Food security requires farmers to plan fertiliser reserves

Consistent supply of fertiliser is a critical food security issue, but businesses that depend on fertiliser products need to make rational decisions about securing inventory.

Given the recent sharp increase in prices and supply chain disruption, some businesses may be taking a wait-and-see approach rather than proactively working to secure supplies. That could prove to be a costly mistake.

A careful assessment of global factors influencing commodity prices and unresolved supply chain issues suggests fertiliser prices will remain volatile for the foreseeable future. Another point of concern is port congestion and supply issues that could disrupt access to fertilisers. Good agronomic conditions, including favourable weather forecasts, mean early planting is likely to manifest in fertiliser shortages in the SA and Southern African Development Community markets.

The war in Ukraine is the most obvious cause of the commodity price volatility, with Russian supply cuts leading to rising energy prices globally. High energy prices have important consequences for fertiliser supply. For instance, many European manufacturers rely on Russian natural gas to produce the ammonia used for fertiliser production. In response to reduced gas supplies, big manufacturers have reduced ammonia output, which is likely to result in further price increases.

The changing political landscape in many countries can cause further disruption for the agricultural sector, such as trade restrictions leading to supply issues. China notably has implemented export restrictions that affect global fertiliser supply. The World Bank has identified fertiliser supply as an urgent issue for food security and urged countries to repeal export bans. However, there is no clarity on how the situation will be resolved, resulting in countries prioritising their own local food security. Additional tariffs or export restrictions on fertiliser products would affect both price and supply.

The rising cost of agricultural production is a contributing factor to food inflation, which affects the global demand for fertiliser. Rising food prices incentivise agricultural producers to increase yields, which increases fertiliser demand, to take advantage of a higher price environment. At the same time, producers that cannot secure adequate fertiliser supplies could experience depressed yields, creating further food price inflation pressures (and global food security concerns). This cycle could ultimately reduce global food stocks, which could translate into higher agricultural commodity prices, resulting in increased fertiliser demand, and prices, into the medium term.

Of course, production is only half the story. Supply depends on getting goods to market. Geopolitical tensions, inflation and uneven worldwide demand combine to make global supply chains unpredictable. Global logistics providers have been surprised by persistently high freight rates. Shipping giant Maersk indicated that high freight prices have continued for far longer than expected. High prices coincide with limited shipping availability, which increases shipping lead times.

In Europe, port congestion has been worsened by staff shortages and labour action. In the US, increased and persistent overall demand put pressure on freight supply. In response to these supply chain disruptions, many businesses have moved away from just-in-time models to longer and optimal inventory cycles to ensure security of supply.

The strategic shift away from just-in-time inventory management reflects a broader consensus that supply chain resilience cannot be taken for granted. The potential for ongoing Covid-19 lockdowns in China, not to mention the possibility of unforeseeable Black Swan events, has worsened supply chain disruptions and necessitated that forward-planning becomes a strategic priority.

Analysts have expressed fears that US-China tensions over Taiwan pose a serious threat to global shipping lanes.

Whatever happens to global food prices, farmers face rising diesel prices and cost pressure across the majority of farming requisites. Moreover, businesses should be mindful of local infrastructure issues. The risk of port delays and local supply chain disruptions means farmers may not be able to access inputs when they need them. The situation remains volatile, but farmers can take action to secure adequate fertiliser supplies and create a buffer against price spikes.