— This is the script of CNBC's news report for China's CCTV on October 11, 2021, Monday.
The Green Markets North America Fertilizer Price Index compiled by Bloomberg has been rising for the last 12 months and accelerated as the energy crisis emerges in Europe. The index rose nearly 8% to $996.32 per short ton, soaring past its 2008 peak to set a new record since it began to trace data in January 2002. The rise was caused by several factors, including extreme weather, related sanctions, and the most recent surge in energy prices in Europe and Asia, and, as a result, the shutdown of fertilizer plants.
There are three major categories of fertilizers used across the globe, namely nitrogen, phosphate, and potash, among which nitrogen is most widely used. The production of nitrogen relies heavily on natural gas, which accounts for 75% to 90% of operating costs, says Samuel Taylor, executive director of research at Rabobank in an interview with Market Watch.
That's why we are seeing some major fertilizer producers, such as American company CF Industries and Norwegian company Yara, closing or cutting their production capacity in Europe as natural gas prices skyrocketing. In addition, various production costs are going up amid the pandemic. Meanwhile, demand for fertilizers is rising according to the World Bank, which led to prices of most fertilizers moving higher, especially phosphate and urea. The World Bank projects that fertilizer prices on average will be 25% higher in 2021 than last year, before easing in 2022.
According to a report published by Rabobank, India is the biggest fertilizer importer, followed by the United States and Brazil. These countries will be most impacted. Bloomberg reported citing people familiar with the matter that India would not increase subsidies on fertilizers and had directed producers to refrain from raising prices. This means their profit margins will be squeezed.
Rising fertilizer prices will push up farming costs. Price rise in fertilizer could increase U.S. corn production cost by 16%, according to Bloomberg's Green Markets. The latest report released by the FAO showed that the food price index rose again in September, which means that the food-related living expenses for households have been rising across countries. If the energy crisis worsens, more factories could be forced to close, causing more adverse impacts on agriculture and food security.