Fertiliser price hikes

As you know, the cost of fertiliser has gone up a lot. It is difficult to believe that just 12 months ago nitrogen fertiliser cost around £200 /t. You have told us prices are over £600 /t now, and it is not just nitrogen: phosphate and potash prices have also increased a lot.
Grain, milk, and beef prices have also risen, but not to the same extent. Fertiliser and other input cost increases will have a big influence on business planning for next season. Can these costs be absorbed? Beyond the price rise headlines, what do these costs look like as a proportion of output if prices continue to rise?

Why are fertiliser prices so high?

The phrase ‘perfect storm’ is cropping up a lot nowadays. Many NFU Scotland members are feeling well and truly storm battered. But what has caused this particular storm?

There is an increased global demand for fertilisers as food production increases to feed a growing population. As a result, policies have been put in place in major fertiliser-producing countries like China and Russia to reduce or ban trade. Energy costs have risen significantly, particularly for gas. Increased demand for LPG in China, low European reserves, reduced flows from UK gas fields, and an over-reliance on Russian gas supplies have collectively put the gas price through the roof in Europe. This has reduced fertiliser production. You will be well aware that CF Fertiliser (based in England) stopped producing in 2021 because of cost. On top of this, Britain is a globally small and relatively unimportant fertiliser market, and Britain’s poor port infrastructure limits what can be imported. This is made worse by post-Brexit customs requirements, storage related requirements, and restricted storage.

An uncertain global outlook

With less European fertiliser being produced and increased global demand, there are predictions of a fertiliser shortfall across Europe that could last for a while. There are a lot of things that need to change to reduce fertiliser price, including energy costs, trade policies of fertiliser producing countries, and global crop demand. The price of gas has been in the news recently, with predictions that it will remain high in 2023, which does not bode well. On top of everything, conflict between Russia (a major supplier of gas) and Ukraine (a major grain producer) would have a big impact on the price of fertiliser and grain.

What can be done about it?

The global nature of this problem makes it a difficult one for Scottish or UK policy to address. It highlights the importance of maintaining direct payments to farmers, to buffer Scotland’s rural economy against these periods of high input costs. Farmers in England are having to contend with significant annual cuts to their Basic Payments, with many businesses facing a cut of over 20% this year, rising to over 50% in a couple of years, and disappearing altogether after 2027. If this happened in Scotland it would likely reduce production, hitting businesses up and down the supply chain.

It also highlights the importance of domestic fertiliser production. Without it, fertiliser prices will be even higher and more volatile, at higher risk of supply chain disruption, and less likely to be available. Domestic fertiliser production is strategically important for domestic food production.

If these high prices are the new normal, it could drive innovation, incentivising the development and uptake of new and existing approaches to soil management to improve nutrient use efficiency. Getting the right nutrients in the right place at the right time within a field will be much more efficient, increasing yield, reducing costs, and reducing the risk of nitrogen loss to water and the air. This will benefit farm businesses and the environment: a win-win.

NFU Scotland are asking the UK and Scottish governments to:

1. Maintain direct payments to buffer the rural economy against volatile and high input prices.
2. Support domestic fertiliser production (CF Fertilisers): it is strategically important for resilient food production and Scotland’s rural economy.
3. Provide capital grant funding to support precision application of fertiliser and other innovations that improve nutrient use efficiency. 
4. Supporting fairer returns in commodity supply chains to improve financial margins.
   

What can you do?

Get the calculator out and plan. There are a wide range of information sources out there to support nutrient planning from places like FAS and AHDB that can help you plan and make the right decisions for your business. AIC also support a nutrient management planning tool. The Scottish Government have also announced a £51m National Test Programme to start in 2022 which includes support for nutrient and carbon assessments.

When you are clear on what you are doing next year, speak to your FACTS qualified adviser, agronomist, or merchant, to discuss your plans and look at your options. And the sooner the better. The supply chain is still not operating at full steam, following significant disruption last year. If fertiliser supply is limited, it is important to get orders in well before the busy spring period. If enough people get their orders in sooner rather than later it should mitigate the spring ordering surge, reducing pressure.