Over the past year, worsening geopolitical and economic conditions have significantly increased input prices and impacted critical industries such as fertilizer. Fertilizer prices had begun surging by the end of 2021, with farmers in some areas reporting that fertilizer costs were up by more than 300% and delivery was rarely on time.
By March 2021, media outlets were reporting that fertilizer prices were at record highs due, in part, to the Russia-Ukraine war and a host of other factors. These high prices have been accompanied by a supply crunch that has pushed fertilizer costs even higher and threatened to cause a worldwide food crisis.
According to the International Fund for Agricultural Development (IFAD), the global fertilizer shortage could affect smallholder farmers the hardest. Part of the United Nations, the agency is tasked with providing support to subsistence farmers in predominantly rural areas.
IFAD president Alvaro Lario recently made this observation during the COP27 in Egypt. With the world experiencing a fertilizer shortage and a looming food crisis, IFAD has been forced to deal with the two overlapping issues amid a war in Europe that has already increased food insecurity in certain regions.
Lario said that although he was optimistic that farmers could benefit from his agency’s programing, navigating through these issues in the short term was going to be “very challenging.” He said the world is currently grappling with the critical issue of fertilizer affordability and noted that if energy prices continued trending upward, we could potentially run out of fertilizer supply.
This would significantly impact smallholder farmers and reduce their productivity even though they typically use methods such as organic farming instead of fertilizers. Many of the farmers that IFAD works with are smallholders, and they simply cannot afford the increasing prices, Lario said. He added that some farmers have been forced to sell their input and even their land to feed themselves and their families.
A deal brokered by the UN between Ukraine and Russia that would have allowed for the export of grain from Ukraine wasn’t enough to cover the supply deficit, Lario reported.
Fertilizer supplies have to be unlocked to ensure supply in the short term, and we will need to figure out how to deal with the issue next year, he said. Another deal for the exportation of Russian ammonia that would have eased the pressure on fertilizer suppliers has reportedly been held back by Western sanctions meant to harm Russia’s war effort.
Amid this crunch, entities such as Compass Minerals International Inc. (NYSE: CMP) have an opportunity to offer greater value to their shareholders as the market favors these companies.
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