Global concerns about fertilizers and wheat

_ Jörg Sobolewski. Emerging markets consultant, MIWI Institute. Brussels, 4 April 2022.*

Paraguay is geo-economically a dwarf, but is currently the focus of international attention because it produces something that is urgently needed: food.

Paraguay is a leader in soybean cultivation in particular, with only three countries exporting more: Argentina, the USA and the leader, Brazil.

With its South American neighbours, Paraguay also shares the great concern that the “breadbasket of the world” is running out of fertilizer. Many farmers have enough in stock for a few more weeks, after which they have to buy more. But that’s a problem, because the prices for chemical fertilizers are at record levels.

No country in the world imports as much grain as Egypt

The war in Ukraine is responsible for this. The Russian Federation is one of the largest producers of fertilizers, as is Belarus, which is also subject to sanctions.

80 percent of Brazil’s fertilizer needs are imported, with 20 percent coming from Russia alone.

Agriculture Minister Tereza Cristina announced in mid-March 2022 that stocks would last “until October”. After that, the supply situation is unclear.

But the farmers in the Mercosur countries are already feeling the effects of the war. Compared to the previous year, the cost of a ton of fertilizer increased by 129 percent. However, this has a direct impact on the export of wheat, corn and soybeans. Because the more expensive the fertilizer, the less is used, the lower the yield per hectare.

This is bad news given the already high price of grain. It has not only been increasing massively since the beginning of the war in Ukraine. A record drought in Argentina, Brazil and Paraguay as well as floods in China last year meant that wheat, for example, rose in price by around fifty percent between April 2021 and the end of February 2022.

Since shooting began in Ukraine, the price has continued to rise unabated. Compared to the previous year, buyers paid around twice as much for a ton of wheat at the end of March.

Both Ukraine and Russia are among the largest exporters of wheat. However, exports from the Ukraine have come to a partial standstill as a result of the acts of war, and Russian exports are being prevented by the sanctions.

These massive upheavals on the international market for agricultural goods have long been noticeable in the EU as well. The consequences for individual buyers in Europe, which still has strong purchasing power, have so far been annoying but manageable.

In the extended neighbourhood, for example in the Caucasus or the Mediterranean region, the effects are much more serious. Because the market for agricultural goods is global, grain, oils, meat – everything circulates around the world, and if the supply of a good decreases, the price of similar products automatically increases. Countries that were already in trouble before the conflict hit it particularly hard.

In Turkey, for example, more than eleven million people, around 13 percent of the population, were already dependent on state aid before the war. The queues in front of the municipally subsidized bread distribution points have been growing for months. Here, the price increases on the world market meet an official inflation rate of 54.4 and an unofficial one of almost 125 percent.

The situation in Egypt is also dramatic. The nation on the Nile has long since moved away from its historic role as a breadbasket. No country in the world imports as much grain as Egypt. The growing population consumes around 13.2 million tons of wheat per year, 80 percent of which has come from Russia and Ukraine in recent years. Even before the war, subsidizing the price of bread cost the developing country 3.2 billion euros. In Tunisia, it is hardly different.

Government experts in Cairo now fear that this sum will increase by a further 760 million euros. Hardly any more to lift for the country, which has had to make far-reaching cuts in the social sector in recent years under pressure from the IMF.

So far, subsidizing bread has been considered sacrosanct in Egyptian politics. For nearly 30 percent of Egyptians living below the poverty line, government-guaranteed prices are essential. When subsidies were temporarily cut under Anwar Sadat in 1977, unrest broke out in Cairo, the intensity of which has traumatized society to this day.

EU donates 554 million euros to Lake Chad region and Sahel zone

Further south, in Yemen, the Sahel or the Lake Chad region, the situation is even worse. There, the Ukraine war is exacerbating an already existing food shortage. The World Food Program has had to cut its rations in the past.

Now the EU wants to take corrective action with at least 554 million euros, especially in the Sahel zone. A UN employee fears a drop in the ocean when speaking to the MIWI Institute: “It’s a perfect storm of rising food prices and rising prices for fertilizers,” said the diplomat.

Because “usually a food shortage regulates itself”. Farmers, according to previous experience, change their cultivation methods, produce more of the scarce commodity and thus bring supply and demand back into a more economical balance over time.

But now there is no fertilizer and in Argentina winter sowing has been delayed due to the drought. A difficult situation for the UN development worker: “We will cut the rations of the hungry in order to save the starving,” was the final conclusion. What would happen if the situation in Egypt collapsed, he “didn’t want to imagine”.

*Translated with the kind permission of the author from the original publication on Junge Freiheit.

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