Opinion: The war and Brazilian foreign dependence in the fertilizer sector

The war between Russia and Ukraine made clear the strong dependence of Brazilian agribusiness on imported fertilizers. Brazil, with a consumption of 8.3% of global production, is only behind China (24%), India (14.6%) and the United States (10.3%). Together, these four countries represent almost 60% of world consumption, but of the four nations, only Brazil has low-relevance domestic production, which places the country in the sensitive position of the world’s largest importer of fertilizers.

The speed of growth of Brazilian demand —increased with the occurrence of two to three crops on the same agricultural area and with the increase in cultivated areas through the so-called crop-livestock integration (ILP)— exceeded the world growth rate, and its service occurred, in general, through an increase in imports. Currently, around 85% of the fertilizers consumed in Brazil are of foreign origin, an external dependence that has increased as the demand for agricultural inputs increases.

Brazil’s dependence on fertilizer imports for years has provoked a debate about new public and private policies to improve the functioning of this market. The large volume of imports leaves the costs of agricultural activities excessively vulnerable to exchange rate fluctuations and the possibility of supply interruptions – this is the case of the current situation.

However, the low cost of importation and the regular supply – at least until now – have always discouraged greater private investment. Another element worth noting is the fact that Brazilian demand is concentrated in the second half of the year, which gives the country relative bargaining power in the international countercyclical acquisition of inputs, making private investments even less attractive. There was also, until then, a more strategic long-term vision, with the consolidation of a national plan for fertilizers.

Also in 2021, the sharp increase in fertilizer prices, combined with external dependence, turned on the yellow light for the sector, as a result of the energy crisis experienced in Europe and China. This crisis resulted from the increase in the price of natural gas, a fundamental material for the production of nitrogen fertilizers, in addition to environmental pressure, especially in China, the world’s largest coal consumer. In order to meet its environmental goals, the government of the Asian country increased the price of electricity, which led to a reduction in the production of agricultural inputs, and a consequent increase in prices, in addition to a restriction on exports to ensure domestic consumption. . Therefore, high prices for the 2022/2023 crop were already expected. With the outbreak of war, the alert went red, creating an even more complex situation, not only with an impact on prices, but also with the risk of supply.

Russia is the 2nd world producer of potash, accounting for about 20% of global production. It is also the 2nd producer of nitrogen fertilizers (with a 10% share) and the 4th of phosphate fertilizers (7%). In general terms, it represents almost 13% of the global trade of the main intermediates (ammonia, phosphate rock, sulphur) and almost 16% of finished products. In 2021, it accounted for 23% of fertilizer imports made by Brazil, surpassing China, Middle Eastern countries, Morocco, Belarus and Canada.

Everything indicates that the interruption of trade with Russia, caused by the embargoes imposed by the West, will have an impact on the global availability of fertilizers. In addition to the Russian difficulty in negotiating and making payments with external partners, there is also the logistical disruption of the fertilizer chain caused by the conflict, since a significant part of exports is made through the Black Sea, a region considered a war zone due to the risk to vessels.

Strategic planning with a long-term vision for the fertilizer sector is already an old demand in Brazil. In the National Fertilizer Plan, scheduled to be released by the end of March, the main goal is to reduce the need to import fertilizers to around 60% of consumption in 30 years. In other words, it is not a plan that can be executed in the short term, since it involves other sectors, especially mining and the energy sector in the case of nitrogen fertilizers. Such a plan will entail legislative proposals to facilitate the production of fertilizers in the country, environmental licensing rules for the exploration of deposits and the need for permission for the extraction of minerals in indigenous lands. Therefore, it is a complex long-term scenario involved in issues that are increasingly sensitive to pressure from organized civil society, both inside and outside the country.

The situation is serious, however it is still too early to predict concrete impacts on the sector. According to Anda (National Association for the Diffusion of Fertilizers), Brazil currently has a stock of fertilizers for the next three months, and the government has been looking for alternatives to replace imports from Russia in the short term. Minister Tereza Cristina was in negotiations with Iran and Canada, returning with concrete proposals to increase imports from these countries, in addition to the possibility of increasing imports from countries such as Morocco and Chile.

In the case of nitrogen fertilizers, the United States and other countries in the Middle East and North Africa are seen as alternatives to the Russian supply. In addition to Iran, Egypt, Saudi Arabia, Qatar and Algeria are also potential suppliers. For potassicists, Israel and Jordan are alternatives. China, Brazil’s main trading partner in soybeans and other commodities, is also in the supply game. Therefore, more than ever, it is important to maintain good diplomacy in negotiations with potential suppliers.

Reducing dependency will not occur in the short term, but it is a priority that this planning is carried out seriously, even when the most acute phase of the crisis has passed. An agricultural policy on the subject must also consider instruments to encourage sustainable and regenerative agricultural practices and the use of bio-inputs. The use of fertilizers in a more rational way can lead to a significant redefinition in the consumption of the input. This does not imply reducing the importance of fertilizer use for crop productivity, but adopting more sustainable management and more efficient applications. This is a long-term strategic plan for the sector, which needs to be put in place as soon as possible.