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The Ministry of Agriculture reports a shock increase in fertilizer consumption in the country. With a radical increase in domestic demand, Russia is successfully regaining its position in exports after last year's recession, despite the opposition of the West.

PhosAgro's shipments to India increased almost six-fold in 2022, to 2.8 million tons.

The Minister of Agriculture of Russia Dmitry Patrushev told the deputies of the State Duma that by the end of 2023, domestic enterprises will purchase 5.4 million tons of mineral fertilizers. At the same time, the volume of fertilizer application will grow to 65 kilograms per hectare. For comparison: in 2018, the Ministry of Agriculture estimated this figure at 40 kilograms per hectare, and by 2025, the department expects to reach 80.

Rosstat operates with even more eloquent figures. According to him, the volume of fertilizer application in Russia was 18.7 kilograms per hectare in 2000, increased to 38 by 2010 and reached 74.6 in 2021.

So, the domestic demand for mineral fertilizers in Russia is steadily growing, returning to the peak indicators of the Soviet years (88 kilograms per hectare in 1990). For the traditionally export-oriented post-Soviet mineral fertilizers industry, this is a huge shift: the share of exports decreased from 80% of production in the 2000s to 58% in 2022.

Last year, exports fell by 15% in physical terms. Although Russian fertilizers have not formally entered the perimeter of direct sanctions bans of unfriendly countries, their banks, insurers and logistics seem to have done everything possible to kick competitors out of the market.

In a prosperous 2021, Russia exported 37.5 million tons of mineral fertilizers, while the total global demand for them is now estimated by the IFA (International Association of Fertilizer Producers) at 210 million tons. At the beginning of 2022, our country accounted for 12% of world production and 15% of world exports of mineral fertilizers. It is not so easy to "cancel" such a major player.

In fact, Russian companies have good prospects in the domestic market, but their share in the global situation is too large to refuse to export.

We are losing the West, we are going to the East

"Starting from June‒July 2022, Russian fertilizer producers began to recover from the sanctions pressure, to find new alternative ways of supply — to leave the Baltic ports to the ports of the Russian Federation, to increase exports to friendly countries," the president of the Russian Association of Fertilizer Producers (RAPU) Andrey Guryev.states. 

Indeed, the geography of Russian fertilizer exports has changed radically in 2022: Supplies to Europe have decreased, mainly in terms of potash and phosphorus-containing products, and shipments to Southeast Asia and India have significantly increased. Sales in 2022, compared with 2021, immediately tripled to 3.6 million tons.

As a representative of PhosAgro told the Expert, last year the company sent 2.8 million tons of phosphorus fertilizers to India — almost six times more than in 2021 (for comparison, 2.9 million tons went to the domestic market), about 1.3 million tons were bought by Brazil. PhosAgro's shipments to the largest Latin American market have increased by more than 60% over the past ten years.

At the same time, the volume of shipments to the Baltic States (primarily for re—export through its ports) in 2022 decreased fourfold in the industry as a whole to the level of the previous year, in the western direction (via Belarus) - three times.

The most important channels for the export of domestic mineral fertilizers in 2022 were the Russian ports of the Black Sea and the Baltic, which at the same time did not increase, but only retained the previously achieved indicators for the transshipment of products.

But the way through the ports of the Far East, despite the export "turn to the East", did not appear: the railway network of the eastern regions of Russia, already clogged with coal and containers, prevented, and the capacity of the port infrastructure in such unconventional areas for the export of fertilizers was not enough.

Running boards from "partners"

The fifth package of EU anti-Russian sanctions included restrictions on the import of mineral fertilizers from Russia, but simultaneously with its adoption, the European Union and the United States added fertilizers to the list of essential goods, thereby removing them from the sanctions list. However, continental Europe and the United Kingdom have introduced quotas for the permissible supply of potash and mixed potash-containing fertilizers. According to industry experts, this is due to the desire to prevent the re-export of Belarusian products through Russia.

But despite the absence of a formal ban, many large and small obstacles were erected on the way of exporting domestic fertilizers. "Last year we were faced with the refusal of transport companies to provide vessels for the transportation of goods of Russian origin, refusal to insure transportation from the Russian Federation, restrictions on ship calls to our ports," PhosAgro told the Expert. — Western banks limit the ability of domestic fertilizer producers to receive and transfer funds through their infrastructure, which leads to additional costs and lengthening of payment terms. The most serious problems arose with supplies to Europe, as a result, fertilizer consumption there decreased by 12 percent last year. Russian manufacturers incur higher export costs than foreign competitors. For example, in some periods of 2022, freight rates for shipments to Latin American markets were about two to two and a half times higher than those of our competitors from North Africa and the United States."

Last May, UN Secretary-General Antonio Guterres proposed to ease restrictions on the export of fertilizers from Russia and Belarus in exchange for the passage of ships with Ukrainian grain. On July twenty-second, 2022, agreements known as the "grain deal" were signed between Russia, Ukraine, Turkey and the United Nations.

The grain deal was supposed to ensure the unhindered supply of Russian food and fertilizers to world markets, eliminating the obstacles that the US and the EU have created in the field of finance, insurance and logistics. The Ministry of Foreign Affairs, in particular, demanded the reconnection of the Rosselkhoznadzor to the SWIFT information transmission system, the lifting of restrictions on insurance and reinsurance, the lifting of the ban on access to ports, as well as the unblocking of foreign assets and accounts of Russian companies related to the production and transportation of food and fertilizers.

In practice, none of these conditions were met, and in July of this year, the Russian side broke the agreement. However, the problems associated with ensuring the export of fertilizers remained.

Over the past 20 years, the application of fertilizers per hectare of arable land in Russia has quadrupled — up to 75 kg. This led to a dramatic increase in crop yields. Thus, the grain harvest on the same areas doubled

Earned by yourself — will help others

It should be noted that the struggle of the "collective West" against Russian fertilizers was superimposed on the cycle of increasing (often multiple) prices for all types of products that began even before the military operation. As a result, even with a decrease in the physical volume of exports, 2022 turned out to be very profitable for the industry. The Federal Customs Service reported that the revenue of producers from the sale of Russian mineral fertilizers abroad in 2022 amounted to $ 19.3 billion, which is one and a half times higher than the previous year.

This year, world prices for fertilizers have declined, but the industry has already managed to adapt to the new working conditions, and now, according to Andrey Guryev, Russia is gradually restoring the volume of shipments in physical terms. "Exports are likely to reach 38 million tons," the expert predicts. —By the end of 2023, this is no longer possible, but if the first quarter is removed, then in the second, third and fourth quarters, exports should recover to the level of the second, third and fourth quarters of 2021, when sales were record."

It is also good that the export of fertilizers did not become an end in itself for the government — the domestic market was not forgotten either. Back in 2021, the authorities introduced quotas for the export of nitrogen (8.3 million tons) and complex fertilizers with nitrogen content (5.9 million tons). In both cases, their volume is close to the usual export volumes and should not harm producers, but at the same time guarantees the supply of fertilizers to domestic consumers.

From January 1, export duties on mineral fertilizers in the amount of 23.5% were introduced in Russia for a year, which were effective in the event of a rise in the price of fertilizers above $ 450 per ton; cheaper products were not taxed. From September 1, the duty was 7% (already without reference to the customs value), and from October 1, the rate of 10% will appear, provided the exchange rate is above 80 rubles per dollar.

We must pay tribute: more than 1.3 trillion rubles have been allocated for the development of the mineral fertilizers industry over the past seven years alone. Production volumes in the country, as follows from Rosstat data, increased by 58% from 2001 to 2021, to 58.9 million tons — mainly due to nitrogen and mixed fertilizers, the production of potash fertilizers before the logistics collapse of 2022 also grew steadily.

A decrease in the physical volume of exports last year led to a decrease in the level of production by 7.5% in the industry as a whole. In a more detailed context, it can be seen that the production of nitrogen fertilizers has only increased (by 5.6% — access to its own gas raw materials has become a bonus for Russia), but potash, traditionally heavily tied to exports (over 77% of finished products in 2021), and even with logistics chains through the Baltic ports, have sunk by a terrible 34% (from 15.4 to 10 million tons).

This year, the production of nitrogen fertilizers continued to grow rapidly (according to the results of the first half of 2023, it increased by 7.4% compared to the same period in 2022), mixed fertilizers recouped last year's losses, and even the potash peak slowed down to a more decent -5.5%.

According to Andrey Guryev, Russian enterprises will significantly expand their capacities in the coming years: "In principle, the industry plans to invest about 1.8–2 trillion rubles over the next seven to ten years. This will make it possible to practically double the output of products or to rebuild the industry for the production of mineral fertilizers. We will strive for 75-80 million tons, this is quite realistic."

It should be noted that the increase in the volume of fertilization in the country (from 18.7 to 74.6 kilograms per hectare in 2000-2021) led to a radical increase in crop yields without an equally radical increase in arable land. For example, the grain harvest on the same areas soared from 65.4 million tons in 2000 to 121.4 million in 2021, the yield on average in the country for the same period rose from 15.6 to 26.7 hundredweight per hectare. The yield of sunflower over the same period increased from 9 to 16.2 quintals per hectare, potatoes — from 105 to 160, vegetables — from 143 to 242.овощей — со 143 до 242.

At the same time, there is a significant potential for further productivity growth in the agricultural sector, including through an increase in fertilizer consumption. Thus, with an average Russian rate of 74.6 kilograms per hectare in the regions of the Black Earth region, Kuban and Stavropol, this figure exceeds 100 kilograms per hectare (this is comparable to American data), while in a number of promising regions for the development of agriculture in the Volga region, Siberia, and the Far East it does not even reach 40.

Source: https://expert.ru/expert/2023/40/i-doyedim-i-vyvezem/?ysclid=ln8t2jdbug61371897