As the Russia-Ukraine conflict continues to escalate, wider impacts are being seen across a range of global markets including crude oil, food staples such as wheat and oilseeds, and the computer chip industry – a main consumer of neon, of which Russia and Ukraine are a majority supplier.

With Russia’s status as a primary exporter of ammonia, knock-on effects from sanctions imposed on the country have seen the fertiliser supply chain buckle under the weight of increased strain, creating concerns over food security. 

Natural gas being a key input for fertiliser production, heightened gas prices have further constricted an already tight market due to the curtailing of production in Europe, causing fertiliser prices to hit an all-time high. 

Chris Lawson, Head of Fertilisers at CRU Group explained to gasworld that various factors are currently at play. 

“Sanctions in Belarus have huge implications for the potash market. Russia and Belarus combined contribute 40% of traded volumes annually.” 

“Since the beginning of 2020, nitrogen fertiliser prices have increased fourfold, while phosphate and potash prices over threefold,” he said. 

Although farmers in developed markets have benefitted from high agricultural commodity prices, helping to partly offset high input prices, Lawson stated that demand destruction is ‘increasingly’ likely due to high prices and supply shortfalls. 

The continued underapplication of fertiliser is almost certain to impact longer term yields.

Food security

Ammonia price index

CRU Fertiliser price index

Source: CRU Group

Ammonia prices have been increasing at a significant and sustained rate since the start of 2021, reflected in the CRU fertiliser price index which jumped from 113.8 on the 7th January to 282.6 a year later before reaching the the current price index of around 380. 

”Ammonia prices are set to skyrocket further.”

During gasworld’s Europe CO2 Summit 2022, Jennifer Willis-Jones from Fertiliser Week explained just how the war in Ukraine has crippled ammonia trade flows from the region. 

“There are two ports, the Baltic Sea Port and the Black Sea port,” she said. “The Black Sea port is using the port in Ukraine; this is extremely important for ammonia.” 

Following closure of the pipeline, gas flow supply reduced, and demand increased, causing a spike in prices. 

“Ammonia prices are set to skyrocket further. There’s a lot of upwards pressure on ammonia prices at the moment,” added Willis-Jones. 

Russia & Ukraine: agricultural powerhouse

The importance of Russia and Ukraine in global agricultural cannot be underestimated. Ukraine makes up around 12% of global export supply of wheat, making it the third largest exporter, while Russia holds almost 17% of global export supply.

Accounting for more than 30% of global output of oilseeds, Ukraine is also the largest sunflower seeds producer, with Russia a close second at 27%.

As a main component of nitrogen fertilisers, ammonia is considered critical for food security. Countries that are heavily reliant on Russian gas such as Poland and Ukraine could be hardest hit by the potential for food shortages. 

Prices are not set to abate any time soon. With the termination of the Nord Stream 2 pipeline, natural gas prices are expected to continue trending upwards and - due to a rising global population and a rising demand for food – cause increased pressure on fertiliser supply. 

“Given the already tight grains and oilseeds market, and the importance of both Russia and Ukraine in those markets, food price inflation is an increasingly prominent risk,” affirmed Lawson.