United Nations trade chief Rebeca Grynspan recently acknowledged that the July “grain deal,” which cleared the way for exporting grain and fertilizers from Russia and Ukraine despite the ongoing military conflict, had only partial effect. While food exports from both countries have increased, critically needed fertilizer exports from Russia are still down despite being covered by the agreement.
Russia accounts for 15% of global fertilizer sales. It’s rich in natural gas, which is used to make nitrogen fertilizers, and in potash and phosphates – mineral fertilizers that are available only in certain regions of the world. Historically, exports have been more profitable for Russian fertilizer makers, as the government urged them to supply local farmers at affordable prices. Now, the domestic market has emerged as the last resort for domestic fertilizer producers, as exports have become too risky and costly.
Although none of the country’s fertilizer producers have been targeted by Western sanctions, general anti-Russian sanctions have complicated logistics and payments, making exports nearly impossible. Because of sanctions, shipping companies refuse to provide vessels for carrying goods of Russian origin, while insurance companies refuse to insure shipments of such cargoes. In addition, payments for Russian goods, including fertilizers, are being disrupted by lengthy compliance procedures at international banks.
As a result, Russian fertilizer producers have shifted their sales to the domestic market. The Russian Fertilizers Producers Association reported this week that the country’s farmers have increased purchases of mineral fertilizers by 20% in January-August compared with the same period a year earlier. One of the largest Russian fertilizer producers, PhosAgro, plans to boost domestic sales to a half of its output. This is a negative development for farmers across the globe, especially in developing countries.
The “grain deal,” which was brokered by Turkey and the United Nations, was meant to facilitate supplies of grain and fertilizers from Russia and Ukraine to the world’s poorest countries. However, it didn’t help to ease curbs for Russian fertilizer exports. Russian President Vladimir Putin later threatened to revise the agreement, arguing that most shipments under the deal went to the EU rather than to developing countries that needed to solve food security issues.
The UN trade chief has clarified that food and fertilizers are not under sanctions, which means there are no restrictions on related insurance or bank transactions, ship transport and receipt of shipments at European ports. Still, these “clarifications” may not be enough to supply fertilizers to Latin America, Africa and Asia, where they are desperately needed to boost crop production and feed populous nations.
The situation requires legal measures to ensure freedom of export for badly needed Russian fertilizers. For example, the UN could issue “comfort letters” to unblock the entire supply chain for fertilizer exports, including allowing shippers and insurers to service shipments from Russia. An even better decision would be an agreement at the UN Security Council level to recognize fertilizers as an essential commodity for ensuring basic humanitarian needs, and to suspend all trading restrictions that affect the supply chain of fertilizer exports (shipping, insurance, payments, etc.) and exacerbate the problem of food insecurity.