Brazil prioritizes reducing its foreign dependence on fertilizers

Brazil is the largest economic power in South America, with the highest regional GDP. Its economic strength is due in part to the importance of its agribusiness, a sector in which it has always stood out for its high productivity: Brazil is the fourth largest agricultural producer in the world. This not only provides it with a significant income source - by 2023 Brazilian production is expected to reach US$234 billion - but also generates a large number of jobs. employmentwith a total of 28.3 million jobs work. Thus, agribusiness represents a quarter of GDP (in 2022 it accounted for 25% and its weight is expected to continue to grow).

Despite being considerable in numerical terms, agribusiness needs to import certain essential assets to guarantee its productive activity. Thus, Brazil is the fourth largest consumer of fertilizers in the world, accounting for 8% of total world fertilizer consumption. These are substances of which it is the world's leading importer, with an international market share of 16.9% in 2021; in 2022, the country imported a total amount of approximately 34.6 million tons.

Within the broad field of fertilizers, the most significant, in terms of imports, are those containing NPK macronutrients (nitrogen, phosphorus and potassium), which are responsible for providing plantations with the nutrients necessary for proper growth.

The lack of domestic fertilizer production has led the Brazilian government to focus its efforts on the security and affordability of fertilizer supply. However, it was not until recently, with the Covid-19 pandemic and the war in Ukraine, that the government was really encouraged to try to alleviate status through development of the National Fertilizer Plan (PNF).

This analysis intends to show the effects that fertilizer imports have recently had on the country's macroeconomic status , as well as on the crop production chain. It also exposes the strategy being followed by government to overcome this havoc, in order to supply the rising fertilizer consumption, through the promotion of the national industry Chemistry .

Dependence on recent international disruptions

Brazil is 80% dependent on fertilizer imports from abroad. Within this percentage, dependence varies according to the component: 95% for potassium chloride, 80% for nitrates and 60% for phosphates. Of these, the most demanded product is potassium chloride (38% of Brazilian fertilizer consumption), followed by phosphate (33%) and nitrate (29%). It is remarkable that the most used fertilizer is the one that depends most on imports.

It must be admitted that, in the face of both international crises - first the pandemic and then the war in Ukraine - Brazil has shown a certain resilience in securing its supply, but it has not been able to avoid the sharp rise in prices caused by this global situation. The increase in the global price of hydrocarbons increased the cost of mineral extraction (phosphate and potassium), manufacturing (nitrogen fertilizers) and transportation, and the war made it difficult to access a supply in which Russia plays a major role. That translated into an increase in the price of fertilizer and, in turn, of cultivated products, raising inflationary pressure in the country (Brazil's inflation was 8.3% in 2021 and 9.3% in 2022).

Different countries are involved in international fertilizer production, but Russia and Belarus stand out as two of the largest producers. The global stoppage of foreign trade with Russia and the imposition of international economic sanctions on that country made securing supply (both availability and affordability) a matter of utmost necessity. This status has led to an effort on the part of consumer countries to diversify their suppliers. Especially when the demand for fertilizers in Brazil is on the rise, as the area of land dedicated to cultivation is expected to continue to expand. In this regard, fertilizer demand is expected to increase by up to 20% by 2030.

In the coming years, countries such as Canada, Germany and Israel will have even more presence in the supply of fertilizers to Brazil. For now, despite the Government's diversification shift, in 2022 Russia continued to be its main partner in fertilizer supply (22.7% of total imports), followed by Canada (15%) and China (9.6%).

The weight of imports from Russia and Belarus is mainly in potassium chloride (the fertilizer most imported by Brazil); in nitrate, the leading role is played by China, the world's largest producer, while in phosphate it is China, Morocco and the United States, also leaders in production.

Nevertheless, Brazil's imports of potash from Canada have managed to surpass those of Russia and Belarus in 2021, 2022 and 2023. However, despite the fact that Canada is the world leader in the production of the input, its position in the Brazilian market is not so dominant, as Brazil imports from Canada almost as much as from Russia (35% and 34% respectively).

The cost of rising fertilizer prices

In general, fertilizers represent between 30% and 35% of the total costs of a plantation. That is why the increase in the cost of fertilizers has such a high impact on the final price of the products grown. In the 2021-2022 harvest, Brazil disbursed a total of 3.5 billion additionaldollars for the purchase of its fertilizers. The price per ton of fertilizer rose by 63.14% compared to 2021, costing US$649 million per ton.

At the macroeconomic level, one of the main consequences has been the increase in the Brazilian trade deficit in both 2021 and 2022. In 2023, the trade deficit has started to reduce, partly due to the decrease in the total value of fertilizer imports. On the other hand, rising prices, promoted by the increase in the cost of production, have contributed to increasing inflationary pressures in the country in 2021 and 2022. The significant decline in inflation seen in 2023 is due, in part, to the reduction in the price of agricultural products.

This price evolution, first sharply increasing and then decreasing, is reflected in the cost of imports. In 2022, despite a lower volume of fertilizer imports, their value was higher than in 2021. In the case of 2023, with data of the year still to close, it is quite likely at least a noticeable reduction in the value of imports compared to 2022, due to the current global decline in fertilizer prices. The 'global fertilizer index' points to prices experiencing a downward trend with respect to 2022, due to the general decline in both natural gas and oil prices (used for the extraction and transportation of fertilizer). From January to October of this 2023, pricesfell to a average of €0.40/kg, a value 30.50% lower than the same period in 2022.

Regarding the impact on the final product, in general, the price of agricultural products increased significantly for all types of plantations from 2020 to 2022 and decreased from 2022 to 2023. There are factors other than the increase in fertilizer costs that affected the increase in price, such as weather conditions (the B heat wave of the last few months will probably have an impact). But it is clear that in 2023 the price of most agricultural products requiring NPK fertilizers has been reduced, except in the case of sugarcane.

Actions taken by the Government

Brazilian fertilizer demand will continue to grow to 45.2 million tons in 2023, up from 41.1 million tons in 2022. Brazil's 80 million hectares of arable land is poor in nutrients and virtually devoid of fertility, hence the high demand for the input. The high need to import fertilizers, together with both international crises, have fueled the government's search for real and effective solutions to mitigate such high dependence. For this reason, in 2022 Brazil developed the PNF, with the aim of encouraging domestic fertilizer production over the next 28 years. Already in 2022, the country produced a total of 7.5 million tons of NPK; between January and August 2023 production was 4.37 million tons, so the year is expected to close with an increase. By 2050, NPK production is expected to reach 25 million tons, which would supply 55% of total fertilizer consumption. The Brazilian state, in search of financing, will be the promoter of development of national production.

With that goal, investments between 2022 and 2026 of US$5.75 billion have been programmed for mining projects, essential to obtain phosphorus and potassium. In fact, the country has the eighth largest potassium mine in the world, located in the Amazon. reservation potassium mine in the world, located in the Amazon, although its exploitation may give rise to environmental conflicts. The domestic production of nitrogen, on the other hand, presents difficulties in relation to the raw subject used for its extraction and manufacture; natural gas, therefore, is more profitable to import.

New alliances in the sector are expected to begin to emerge, such as one with Bolivia for the production of fertilizers. agreement with Bolivia for the production of fertilizers. Bolivia has the necessary raw materials (mineral fertilizers P and K) and Brazil, specifically business Embrapa, intends to provide the technology for production.

Conclusion

As discussed above, disruptions in the fertilizer chain influence not only the food sector but also the country's own Economics . Ensuring the security of supply and affordability of these inputs not only involves strengthening the functioning of Brazilian agribusiness, but also the welfare of Economics in general.

Currently, thanks to the worldwide drop in the price of natural gas, the country's great diversification efforts and the incentive for domestic production, the cost of agricultural production has been reduced, which has had a positive impact on agribusiness.

As Brazilian fertilizer demand is expected to continue to grow, a significant improvement in domestic fertilizer production is foreseen thanks to the PNF governmental development . This will have a positive impact on reducing external dependence. While it is true that suppliers other than Russia or Belarus will play an increasingly important role, the country does not wish to be dependent on such a large scale on the import of the input, at the risk of having to deal again with a price increase of such magnitude. Nevertheless, the great resilience shown by agribusiness in the face of the disruptions caused by both Covid-19 and the war in Ukraine stands out.