Yesterday there was information about suspending or reducing the production of nitrogen fertilizers in Poland. State treasury companies said the reason was the rise in gas prices. Prime Minister Mateusz Morawiecki commented on the situation, announcing that the two Deputy Prime Ministers: Henrik Kowalczyk and Mishaw Sassen will develop a security mechanism in the fertilizer market. What is it supposed to be?
Details about this were provided during the recent press conference by Mateusz Moravec. He was asked about the availability of fertilizers and their potential increases. We also asked agricultural market representatives how they assessed the decision to suspend fertilizer production in Poland. Below, a detailed analysis and an important question. How much nitrogen fertilizer has been exported by the state treasury during the past six months?
What will happen in the fertilizer market?
– The topic of fertilizers was discussed today during the cabinet meeting. I think the farmers here are especially noticing what we’ve done over the past year. On the one hand, a reduction in the value-added tax on fertilizers, and on the other hand, a fertilizer subsidy: PLN 500 per hectare of arable land, PLN 250 per hectare of meadows and pastures. This is what we have already done. Unfortunately, the prime minister said, Putin’s arsenal contains gas, and this gas is used mercilessly by this aggressor.
This situation affects standard gas prices. Yesterday, the price of a megawatt-hour rose to 291 euros.
For industries for which gas is the primary raw material, sufficiently high prices translate into the final product. That is why today I have asked Prime Minister Kowalczyk and Prime Minister Sasin to work, as soon as possible, on a suitable supply, demand and price mechanism, so that I can once again intervene appropriately in this market, in the fertilizer market. Not just this year, because we’re mainly talking about next year, higher fertilizer prices don’t translate into higher food prices – Morawiecki replied.
The mechanism will be presented at the next or next meeting of the Council of Ministers.
Farmers have a negative opinion about the suspension of production
According to farmers, rumors about the suspension of production appeared earlier. Earlier, restrictions on ammonia production in July were imposed by Yara and BASF.
Expensive fertilizers, according to farmers, will translate into higher prices for food products. They immediately point out that the agricultural producers themselves will not be responsible for this, although unfortunately the narrative on this topic can be built in this way.
Industry opinions on the suspension of fertilizer production
According to the expert from the Department of Economic Analysis of PKO Bank Polski, Dr. Mariusz Dziwulski, the decision to limit fertilizer production was supported by the low profitability of fertilizer production, which is associated with a significant increase in production costs.
World Bank data show that recent months have been characterized by a significant increase in natural gas prices and a simultaneous decline in the prices of some fertilizers, including urea. The demand for fertilizers has decreased due to lower prices for basic agricultural raw materials. According to the Food and Agriculture Organization, global food prices in July, since their peak in March, have fallen by about 12%. Dr. Dziolsky told us that the drop in food prices is mainly due to lower prices for grains and oils.
In his opinion, a decrease in the supply of fertilizers, both domestically and elsewhere, will lead to an increase in their prices, which may limit the affordability of fertilizers in agriculture, given the lower growth in grain prices.
According to Dr. Jacob Olebra of Credit Agricole Bank Polska, the supply situation in the nitrogen fertilizer market is getting tougher.
– This is not the first cases in Europe where companies have stopped production of nitrogen fertilizers due to record gas prices – see the map below. Nitrogen fertilizer prices have already set records, and this is not the end of the increases. Everything will depend on the situation in the gas market, and its prospects do not look optimistic given the risks of the energy crisis in Europe, says Dr. Olbra.
He also adds, more expensive fertilizers will increase plant production costs.
– The high cost of plant production means the high cost of feed, and thus the increase in the cost of animal production. Thus, the noticeable fertilizer shock, which we have been dealing with for more than a year, will continue to spread to a wide range of food categories: from cereals and oilseeds to dairy and meat products. In other words, this is not the end of the increase in food prices in Poland – emphasizes Dr. Jacob Olibra.
According to Monica Petkovska, President of Izba Zbożowo and Faszowa, the decision of Anwil and Grupa Azoty to suspend production of nitrogen fertilizers will worsen the already bad situation in the fertilizer market, but will also affect the prices of food products.
– The ever-increasing rise in gas prices, and consequently fertilizer prices, has worsened the situation of the agri-food sector for several months. We talked about the need for action by the government to improve this situation in October 2021. We have already told Prime Minister Sassin that an increase in fertilizer prices means an increase in the costs of agricultural production, a decrease in its profitability and, as a consequence, a threat to the security of the supply chain. Then it was very opportune to take preventive measures – Piątkowska believes.
As he emphasizes, the producers of nitrogen fertilizers in Poland are state-owned: Anwil and Grupa Azoty. This means that the Ministry of State Assets and the Ministry of Agriculture and Rural Development were and still have the ability to interact and stimulate this sector.
– He should have expected this day. Six months have passed since the outbreak of war in Ukraine. The difficult situation of fertilization continues for the second year in a row. So the question is what measures the government has taken during this time to increase the domestic supply of synthetic fertilizers. The National Food Group was established to stabilize the agricultural market in Poland. At the moment, we can only see government reactions, even in the case of subsidies for the means of production, but we do not see any preventive measures that could secure Polish producers in the future and be more effective, from the point of view of another possible increase in fertilizer prices this fall and spring Next – the head of the IZP told us.
And remember that Poland is not only a large producer of nitrogen fertilizers in Europe, but also an exporter of them.
– This production also took place from March 2022 to August 22 2022. As for the fact that the government has developed a protection strategy for Polish farmers, aimed at adapting to the current situation and securing a specific supply of fertilizers for the coming months – not only for September and October of this It is also reasonable to know how many nitrogen fertilizers have been exported by the state treasury in the past six months? – He finally asks.
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