The problem with an energy crisis is that it is actually a crisis of everything. In a world where virtually every industry depends on energy in one form or another, runaway inflation is inevitable. This phenomenon is not new – you have been experiencing it for a good part of two years now. But while world governments are using all the tools in their kit to rein in rising inflation rates, there is little they can do in the face of the coming food shortage.
For months, the agriculture industry has been warning the rest of the world that next year’s food production is in serious jeopardy, as the fertilizer industry is in shambles. Industrial NPK fertilizers (so named for their nitrogen, phosphorus and potassium oxide composition) are highly dependent on natural gas supplies. About 70 percent of the cost of fertilizer production is the price of natural gas alone, which is used in generous quantities to make the ammonia phosphate sludge that turns into fertilizer. Indeed, according to the CRU group, European fertilizer producers in the region are currently losing around $2,000 for each tonne of ammonia product. While Russia has then stemmed indefinitely halted the flow of natural gas to Europecausing gas prices to explode, the continent’s fertilizer sector came to a halt as much as 70% of its production capacity.
This is an extremely frightening number. Commercial fertilizers play a vital role in 40 to 60 percent of world food production. Unless you grow your own food or buy from a patchouli-scented co-op, chances are most of your staples are entirely NPK-dependent. Food safety experts have warned of this type of crisis for years, and this specific crisis since the beginning of this year. After so many decades of liberal use of chemical fertilizers, the world’s agricultural soils are significantly depleted of nutrients. Without increased fertilizer use each year, these degraded lands could produce only a fraction of their current capacity, and with lower nutrient content.
And it all adds up to other ongoing food crisis. Together, Russia and Ukraine produce so much grain for the world market that they are often referred to as the breadbasket of the world. The conflict in the region has also jeopardized the delivery of the region’s grain to market, creating a food crisis in sub-Saharan Africa, which is dependent on imports. earlier this summer. A recent grain trade agreement between the United Nations, Moscow and Kyiv – which attempted to alleviate this problem while providing income to occupied Ukraine – enraged Russian President Vladimir Putin. Although he agreed to let the ‘scam’ deal go ahead – for now – the back and forth highlighted the extreme volatility of the grain and fertilizer supply chains involving Russia .
In July (when gas prices were much lower and the food security situation was not as dire as it is now), the International Fertilizer Association estimated that if the Russia in Ukraine continues and as high gas prices continue to drive down fertilizer use, nearly 2 percent of global corn, wheat, rice and soybean production could be lost. “Even small declines in grain production can lead to significant price increases,” Newsweek reporting. As always, the poorest countries will pay the highest price; this summer’s grain crunch in Africa will pale in comparison to the food crises likely to hit African countries, Mexico and other developing nations with large input-dependent agricultural sectors.
So why isn’t the world just directing more dollars and gas to fertilizer, given what is at stake? “Countries can’t tax fertilizer production because they’re so worried about having enough natural gas to heat people’s homes,” said John Harpole, a natural gas broker for the fertilizer business at Newsweek. “They have to choose between future food production and heat and they’re going to choose heat.”
By Haley Zaremba for Oilprice.com
More reading on Oilprice.com: