Fortune
‘A perfect storm for the whole food system right now’: One of the world’s largest fertilizer companies warns that every country—even those in Europe—is facing a food crisis
Tristan Bove – January 26, 2023
The Ukraine war upended the global economy in many ways. Energy markets have been among the most affected, with declining Russian oil and natural gas exports to the West sparking a domino effect of fuel crises worldwide. But the war has also warped another critical facet of the global economy: food.
Prior to the war, Russia and Ukraine were global breadbaskets as top producers and exporters of wheat, sunflower seeds, and barley. The fighting ended up aggravating hunger and food crises in low-income countries that are dependent on imports. But both Russia and Ukraine are also key cogs in the global fertilizer industry, and the war has triggered a shortage of the critical commodity that few people consider but is nevertheless essential to global food security.
Much as Russian President Vladimir Putin leveraged the world’s reliance on his country’s fossil fuels to weaponize energy supplies during the war, he is doing something very similar with fertilizer and food, Svein Tore Holsether, CEO of Norwegian chemical company Yara International, among the world’s largest fertilizer producers and suppliers, told the Financial Times in an interview published Thursday.
Putin’s energy gambit, which sent fossil fuel prices soaring and left Europe on the brink of recession last year, has so far not gone as expected, with a warm winter working against him and Europe able to buy natural gas from elsewhere. But Holsether warned the world’s reliance on Russia for fertilizer threatens more disruption of food supply, adding to existing challenges of logistics bottlenecks and climate change.
“If you look at the role that we have allowed Russia to have in global food supply, we depend on them. How did that happen? What kind of weapon is that? And Putin is weaponizing food,” Holsether said.
“It is sort of a perfect storm for the whole food system right now: very challenging in Europe, of course, with higher prices; even worse in other parts of the world where a human being dies every four seconds as a result of hunger,” he added.
Global fertilizer crisis
When natural gas prices surged last year after Russia invaded Ukraine, so did prices for fertilizer, which manufacturers such as Yara produce with ammonia and nitrogen obtained as a byproduct from natural gas. Fertilizer prices had already begun increasing in 2021 due to high energy costs and supply-chain issues.
Declining natural gas prices and weak demand among farmers have eased pressures somewhat over the past few months. Earlier this month, fertilizer prices fell to their lowest level in nearly two years in tandem with natural gas prices. But despite falling prices, Holsether insists that the global fertilizer market is precarious, and countries should shift from relying on Russian natural gas, to safeguard their agricultural industries.
“Putin has weaponized energy and they’re weaponizing food as well,” Holsether told the BBC at last week’s World Economic Forum in Davos, Switzerland. “It’s the saying, ‘Fool me once, shame on you. Fool me twice, shame on me.’”
Fertilizer prices remain high by historical standards, and the World Bank warned earlier this month that global supply is still tight due to the war, production cuts in Europe, and stricter export controls in China.
Averting a food crisis
If fertilizer is in short supply or prices remain unaffordable to many countries, farmers may be unable to keep their soil fertile enough for crops.
Concerns over fertilizer have taken center stage in recent weeks in Africa, which is heavily reliant on Russian food imports, and where agricultural production has taken a blow in recent years due to drought in many countries. The eastern Horn of Africa—including Somalia, Sudan, and Kenya—has been particularly hard-hit, as it is likely on the verge of a sixth straight failed rainy season, the worst drought conditions in 70 years of recorded data.
Securing additional sources of fertilizer was the cornerstone of a $2.5 billion U.S. food assistance package to Africa signed last month, while Treasury Secretary Janet Yellen noted the importance of stabilizing fertilizer supply in Africa multiple times during a visit to Zambia this week.
“Now we’re in 2023, it’s tragic and shouldn’t be like that,” Holsether told the FT about the state of global hunger. “That should be a very strong reminder of the need to have a more robust food system—from a climate perspective, from a logistics perspective, but also from a political perspective.”
Holsether said that all countries must become more self-sufficient with their food production. For fertilizer, he touted the promise of “green fertilizers” that use hydrogen and renewable energy to produce ammonia rather than natural gas, saying that clean and local solutions are critical to decoupling the global food system from Russia’s war.
Holsether also warned that European nations should not rely on their wealth to avert a food or fertilizer crisis. Like with natural gas, Europe has in recent months turned to the U.S. for nitrogen to replace Russian imports, but Holsether warned that Europe buying its way out of a food crisis is no remedy for global food insecurity.
“Yes. Not near term…there will be a shortage and there will be a global auction for food—but Europe is a wealthy part of the world,” Holsether said when asked if Europe should be concerned for its food security.
“But we need to think it through,” he added, saying that Europe buying food and fertilizer products from other countries will only create more global supply shortages and take away from other countries in dire need.
“In terms of food and food security, when you have that, you see wars or mass migrations, extremism, all these things,” he said.