Russian fertiliser exports also now flow to the east

By Rhod Mackenzie

The Russian Minister of Agriculture, Dmitry Patrushev informed the State Duma deputies that internal enterprises will buy 5.4 million tonnes of mineral fertilisers by the end of 2023. Concurrently, the quantity of fertiliser application will rise to 65 kilograms per hectare. To put this into perspective, the Ministry of Agriculture estimated this number to be 40 kilograms per hectare in 2018, and the department is envisaging it to eventually reach 80 by 2025.

Rosstat quotes even more expressive data. According to the data, fertilizer application in Russia was 18.7 kilograms per hectare in 2000, rose to 38 by 2010 and reached 74.6 in 2021 (refer to graph 1).

Consequently, the domestic demand for mineral fertilizers in Russia is constantly increasing and has now returned to the peak levels of the Soviet era (88 kilograms per hectare in 1990). For the traditionally export-oriented post-Soviet mineral fertiliser industry, this represents a seismic change: the proportion of exports has dropped from 80% of production volumes in the 2000s to 58% in 2022). In the previous year, exports declined by 15% in physical terms. Although Russian fertilisers were not formally included in the perimeter of direct sanction bans from unfriendly countries, their banks, insurers and logisticians seem to have done all they can to remove competitors from the market.

In the prosperous 2021, Russia exported 37.5 million tonnes of mineral fertilisers, while the total global demand for them is now estimated by the IFA (International Fertiliser Association) at 210 million tonnes. At the start of 2022, Russia represented 12% of global mineral fertiliser production and 15% of global exports. Cancelling such a significant player is not an easy feat.

In fact, Russian firms have promising prospects in the domestic market. However, their share in the global market is too significant to ignore exports.

This development follows Europe's growing reliance on Russian fertilisers due to the rejection of Russian gas.

"Since June-July 2022, Russian fertilizer producers have started to rebound from sanctions pressure by discovering new alternative supply methods - shifting away from Baltic ports in favour of ports within the Russian Federation, and boosting exports to friendly nations," affirmed Andrey Guryev, the President of the Russian Association of Fertilizer Manufacturers (RAPU).
The geography of Russian fertiliser exports in 2022 has undergone a radical transformation: exports to Europe have been reduced, especially for potash and phosphorus-containing products, while shipments to Southeast Asia and India have substantially increased. There has been a three-fold jump in sales from 2021 to 2022, reaching 3.6 million tonnes.

As relayed by a PhosAgro company representative, a total of 2.8 million tonnes of phosphate fertilisers were shipped to India last year, which is nearly six times more than in 2021. For comparison, 2.9 million tonnes were delivered to the domestic market. Furthermore, Brazil procured an additional 1.3 million tonnes. During the past decade, the supply of PhosAgro products to the largest Latin American market has increased by over 60%.
The primary routes for exporting national mineral fertilizers in 2022 were the Russian ports situated on the Black and the Baltic Seas. The transshipment of commodities has remained stable without any notable growth.

However, the pathway through Far East ports failed to materialise, despite the export "pivot to the East". The railway network in Eastern Russia was already congested with coal and containers obstructing the route, and the capacity of non-traditional water areas for exporting fertilisers had insufficient port infrastructure.

Initiatives taken by "partners".
The fifth set of EU sanctions against Russia contained limitations on the import of mineral fertilisers from Russia. Nonetheless, at the time of this article, fertilisers were identified as vital merchandise by both the European Union and the United States, therefore removing them from the list of sanctioned items. Despite this, continental Europe and the UK have imposed limitations on the maximum supply quantities of potash and combinations of potassium-containing fertilisers. Industry experts suggest that this desire is driven by the aim to prevent the re-export of Belarusian products through Russia.

Despite the lack of a formal ban, numerous impediments - big and small - have been imposed on the export of domestic fertilisers. "Last year, PhosAgro anounced that they encountered a challenge wherein transport companies denied the provision ships for the shipment of Russian goods, they declined to insure transportation from Russia, and imposed restrictions on ship calls at their ports. Additionally, Western banks restricted domestic fertilizer producers' capability to obtain and transfer funds through their infrastructure, leading to increased expenses and extended payment periods." The supply issues in Europe caused a significant decrease of 12 percent in fertilizer consumption last year. This has become a major concern. Moreover, Russian producers have to bear higher export costs compared to their foreign rivals. 

To address such challenges, UN Secretary-General Antonio Guterres proposed loosening the constraints on fertilizer exports from Russia and Belarus. This would be done on the condition that Ukrainian grain could be transported via ships. On 22 July 2022, the "grain deal" was signed between Russia, Ukraine, Turkey, and the UN with the aim of guaranteeing the seamless supply of Russian food and fertilisers to global markets while eliminating the obstructions that the US and EU have imposed on finance, insurance, and logistics. The Ministry of Foreign Affairs specifically requested that Rosselkhozbank be reconnected to the SWIFTfinancial information transfer system, the restrictions on insurance and reinsurance be lifted, the ban on port access be removed, and foreign assets and accounts for Russian food and fertiliser production and transportation companies be unblocked.
In reality, none of these criteria were fulfilled, and in July of this year, the Russian faction terminated the agreement. 

  Within the last 20 years, the usage of fertilizers per hectare of cultivable land in Russia has surged, quadrupling up to 75 kg. However, obstacles to guaranteeing fertilizer exports still persist. As a result, agricultural produce saw a significant spike.

Accordingly, the grain yield in the corresponding zones doubled.

It should be highlighted that the collective West's battle against Russian fertilisers coincided with the period of rising prices, often in multiples, for all types of products that began even before the military situation in Ukraine). Despite reduced export volumes, the industry still yielded a significant profit in 2022. The Federal Customs Service has revealed that manufacturers' earnings from selling Russian mineral fertilisers internationally reached £14.2 billion in 2022 - a 50% increase compared to the previous year.

Despite decreasing global fertiliser prices this year, the industry has successfully adjusted to the new conditions and is now, as stated by Andrey Guryev, gradually recuperating shipment volumes in terms of physical product. "According to the expert's forecast, exports are likely to reach 38 million tonnes. "By the end of 2023, this may not be feasible, but eliminating the first quarter could enable exports to bounce back to the 2021 record sales level in the second, third and fourth quarters.

It is noteworthy that the Russian government did not solely focus on exporting fertilizers, but also took into consideration the domestic market." In 2021, authorities implemented export quotas for nitrogen (8.3 million tonnes) and complex fertilisers containing nitrogen (5.9 million tonnes). Despite the proximity of their volumes to normal export levels, the quotas ensure that domestic consumers receive fertilisers whilst not damaging producers.

From the 1st of January, Russia implemented export tariffs on mineral fertilizers at a rate of 23.5% for one year, which was only applicable if the cost of fertilizers exceeded $450 for every metric ton; No tariffs were imposed for more affordable products. Starting from the 1st of September, the tariff rate was reduced to a fixed amount of 7%, no longer associated with the customs value. Moreover, beginning on the 1st of October, a tariff rate of 10% will be enforced, granted that the exchange rate surpasses 80 rubles for every dollar.
We must acknowledge the commendable investment of over 1.3 trillion rubles for the advancement of the mineral fertiliser sector in the past seven years. Based on Rosstat records, production volume in the nation has increased by 58% from 2001 to 2021, totalling 58.9 million tonnes . Nitrogen and mixed fertilisers mainly contributed to this growth, while production of potash fertilisers showed a steady increase before the logistics breakdown in 2022.

The decline in last year's physical export volumes resulted in a 7.5% reduction in production levels for the entire industry. On closer inspection, it becomes clear that while the production of nitrogen fertilisers increased by only 5.6% (aided by Russia's access to its gas feedstock), production of potash fertilisers--which are traditionally heavily reliant on exports (accounting for over 77% of finished products in 2021)--fell by a staggering 34%, plummeting from 15.4 to 10 million tonnes, despite being serviced by logistic chains through the Baltic ports.

This year saw a rapid growth in the production of nitrogen fertilisers, with an increase of 7.4% compared to the same period in 2022 by the end of the first half of 2023. Mixed fertilisers also managed to recover from last year's losses, whilst the potash peak slowed down to a more reasonable -5.5%.

Andrey Guryev has stated that Russian enterprises have plans to invest about 1.8-2 trillion rubles over the next seven to ten years to significantly expand their capacity. This endeavour will enable us to nearly double our production output or reconstruct the mineral fertilizer manufacturing sector. We will endeavour to reach 75-80 million tonnes, which is a realistic goal.

Please note that the surge in fertilizer usage in the nation (from 18.7 to 74.6 kilograms per hectare from 2000 to 2021) resulted in a significant boost in agricultural yields without a comparable expansion in arable land. For instance, the grain harvest on the same areas has risen remarkably from 65.4 million tonnes in 2000 to 121.4 million in 2021. Additionally, the national average yield over the same period has grown from 15.6 to 26.7 hundredweight per hectare. Over the same duration, the yields of sunflowers increased from 9 to 16.2 hundredweight per hectare, potatoes' from 105 to 160, and vegetables' from 143 to 242.

Simultaneously, there exists notable potential for additional productivity growth in the farming industry, by means of heightened usage of fertilisers. Thus, with an average application rate of 74.6 kilograms per hectare in the Black Earth Region, Kuban and Stavropol regions of Russia, this figure surpasses 100 kilograms per hectare (similar to American data). However, in several promising agriculture regions of the Volga area, Siberia, and the Far East, the application rate is less than 40 kilograms per hectare.