The problem with an energy crisis is that it’s actually an everything crisis. In a world where virtually every industry relies on energy in some form, runaway inflation is an inevitability. This phenomenon is not news – you’ve been experiencing it for the better part of two years now. But while global governments are using every tool in their kits to curb the rising inflation rates, there’s far less they can do about the coming food shortage.
For months, the agricultural industry has been warning the rest of the world that next year’s food production is severely threatened, as the fertilizer industry is in shambles. Industrial NPK fertilizers (so named for their makeup of nitrogen, phosphorus, and potassium oxide), are heavily reliant on natural gas supplies. About 70 percent of the cost of fertilizer production is solely the price of natural gas, which is used in liberal amounts to make the ammonia phosphate slurries that turn into fertilizer. Indeed, according to CRU Group, European fertilizer producers in the region are currently losing approximately $2,000 for every ton of ammonia produced. So as Russia has stemmed and then indefinitely stopped the flow of natural gas into Europe, sending gas prices through the roof, the continent’s fertilizer sector has halted as much as 70 percent of its production capacity.
This is an enormously scary figure. Commercial fertilizer plays an essential role in 40 to 60 percent of the world's food production. Unless you’re growing your own food or buying from a patchouli-scented co-op, it’s likely that most of your food staples are entirely reliant on NPK. Food security experts have been warning of this kind of crisis for years, and of this specific crisis since the beginning of this year. After so many decades of the liberal use of chemical fertilizers, global agricultural soils are devastatingly depleted of nutrients. Without increased use of fertilizer every year, these degraded lands could produce just a fraction of their current capacity, and with lower nutrient content.
And this is all on top of the other food crisis unfolding. Together, Russia and Ukraine produce so much grain for the global market that they are often referred to as the world’s bread basket. Conflict in the region has also imperiled the delivery of the region’s grain to the market, creating a food squeeze in import-reliant sub-Saharan Africa earlier this summer. A recent grain trade agreement between the United Nations, Moscow, and Kyiv – which attempted to mitigate this problem while also providing income to occupied Ukraine – has enraged Russian President Vladimir Putin. While he has agreed to let the “scam” deal go forward – for now – the back-and-forth has showcased the extreme volatility of Russian-involved grain and fertilizer supply chains.
Back in July (when gas prices were much lower and the food security situation wasn’t nearly as dire as it is now) the International Fertilizer Association estimated that if Russia’s war in Ukraine is prolonged, and high gas prices continue to drive down the use of fertilizers, nearly 2 percent of global corn, wheat, rice, and soybean production could be lost. “Even small declines in the production of grain can result in significant price increases,” Newsweek reports. As always, the poorest countries will pay the biggest price; this summer’s grain squeeze in Africa will pale in comparison to the food crises likely to hit African nations, Mexico, and other developing countries with large input-reliant agricultural sectors.
So why doesn’t the world simply direct more dollars and gas toward fertilizer, considering how much is at stake? "Countries can't mandate fertilizer production because they are so worried about having enough natural gas to heat people's homes," John Harpole, a natural gas broker for the fertilizer sector told Newsweek. "They are having to choose between future food production and heat and they are going to choose heat."
By Haley Zaremba for Oilprice.com