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The conflicts in Ukraine have affected food prices
directly via supply disruptions and indirectly via surging
fertilizer prices.
Fertilizer prices have increased in response to the war
but have already followed an upward trend since early
2021.
Russia's unexpected invasion of Ukraine continues to send
shockwaves through global markets and put increasing inflationary
pressure on the entire agricultural industry. One the one hand,
food prices are directly affected by disrupted supply from Ukraine
and import restrictions for Russian goods in many markets. Russia
and Ukraine hold key positions in global food markets, accounting
for around 7% of total exports, and together were responsible for
around 21% of global wheat exports in 2021.
On the other hand, food prices face additional inflationary
pressure from rising fertilizer prices. This double burden also
relates to the conflict as Russia and Belarus are major exporters
of nitrogenous, phosphatic, potassic, and mixed fertilizers. This
indirect price effect from fertilizers likely causes more concern
than the direct effect of reduced food exports as Russia's and
Belarus' share in global markets is larger and scarce availability
of fertilizers impedes agricultural production globally.
The response of fertilizer markets to the conflicts has been
tremendous. In the first month after the invasion, fertilizer
prices increased on average by 40% compared to their pre-conflict
levels. While this illustrates the dependency of global markets on
Russian supply, it is important to highlight that the conflict only
adds to a series of events, which led to a surge in fertilizer
prices over the past two years.
As in the above chart, fertilizer prices have experienced an
upward trend since the beginning of 2021, which has been fueled by
rising input prices (gas for ammonia production), supply chain
disruptions (hurricane Ida), and trade policy. The latter is of
particular interest as it showcases the high degree of uncertainty
already present in fertilizer markets before the conflicts. In
early 2021, the United States imposed countervailing duties on
excessively subsidized Russian and Moroccan phosphate imports. Over
the course of 2021, mainland China and Russia then imposed bans on
their own fertilizer exports to ensure sufficient supply in
domestic markets, which put additional pressure on global
fertilizer markets. Russia's invasion of Ukraine, therefore, only
added to an already strained market by increasing fertilizer input
costs and inducing key destination markets such as the European
Union and the United States to ban any imports of Russian
fertilizers.
This column is based on S&P Global Market Intelligence GTAS
data. The full version of the article is available for our clients
on Connect platform. For more details about GTAS, please visit the product
page.
