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Article: Challenges in the agriculture sector, and their impact on Fertilizer markets
08 April 2020
There are a number of challenges faced by the spread of Covid-19
on the agricultural sector and ultimately on fertilizer
consumption. One of these is the reduction in manpower available to
harvest crops, particularly cash crops where migrant workers are
often widely used and where lockdowns, quarantine and border
controls are already causing problems. In the EU, the Commission
has issued guidelines to enable a free flow of migrant workers but
it remains a concern and in the meantime some farmers are looking
to try and delay the harvest by at least a month in the hope that
by then the situation will have eased. If not, they face losing
whole crops - a prospect which may limit the amount of investment
in nutrients for top-up application. A similar situation is evident
in India where a shortage of labour is threatening the harvest of
winter crops and where there are already reports of rotting and
damaged crops due to the inability to harvest.
Any loss of revenue whether through lower prices or loss of
crop, will affect the purchasing power of farmers going into the
next crop year and therefore potentially the demand for
fertilizers. Bottlenecks in logistics and stranded product could
lead to less being applied this year leading to a greater carryover
of stored product and therefore less demand again for fresh
supplies.
A mention here should also be made of the other plague that has
the potential to devastate large swathes of crop production. The
worst locust infestation for over 25 years is posing a significant
threat to the farming sector in East Africa as well as parts of
Iran and Southern Asia. On 4 April the FAO described the situation
as "extremely alarming in the Horn of Africa, specifically Kenya,
Ethiopia and Somalia where widespread breeding is in progress and
new swarms are starting to form, representing an unprecedented
threat to food security and livelihoods at the beginning of the
upcoming cropping season". This could not come at a worse time:
combined with the threat of the coronavirus in these vulnerable
regions, any further risk to food production is critical. Earlier
this year the Pakistan government declared the locust threat as a
national emergency and with widespread rainfall at the end of
March, a renewed surge in May threatens the western part of the
country.
Nevertheless, there is a certain optimism about crop production
going forward in anticipation of the need to ensure global food
security at this challenging time. The outlook in Brazil, although
pessimistic for sugar due to the drop in ethanol demand, is
currently optimistic for corn and soy basis good margins and
expectations of robust demand. Provided the logistics allow, and
currently the government is supporting the movement of fertilizers
as an essential commodity, this should prompt a steady flow of
fertilizer into the country over the coming weeks and months.
However, any constraints in deliveries by truck caused by the
spread of the virus, as seen in China earlier this year, will
impact eventual consumption.
From a fertilizer supply perspective, the spread of the
coronavirus will almost certainly have some impact over the coming
months whether directly on the performance of plants themselves, on
the local infrastructure and transport systems or on the ability to
deliver the product to the consumer, the latter for the reasons
mentioned.
Most major fertilizer producers have laid out their operational
and contingency plans for keeping the plants running during the
epidemic. In both India and Jordan, the lockdown in 2-half March
prompted a number of plants to suspend production but this also
coincided with the seasonal turnarounds in the industry helping to
mitigate the loss of output. Most of these plants have already
resumed production or are planning to do so this month.
As the spread of the virus takes hold some production hubs will
be more vulnerable than others. Whereas we anticipate that unless
there are factors outside their control, the larger more efficient
fertilizer producers in certain regions will continue to operate at
a stable rate for the foreseeable future, production in some parts
of the world are not looking as sure, for example in certain parts
of Africa. Phosphate rock mining is relatively labour intensive and
there are some reports of a curtailment in production as producers
look to reduce the workforce needed at any one time in a bid to
protect workers and contain the virus.