Food prices are likely to soar next year after record-high gas prices forced fertiliser manufacturers to halt production, experts have warned.
Farmers face paying sky-high prices for fertiliser and may struggle to secure supplies at all, raising the prospect of weak crop yields that will affect food supplies, according to industry specialists.
A second major fertiliser producer, Yara, announced today that it was curtailing production because “record-high natural gas prices in Europe are impacting ammonia production margins”.
The Norwegian group said that 40 per cent of its European ammonia production capacity would be curtailed by next week.
Late on Wednesday night CF Industries, the American group, had said it was halting production at two sites in the north of England that together supply about 40 per cent of UK fertiliser needs.
The government’s Civil Contingencies Secretariat, the crisis planning unit, met on Thursday to discuss the potential shortfall in supplies to farmers.
Julia Meehan of ICIS, the commodities price reporting agency, warned that “supply of the food that we eat could be severely hampered by European halts in output by major fertiliser producers because of record high gas costs”.
Natural gas is the feedstock used to make ammonia, which is in turn used to make a variety of nitrogen fertilisers including ammonium nitrate, urea-ammonium nitrate (UAN) and urea.
Gas prices have surged globally this year as demand rebounds from the pandemic and after a long, cold winter that has left storage stocks unusually low. Demand has been particularly high in Europe because of low wind speeds that have hurt wind power generation and increased reliance on burning gas for electricity.
UK month-ahead gas prices hit record highs this week after a fire damaged a subsea power link to France, leaving Britain even more dependent on gas-fired power stations.
Meehan told The Times that the high prices and shortages of fertiliser now would hamper farmers’ ability to apply fertiliser early next year, affecting consumers around the time of the spring harvest. “We will feel it next year,” she said. “If farmers can’t get the fertiliser that they need to get the nutrients into the ground when they need to, there will be terrible yields.
And prices will be sky high for any crops because there’ll be so few available.”
She added that the crisis would extend beyond Europe, with farmers in India unlikely to be able to afford high fertiliser prices. Continued high gas prices may lead to a point where fertiliser producers “completely switch off and have nothing to offer”.
The production shutdowns this week have caused chaos in the market. Chris Yearsley, director of Profercy, a fertiliser market analyst and news service, said: “There has been an immediate, panicked reaction in the nitrogen market with buyers across Europe scrambling for product. Uncertain of replacement costs and availability, many nitrate and UAN suppliers have pulled offers from the market”.
“The only certainty is that major volumes of fertilizer will no longer be available because of the shutdowns and cutbacks.”
The UK plants shut down by CF Industries this week primarily produced ammonium nitrate. Although some is imported, ammonium nitrate is difficult to transport because it is highly explosive.
Yearsley added: “Though far from ideal, it is possible for farmers to switch between nitrogen products. However, the problem is that prices for all products have sky-rocketed.” Urea prices have doubled over the past year, he said.
Source: The Times