Industry competitiveness - FERTILIZERS EUROPE

Why Europe needs a strong domestic fertilizer industry

Fertilizers – a vital industry for Europe

Fertilizers enable 50% of food production, contributing to food security in Europe and beyond. In doing so, the industry is essential in providing European consumers with nutritious, affordable, and sustainable food, supporting the objectives of the EU Farm to Fork strategy.

Furthermore, the fertilizer industry produces about 40% of the total of European hydrogen as raw material of ammonia production. It is therefore also uniquely placed to contribute to the objectives of the EU Green Deal and the development of a green hydrogen economy in Europe.

EU Fertilizer industry’s competitiveness challenged

Since September 2021, Europe has been grappling with exceptionally high energy prices. With record high prices and gas moving up to 90% of the variable costs in fertilizer production, the situation has become economically stressed for the fertilizer sector in Europe.

In early March 2022, the EU's monthly average gas price peaked at US$42 MMBtu on the TTF exchange. The long-term average since 2005 to date has been around US$8 MMBtu.

Spot gas prices in Europe (TTF)

^{Source: The World Bank Data (in US$/mmBtu)}

The unprecedented high gas prices in Europe have made production of ammonia and fertilizers at times unviable. Several fertilizer producers across Europe have either announced short-term closures or temporary curtailment of ammonia and fertilizer production.

Meanwhile, most non-EU producing countries have been benefiting from access to artificially low, state-fixed priced gas and thus have been profiteering from the artificial gas price gap.

Spot gas prices in the EU, US, Japan

As an immediate response, Fertilizers Europe ran in October 2020 an all-out advocacy and media campaign to raise awareness about the gravity of the situation in the fertilizer industry. It called for EU and Member States authorities to take urgent corrective action as well as to address the challenges on the European energy market.

The association reached out to the top EU officials, including the EU Commission President von der Leyen, the Council President Michel, the Slovenian Presidency as well as the Commissioner Simson responsible for the energy portfolio. A public awareness campaign was launched in October through main Brussels media. Fertilizers Europe digital channels were used to extend the outreach and underline the urgency to act.

Corrective actions sought by Fertilizers Europe:

EU commercial diplomatic pressure on the major gas suppliers to Europe.

Increased fertilizer industry planning security by placing a stabilisation mechanism on gas price increases and reducing the insecurity related to electricity prices.

Monitoring of the economic situation for farmers and if necessary, providing instruments to help them deal with the volatile market environment, including support for the purchase of fertilizers.

Preventing loss of ETS allowances due to energy crisis.

Consideration for making emergency ‘kick-start’ state aid permissible.

Maintaining the existing EU anti-dumping duties.

War in Ukraine: Implications for industry, gas market and food security

Food prices at all time high, large jump in March

The invasion of Ukraine by Russia further destabilised an already stressed market situation, and particularly agriculture, fertilizers, gas and energy sectors. It has exposed vulnerabilities in the agri-food systems and has driven prices up putting both consumers and producers in a stressed situation.

War in Ukraine has reduced food and fertilizer supply, driving prices higher and threatening global food security.

In terms of fertilizers, Russia has in recent years been the foremost third country for the EU fertilizer market and for fertilizer’ consumers alike.

Fertilizer production by nutrient 2019

^{Source: Fertilizers Europe / IFA}

European trade by nutrient 2020

^{Source: Fertilizers Europe / Eurostat
*Includes products for agricultural and industrial use}

Imported product's share of EU consumption 2020

^{Source: Fertilizers Europe / Eurostat}

The fertilizer industry is the main natural gas consuming industry. With the EU being highly dependent on Russia for natural gas (41% of total imports to the EU), the fertilizer sector is highly exposed to the commodity’s price volatility and availability.

Russia has also been one of the main nutrient exporters to the EU, with 30% nitrogen and 36% urea fertilizer imports. Moreover, Russia and Belarus together account for a large share of the production and supply of potash and phosphate rock.

Looking ahead

The European fertilizer industry continues to be committed to decarbonise and play its part in enhancing sustainable agriculture and decarbonising value chains. The transition requires significant long-term investments. These are only possible if substantiated by a business case.

Recent developments have potentially endangered the sector’s ability to finance future investments in technologies necessary to get to climate neutrality in 2050, for both fertilizer production but also for ammonia as a hydrogen carrier.

Hence, the European fertilizer industry’s prime goal has been, and still is, to return to normalised commercial conditions, allowing domestic producers to continue supplying the EU farmers with high quality and climate-friendly EU fertilizers.