producer of another key ingredient for fertilizers, potash.
Agriculture and food prices
One of the places in the world where the price increase and shortage of urea is felt the most is in India.
The Asian country is the main importer of urea, an essential product to feed its immense agricultural sector, which employs around 60% of the country’s workforce and represents 15% of the economy.
India imports approximately 30% of the roughly 35 million tonnes of its annual consumption of urea — and now the country’s farmers fear their livelihood is under threat.
Ultimately, this will have an impact on food prices, warns the World Bank.
“High fertilizer prices could exert inflationary pressures on food prices, raising concerns about food security at a time when the Covid-19 pandemic and climate change make access to food difficult.”
Threatened supply chains
The increase in the price of this chemical compound is not only being noticed in agriculture.
Urea is also essential for the production of diesel exhaust fluid, a solution used to reduce emissions in vehicles running on this fuel.
Its use in trucks is mandatory in some countries, such as South Korea and Australia — and this is affecting supply chains in both countries.
South Korean truckers are already suffering from urea shortages, and Seoul asked Russia for help earlier this week to secure supplies.
Warren Clark, director of Australia’s National Road Transport Association, told news.com.au that the country’s supply chain is under “extreme pressure”.
Australia imports 80% of the urea it needs from China.
“Without breaking the law, we might run out of the chemical by February of next year, but we think it might be sooner,” Clark said.
“We saw empty supermarket shelves during the pandemic, and this could be a lot worse.”
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