Ukraine-Russia Conflict: Lingering Impact on Farmers

Jim Rogers Agri-business, Exports/Imports, Trade

By Clint Thompson

The longer the conflict in the Ukraine lingers the added impact it will have on input costs farmers are forced to pay, mainly for fertilizer.

Impact on Farmers

Veronica Nigh, economist with American Farm Bureau Federation (AFBF), discusses the situation.

Veronica Nigh

“I think what this last year and the last couple of months in particular have pointed out, these are globally traded products. Even if you’re not the one necessarily buying from a particular market, somebody is. When a large supplier is out of the market, it makes a huge difference; impacting everybody who buys that product whether they’re buying from that particular country or not,” Nigh said. “About 44% of the world’s fertilizer is traded. It has a big impact when Russia’s out of the market.”

Nigh said that all of the primary fertilizers that growers use are up 30%, a number that increased significantly after the war started in late February.

“The markets jumped pretty hard right after the war started. They topped out at the beginning of April, but they haven’t come down much. Ascent has slowed some, and I think that’s partly because the purchasing for fertilizer, for the spring at least, has slowed down considerably,” Nigh said. “The prices aren’t receding because it’s clear that Russia thought they’d be in and out of Ukraine in about six weeks. The Ukranians are hanging in there a lot longer than the Russians thought they would. Markets are now trying to say, this isn’t a temporary blip. We might be looking at a multi-month, perhaps multi-year situation. Normal seasonal increases aren’t really coming down much because the market’s trying to rationalize what’s going on out there.”

Growers should also be mindful that once the conflict ends, fertilizer expenses won’t normalize immediately. It will take time to rebuild infrastructure, including roads, bridges and ports.

“I think it’s easy to forget sometimes, this is a war that’s having actual physical damage on infrastructure. How much infrastructure in Ukraine and Russia are damaged will have an impact on how quickly products get back out on the market,” Nigh said.

Russia is the single largest exporter of nitrogen, about 17% of global supply. It is also the third largest exporter of phosphate, about 13% of supply; and it is the third largest exporter of potassium, about 17% of supply. It will also take some time to resolve what country is willing to trade with who once the conflict ends, which should directly impact U.S. farmers.

“Russia has made a list of friendly countries and unfriendly countries. The unfriendly countries are those like the U.S. and the E.U. that have put sanctions on them. They’ve decided not to export fertilizer to those countries,” Nigh said. “If you’re on that unfriendly country list that means you’re trying to find fertilizer from other sources. All of those things have a tendency to make things more expensive and take a longer amount of time to source product.”