Fertilizer crisis with war in Ukraine makes government anticipate national plan for the sector

The government launched this Friday (11) the National Fertilizer Plan. With 195 pages and more than a hundred goals between 2025 and 2050, it was organized to be a reference in the sector’s long-term planning.

Basically, it aims to expand the exploitation of inputs in local mines and increase the production of fertilizers in national factories to reduce international dependence, based on changes in the regulatory and tax framework, as well as the granting of subsidies and public financing.

At the plan’s launch ceremony, at the Planalto Palace, Bolsonaro said that the war in Ukraine was decisive in speeding up disclosure. “We know about these problems [sobre fertilizantes]. The solution was maturing, this question at 10,000 km was obviously the last act.​

Bolsonaro and ministers also defended the project that allows mining on indigenous land. Part of the Brazilian reserves is in the Amazon region and there have already been clashes with indigenous people and the Public Ministry about their exploitation.

The Minister of Mines and Energy, Bento Albuquerque, thanked the Chamber of Deputies for approving the urgency to vote on the project. “It will allow legal permission for indigenous people to promote, if they so wish, agribusiness, livestock, extractivism and tourism on their lands,” he said.

According to the Minister of Agriculture, Tereza Cristina, the plan is a way to present long-term solutions for the sector and not just a reaction to the war.

“This plan is for the State, not for the government,” said Tereza.

The measures listed seek to reduce the weight of imports from the current 85% to around 60% in 30 years, and transform the country into a global supplier of potash. Reducing external dependence is an old topic, but it was debated again after the outbreak of the war in Ukraine, which led the government to anticipate the disclosure of the plan.

Russia and Belarus (which supports the regime of Vladimir Putin) account for more than a third of fertilizers used in Brazil. The conflict and sanctions are making shipments unfeasible and jeopardizing the planting of Brazilian crops in the second half of the year, including the large soybean crop.

One of the pillars of the plan is the establishment of a special incentive regime to make the infrastructure of the fertilizer industry in the country viable, with a term of validity of at least five years. Incentives need to be designed and presented within three years.

On the tax issue, the plan also seeks to ensure the unification of rates on sales revenue in domestic sales, imports and interstate operations.

On domestic sales to the state and on imports, the zero rate is no longer valid, starting from 1% in 2022, and being increased by one percentage point each year, until reaching 4% in 2025. In the domestic market, the reduction in the base of calculation will be progressively reduced, from the current 8.4% until the rate reaches 4% in 2025.

The tax issue is considered vital among national manufacturers to ensure investment attraction. Sinprifert (National Union of Fertilizer Raw Material Industries) highlights that the goal set out in the plan is to increase national production by 35% by 2025 to allow tax isonomy between imported and national.

However, the entity believes that if there is an immediate change, it would already be possible to attract investors, given that there is a restriction of supply and the search for new suppliers on a global scale.

The plan also discusses sources of credit. The text indicates that the BNDES will provide support, with long-term credit lines for the sector. It also provides for the release of resources from the FNDCT (National Fund for Scientific and Technological Development) and opens the possibility of accessing resources from funds such as CTAgronegócio, CT-Biotecnologia, CT-Mineral and CT-Verde e Amarelo to finance part of the soil nutrition;

But it also points out that the private sector can be a source of capitalization via FIPs (equity funds), and FIDCs (credit rights investment funds), as well as debentures (debt papers issued by companies to raise funds), “bonds” (debt securities) or funding on stock exchanges in Brazil and abroad.

​In parallel, the plan indicates a series of support measures, such as investments in gas, essential in the fertilizer production process, the organization of logistics and storage infrastructure, and research and development plans, as well as actions aimed at sustainability and the development of organic fertilizers.

According to former Agriculture Minister Roberto Rodrigues, the plan has good initiatives and comes at an important time. “It is not going to solve the problems that we are facing now because of the war, but it creates guidelines at a time when the issue of energy security gains importance”, he says.

Industry experts point out that it will be a challenge to be able to create a suitable environment for business, especially with regard to the production of raw materials, which require large-scale, capital-intensive projects: around US$ 3 billion (about R$ $15 billion) per million tons. In other similar attempts, there was a lack of planning to achieve the goals.

“There are numerous variables that affect the Brazil cost, such as infrastructure and logistics bottlenecks, complexity of the tax system, high interest rates, low investment in research into underground mineral resources, high energy costs, excessive time (years) to obtain environmental licenses and legal uncertainty, says David Roquetti Filho, managing partner of DRF Consultoria e Assessoria Empresarial and member of Cosag (Superior Council of Agribusiness).

The biggest problem, according to industry executives who prefer not to be named, is that the plan is launched in the last year of the government, with the risk of not taking off in 2022, given the paralysis that takes over public bodies during electoral periods.

If Bolsonaro is not reelected, there is also no certainty that he will be adopted by an eventual new government.

The range of substances that help in agricultural production is wide, but the most important are nitrogen (N), phosphorus (P) and potassium (K), which form the NPK compound.

Currently, more than 80% of the fertilizers used in Brazil are imported. The country is the fourth largest consumer of nitrogen and the third largest consumer of phosphorus.

In the case of potassium, the situation is more critical. It is the most used nutrient in the country, 38% of the total, and also the most imported, 97% of consumption. The country is the second largest importer in the world, after China. Right now, dependency is a big problem.

Canada is the largest producer, with a share of 33%, but Brazil’s main suppliers are second and third in this ranking, Belarus and Russia, with 17% each in global production. Both are involved in the Ukrainian war and have logistical and financial difficulties to ship the input, forcing Brazil to seek alternatives to guarantee the nutrient in the planting of the 2022/2023 crop.

The plan highlights potassium reserves in the regions of Taquari and Vassouras, Santa Rosa de Lima and Rosário do Catete, in Sergipe, as well as in Itacoatiara, Nova Olinda do Norte and Autazes, in Amazonas, an area that has been the target of indigenous protests.

These reserves, considered relevant, have been cited by the government and part of Congress as good reasons to support a quick process of the project that allows mining in indigenous lands, attracting numerous protests among geologists and environmentalists.

In the short term, until 2025, the plan establishes that the Geological Survey of Brazil should expand research in search of new areas of potash, and that the National Mining Agency should also organize auctions for new areas.

In the case of phosphate, it indicates the need to make plants viable in Arraias (TO), Santana (PA), Salitre (MG) and Patrocínio (MG), Santa Quitéria (CE), Pratápolis, Morro Verde (MG);

At the same time, it predicts that by 2025 it is necessary to encourage companies, which hold concession rights, to increase the exploitation of phosphorus deposits by up to 20%.

By 2030, it is necessary to hold at least five auctions of mining areas for phosphate fertilizers and at least five auctions of mining areas for potassium fertilizers;

In the case of nitrogen, the reinforcement in production establishes the conclusion of factories in Três Lagoas (MS) and the construction of units in Uberaba (MG) and Linhares (ES).

The goal is for production to reach 1.6 million tons of nitrogen per year in 2025, 1.9 million in 2030, 2.3 million in 2040, and 2.8 million in 2050, in terms of installed capacity.

At the international level, the government’s project highlights the need for Brazil to expand the supply of raw materials in its South American neighbors, increasing its share by at least 5% in 2030, 10% in 2040, 15% in 2050. It also foresees the search for bilateral agreements to guarantee the supply of current suppliers.