Europe's farmers – including those in the UK – are paying between £185 and £255 per tonne more to import fertiliser than farmers in most other food-producing countries across the globe.

UK importers this week are paying around £925/t for DAP (diammonium phosphate) 18:46:0, which would cost roughly £740/t in the US, and £670/t in Brazil and India.

At farmer level, it is even cheaper in countries which subsidize fertiliser such as India, where farmers are buying DAP at just £302/t, around 30% of the likely price paid by farmers in the UK and EU just now. Meanwhile China has placed an export ban on phosphate which has driven their DAP price down to around £430/t.

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However, according to Tom McIvor from mineral and fertiliser experts CRU, fertiliser prices could have peaked and may soon be on the way down. His analysis suggests that whilst nitrogen prices remain tied to gas volatility the price of phosphates and potash could be coming down in the next 12 months. He said: “Demand destruction is really kicking in globally, with some markets now seeing 10 to 40% drops in consumption.

"Phosphate suppliers like China, Saudi Arabia and the US may look to move product to Europe due to its high premium, while Morocco’s OCP may look to increase its sales to the region, adding more downside pressure in 2023. We are also seeing Russia getting back into the European market within quota limits for NPKs. The limit is having little impact as it is set at the average over the last three or four years.”

These increased supplies should pull the premium paid by European farmers down over the rest of the world.

China, one of the big three phosphates producers alongside Morocco and Russia, could push significant volumes onto the market from April next year. To keep domestic fertiliser prices low, the Chinese government has restricted and even banned the export of DAP and MAP (monoammonium phosphate) with zero currently permitted to leave the nation from January til April 2023. However Mr McIvor believes that China might permit more export volumes in Q1 next year with Q2 seeing a dramatic rise in supply. The price for DAP and MAP has been so low in China that some factories have stopped producing until the price rises.

In the medium term, exports from China should remain low as there is a limited amount of phosphate rock in the country and they have historically been reluctant to import phosphate raw materials. This is likely to result in reduced granular phosphate production over time with indications that the Chinese turn in and focus on satisfying domestic demand.

Morocco, which has an annual capacity to produce 13mt of granular phosphate, could also be in line to increase supply in the coming months. Following the price spike in spring 2022 when prices tripled to near four digits for typical seed bed fertiliser in Europe, the African kingdom cut production by 50%. This allowed the state to continue to receive the same revenue for a smaller volume of sales and prolong the price spike through tightening supply.

Mr McIvor believes that despite western sanctions on Russia, their sector is thriving. “The sanctions from the war with Ukraine were predicted to cut their ability to export and result in their pricing dropping and dropping. But instead, it went the other way round with the key producers in Russia not losing any sales. In fact, the half year net profit for PhosAgro [a giant Russian fertiliser manufacturer] was over $2bn the highest of all phosphate producers. These companies were able to take advantage of the high price environment caused by fear on the impact of the sanctions. The Russian suppliers of fertiliser were able to reorganise sales and switched supplies to Brazil and India and away from Europe. We are even beginning to see more and more sales to Europe from Russia with DAP, MAP and NPK finding its way in.

“There is some hesitancy from European buyers to purchase Russian fertiliser with concern over payment methods and insurance liabilities. It remains to be seen whether the large DAP/NPK plant at Lifosa in Lithuania will regain the ability to import raw materials which would bring that plant back online, adding further coveted supply to the continent.”

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Similarly Russia has also seen increased revenues from its potash production. Sales volume has only dipped roughly 10% in H1 2022 whilst Northwest Europe’s granular MOP prices jumped from €245/t in May 2021 to €875/t in April 2022, according to Fertilizer Week. European buyers have been replaced by China, India and Brazil who have increased purchases from Russia.

However one major potash producing country, Belarus, has seen sanctions damage their industry. Historically Belarus worked with Russia through the company BPC and controlled the world potash market alongside the other giant exporter CANPOTEX in Canada and the US. These companies ensured that prices were kept stable and low enough to prevent new entrants to the market. However from 2011, the agreement between Belarus and Russia broke apart splitting the company into Belaruskali and Russia’s Uralkali. Furthermore Russian suppliers such as Eurochem started to appear along side new countries making Potash such as Laos in South East Asia. This changed the control and dynamic of the market and increased the level of volatility.

Belarus is now almost completely cut off from the global market with its only route through Russia. Whilst Russia has an agreement allowing Belarusian potash to be exported from their ports, the Russian material has preference and takes most of the export capacity leaving Belarusian material stranded. Recently Belarus has been exporting smaller volumes through the trans-Siberian railway to central Asia but Belarusian export volumes are still below 20% of 2021 levels.

Knocking Belarus out of the market has pushed prices up but Canadian production is set to rise to reduce the shortage of potash on the global market. Annually India and China come onto the market to place massive orders which sets global prices. This year China entered the market just before the war in Ukraine and were purchasing potash at $590/t before it went on to double a few weeks later. When China comes back to the market in spring 2023, Mr McIvor predicts the potash market will have cooled and they might end up paying around $500/t and have missed out on the massive price spike cause by the Ukraine sanctions. Meanwhile India bought heavily and expensively in spring 2022 so look to be well stocked going into their second annual purchase period.