The war in Ukraine opened up Brazil’s dependence on Russia and Belarus for fertilizer imports. In the midst of the interruption in the supply of inputs due to the Western embargo on Eastern European countries, the country is looking for alternatives to avoid a damage to Brazilian agribusiness production from the second half of this year.
On Wednesday (2), the minister of Agriculture, Livestock and Supply, Tereza Cristina, said that Brazil has enough fertilizers for planting until October. According to data from market agents gathered by the National Association for the Diffusion of Fertilizers (Anda), however, the available stock at the moment would be exhausted in three months, that is, until the beginning of June.
This is basically the main reason given by President Jair Bolsonaro (PL) for the “balance” position in the war between Russia and Ukraine. “For us, the fertilizer issue is sacred,” the president said in late February.
Despite the favorable climate, Brazilian soil is lacking in nutrients, which makes the use of substances essential for agricultural production. Brazil is now the fourth largest global consumer of fertilizers, behind China, India and the United States, and the world’s largest importer of NPK (nitrogen, phosphorus and potassium).
Dependence on external supplies has been increasing, according to Anda indicators. In 2015, about 70% of the inputs consumed in the country came from abroad. In 2020, the percentage rose to 83%. In the last update, which covers the period until November 2021, the share of foreign products was close to 85%. In the case of potassium inputs, the rate is even higher: 98% of what is used in Brazil is imported.
At the other end, Russia is the main global supplier of fertilizers. According to the latest edition of the Logistics Bulletin of the National Supply Company (Conab), the country is responsible for around 20% of the world production of the product and the origin of 28% of Brazilian imports. In the specific case of ammonium nitrate, Russia is practically the only supplier to Brazil.
This dependence makes any shock weigh on the Brazilian economy, which is heavily dependent on agribusiness. Data on the country’s trade balance in February, released on Thursday (3) by the Ministry of Economy’s Foreign Trade Secretariat (Secex), show that the price paid per ton of imported fertilizer rose, on average, by 128.8%. compared to the same month last year – and that still without the impact of the invasion of Russian forces into Ukrainian territory.
According to data from Anda, demand for fertilizers in 2021 grew 14.2% compared to 2020, when an increase of 11.9% had already been observed compared to 2019.
Government has a plan, but dependence on imports will not be resolved anytime soon
“We are heavily dependent on imported products, but this is not something that can be solved overnight”, says Jeferson Souza, fertilizer market analyst at Agrinvest consultancy. For him, it is still too early to say that the crisis in Eastern Europe will lead to a lack of inputs for Brazilian agriculture. “You can’t say it’s going to be missing, but it’s a risk that now has to be put into play,” he says.
The warning had already been raised last year, when fertilizer prices soared on the back of rising global energy costs and sanctions that Belarus already suffered from the United States, United Kingdom and the European Union in retaliation for Alexander Lukashenko’s government violations of human rights of immigrants. More than two million tons of potassium chloride that Brazil would import had already been compromised as a result of the restrictions.
On Tuesday (1st), the ambassador of Belarus to Brazil, Sergey Lukashevich, said that sales of fertilizers to Brazil were interrupted after the ban on the flow of cargo by Lithuania, which closed borders after the beginning of the Russian invasion. to Ukraine.
On the Russian side, President Vladimir Putin even assured Bolsonaro, during the Brazilian president’s visit to Moscow in February, that he would maintain the supply of fertilizers to Brazil. On Friday (4), however, the Russian government recommended that manufacturers suspend exports due to the disorganization of the logistics chain.
At least for now, Brazil would not have been affected by the suspension, according to Minister Tereza Cristina. On Friday (4), she said she had received information about a shipment of fertilizers, which took place that day, from the Russian company Acron to Brazil.
The blockade of the Swift international transfer system to Russia and the interruption of the flow of Russian ships, however, tends to hamper or even prevent the supply in the sequence.
Also in January 2021, the government instituted, through Decree 10,605, an inter-ministerial working group with the objective of developing the so-called National Fertilizer Plan, in an effort to strengthen domestic production of inputs. The action, however, has not yet been launched and is now scheduled for the next few days, according to the Ministry of Agriculture, Livestock and Supply (Mapa).
“This plan, which we made a year ago, without foreseeing any of this, was that the government thought we should have so that Brazil, which is an agri-food power, had a plan of at least 50% to 60% of own production of its fertilizers”, said minister Tereza Cristina at a press conference on Wednesday (2).
For the Agrinvest analyst, however, any measure taken in this direction will take a long time to take effect. “It won’t be in 2022, nor in 2023. It has to be a decades-long project”, he says. “Brazil has some reserves, but with a complicated location, with logistical obstacles and environmental issues”, he explains.
Potassium chloride deposit is in the Amazon and close to indigenous territory
He cites, as an example, the city of Autazes, in Amazonas, where a reserve of potassium chloride could supply 2.4 million tons of the compound per year. The Amaggi conglomerate, owned by former Agriculture Minister Blairo Maggi, recently announced its intention to enter the fertilizer segment with an investment to build a mine in the region. The deposit, however, is located in the middle of the Amazon rainforest and close to the territory of the Mura indigenous population.
On Wednesday (2), faced with the risk of shortages in the fertilizer market in Brazil due to the war in Ukraine, Bolsonaro defended mining in indigenous lands as a measure to reduce the country’s dependence on imported products.
Importing is cheaper than producing in Brazil. Vale and Petrobras left the deal
“There are environmental, logistical and infrastructure costs, which make it much cheaper to import raw materials,” says Souza. “It’s a geological issue. If we look at the global map, most of the production is in the Northern Hemisphere”, explains the consultant, who also mentions the quality of the mineral available as a decisive factor.
He recalls that large Brazilian companies have already invested in the production of fertilizers in the national territory, but ended up leaving the sector in the face of the unfeasibility of the business. This is the case with Vale, which sold its phosphate mines and phosphorus and sulfuric acid plants to US-based Mosaic in 2018.
Petrobras disposed of the four nitrogen plants in its portfolio in its plan to focus its business on oil exploration and production. Two of them, in Laranjeiras (SE) and Camaçari (BA), were leased by the Unigel group. The Araucária (PR) unit has been disabled since 2020 after suffering a loss of R$ 250 million in 2019.
The Três Lagoas (MS) plant, still under construction, was being negotiated with the Russian group Acron, but with the beginning of the war in Ukraine and the blockade of the Russian financial system, the outcome of the negotiation is on hold.
On another front, the federal state-owned Indústria Nucleares do Brasil (INB) has a partnership with fertilizer manufacturer Galvani for a uranium and phosphate mining project in Santa Quitéria (CE). Minerals are found in an associated form on site. In the consortium, Galvani will own the phosphate, for the production of high-grade phosphate fertilizers, and INB, with the uranium, which will be used as fuel for the Angra 1, 2 and 3 nuclear plants.
Although important, the production of fertilizer at this mine will not meet all the country’s needs. According to INB, it should increase the national production of phosphates by 10%. In interview with the website Petronotícias, the president of INB, Carlos Freire, stated that the enterprise will “safely” meet the demand of the North and Northeast regions, where the main agricultural frontiers of the country are located. According to him, the expectation is to start exploring the deposit in mid-2024.
While dependence on external supply continues, Brazil tries to increase purchases from other suppliers. In February, during a visit by the Minister of Agriculture to Iran, the Iranian state company National Petrochemical Company (NPC) declared that it could triple urea exports to Brazil, reaching two million tons per year. On the 12th, Cristina should travel to Canada to negotiate an increase in potash exports to Brazil.
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