The European Commission’s communication on fertilizers recognizes that urgent action is needed to support the industry to face the current crisis. However, to ensure a long-term viable and successful fertilizer industry and thus Europe’s long-term strategic autonomy in food and fertilizers, a more comprehensive action is needed.
An unprecedented crisis
The current geopolitical situation and the record-high level of energy prices, triggered by Russian invasion of Ukraine, pose an unprecedented challenge for the European fertilizer industry.
With gas representing up to 90% of the variable costs in fertilizer production, gas prices - 10 times higher than last year and 7-10 times compared to other parts of the world - led to the curtailment of around 70% of European ammonia production capacity by the end of August 2022.
With natural gas prices falling, some producers were able to restart production in October, however, a significant portion of European capacity is still on hold. This poses serious threats not only for the EU strategic autonomy in food production, but also to the crucial role of the EU in leading the green transition.
This challenging situation coupled with fears of shortages of fertilizers caused European farmers to reduce their consumption of nitrogen fertilizers by 11% in the past season and led to an increase in fertilizer imports, especially urea, 40% more in 2022 compared to 2020. This is a negative development for fertilizer producers, farmers and the EU’s environmental goals considering the lower efficiency and higher environmental footprint of straight urea compared to nitrate-based fertilizers. The European fertilizer industry has been calling on the European Commission and Member States to undertake urgent corrective measures to allow the industry to restart production in the short term, and to rethink how to ensure that the EU industry can continue to support farmers and deliver food security in the long term.
The EU is already a net importer of nitrogen fertilizers: in 2020 imports reached the equivalent of 30% of internal consumption. However, with 50% of global food production due to the use of mineral fertilizers, having a strong domestic industry is crucial to achieve the EU long-term objective of strategic autonomy. The European Commission’s Communication on Ensuring Availability and Affordability of Fertilizers was a welcomed development, however, it can only represent a first step. We need a comprehensive strategy that will address both the short-term and long-term challenges. and will provide adequate support for the transition to a low-carbon fertilizer industry.
Support the European industry restarting its production
With natural gas being today the key input for fertilizer production, swift implementation of decisive measures to limit the pressure of gas prices and their volatility is crucial.
Financial support from governments must be made available both to support the industry restarting its production and to provide European farmers with adequate means to incentivize their purchase of European nitrogen fertilizers. The Temporary Crisis Framework for State Aid Measures to Support the Economy was a step in a right direction, but for it to provide a real support it is crucial that the necessary flexibilities are granted. The European Commission July’s guidelines on prioritisation of the fertilizer industry in case of possible gas shortages is an important recognition and a crucial tool in case of serious short-term disturbances of the gas market. The price of nitrogen fertilizers is set by the global market supply/demand mechanism. In order to have a strong domestic industry, it must be ensured that it will stay economic to produce fertilizers in Europe. European producers have had to face competition with other international players benefitting both from low gas prices and a very strong international commodity market over the last year.
Long-term strategy for a future-proof fertilizer industry
Supporting a strong domestic fertilizer industry also means supporting the transition to a more sustainable and resilient fertilizer production. The industry has already an excellent record in decreasing GHG emissions and is investing in technologies such as green ammonia and low carbon fertilizers, that will reduce its carbon footprint up to 90%. The fertilizers sector represents an engine for decarbonization, and the progress achieved in the green transition should not be jeopardized. Providing support to accelerate this green transition will not only reduce the sector's and many crops’ footprint – (e.g 20% for wheat, reducing bread’s production footprint by 12%) - but will also play a crucial role in reducing dependency on Russian gas and raw materials. Green ammonia holds great potential to decarbonise food systems as well as other sectors of the European economy, with long-haul shipping and green chemicals to name the few. Currently the biggest challenge is to upscale such technologies. Therefore, public support for investment and operational costs will be crucial to enable such upscaling.
When it comes to the fertilizer use in agriculture, mineral and organic fertilizers should be viewed as complementary sources of nutrients. A balanced combination of both sources has proven to be the most effective way to ensure the right nutrient balance to grow crops healthy and at their full potential while maintaining soils’ fertility. The EU should take a holistic approach when addressing fertilization.
The fertilizer industry is constantly working to incorporate new technologies and raw material streams in its production, as well as in diminishing the environmental impact of its products through precision and digital farming, knowledge sharing with farmers and innovative new products. We believe that with our experience in plant nutrition and agronomy, we can help to commercialize and efficiently produce new types of fertilizing products that will support farmers in increasing their nutrient use efficiency while producing nutritious food for a growing population.
The fertilizer industry is a vital industry for Europe. It has a fundamental role to play in ensuring food security, contributing to the development of a climate-neutral economy, advancing sustainable farming, and strengthening strategic autonomy in the EU. Moving away from dependency on Russian energy and raw material supplies cannot be achieved by closing plants and moving jobs outside of Europe. We need to work together with policy makers, farmers, and other stakeholders to ensure the resilience and strength of the European fertilizer sector.