5 Tips to Handle the Global Fertilizer Shortage

By Leif Erickson

Fertilizer shortages are continuing to affect agribusinesses globally. These shortages started coming into the spotlight in 2021 because of the ongoing pandemic, geopolitics and supply chain disruptions. Russia’s invasion of Ukraine in February 2022 compounded the issue, as that area of the world accounts for 28% of global fertilizer exports. 

Natural gas prices, a key ingredient in certain types of fertilizer, have also been a point of contention.

Because of these events and others, the price of fertilizer increased across the board, with prices sharply spiking as much as 400% or more last year.

The fertilizer shortages and associated price volatility are some of the latest risks that agribusinesses have to contend with and manage. The question that remains is how is the best way to handle them.

Before you can address the how, it’s important to understand what’s causing the fertilizer shortages and higher prices. Although the Russia-Ukraine war and the subsequent reduction in fertilizer exports from Ukraine, Russia and Belarus have been a major cause for global fertilizer shortages, other circumstances also are shaping the market.

These include China’s decision to continue limiting its own fertilizer exports, the fluctuating price of natural gas and weather conditions. China is the world’s largest exporter of nitrogen and phosphate fertilizers; the country’s decision to cut back its exports in recent years also led to the global shortage and prices increases. High inflation and the surging prices of coal and other commodities also has contributed to the increase in fertilizer prices.

5 Tips to handle the fertilizer shortage

Farmers allocate about 36% of their budget toward the purchase of fertilizer when growing crops. But with less fertilizer available, crop yields could suffer. Here are five ways agribusinesses can manage their risk as uncertainty lingers around sourcing this much-needed agricultural feedstock:

1. Purchase sooner rather than later. Fertilizer prices are higher on average from late March through early June, so agribusinesses should try and secure stock months before it is needed. Because this is a seller’s market, securing fertilizer well before growing season will be in buyers’ best interests.

2. Acquire forward contracts. Agribusinesses often purchase forward contracts for wheat, corn and other agricultural commodities. Buying forward contracts on fertilizer can also help reduce risks related to cost volatility in fertilizer prices.

3. Procure federal crop insurance. With the current geopolitical risk, and the increasing number of weather-related risks such as drought, freezing, wind and hail, it would be prudent to look into federal crop insurance, which is provided by the U.S. Department of Agriculture (USDA), to withstand the impact of a fertilizer shortage on future crop yields.

4. Understand your risk tolerance. Agribusiness owners and managers need to understand how much risk they can tolerate and limit the amount of risk their business is exposed to. Ideally, 80% or more of an agribusiness’s production can be protected through a combination of the above actions.

5. Confer with your insurance broker. Agribusiness brokers can help mitigate the risks related to fertilizer availability and uncertain pricing. They have the expertise to guide you to the tools and risk mitigation strategies to thrive even under the most challenging circumstances.

Looking Ahead

Last September the USDA announced a grant program to increase fertilizer production in the United States. Projects that won grants are expected to increase U.S.-produced fertilizer. This could also help combat the fertilizer shortage.

About the author

As a Farm & Agribusiness leader at global insurance brokerage HUB International, Leif Erickson works directly with farm and business owners to help structure insurance solutions and risk management programs to protect their operations and mitigate their exposure to potential risks.  Leif was born and raised on a small dairy farm in the Blanchardville, WI area and has a true passion for helping farmers.  This background has helped Leif develop programs specific to farming and agriculture, including an exclusive Environmental Liability program.