BRUSSELS, BELGIUM — Russian fertilizer exports are booming, largely driven by soaring sales to European customers. The trend sparks fierce debates in Europe on whether to subject fertilizer flowing from the east to restrictions, which could fuel food inflation in the European Union (EU). However, an alternative might be much worse, as the risk of fertilizer imports eventually being weaponized by Russia is increasingly possible. 

The EU scaled up Russian fertilizer imports in July to their highest point in 20 months, pushing Russia’s share in European purchases above 30% for the first time since the onset of the Ukrainian war, according to Eurostat data.

Russia’s fertilizer exports to the EU rose by 120% compared to June and 70% compared to July 2023, reaching €199 million. 

Poland became Europe’s largest sales market for Russian fertilizers, doubling its purchases to €55.7 million. France saw a fivefold rise in imports to €31.5 million, and Germany expanded imports by a third to €24.5 million.

In July, Russia was the leading supplier of fertilizer to Europe with a 31% stake, followed by Morocco with €111 million and Egypt with €85 million.

The recent surge in sales triggered a crisis in the European fertilizers industry in which profitability is teething to an edge, though a few years ago quite a few market players harbored ambitious expansion plans. 

Fertilizers Europe, a Brussels-based lobby group, is confident. 

“Benefiting from very low, state-regulated gas prices, Russian fertilizer producers have adopted an aggressive price-undercutting strategy resulting in pushing domestic fertilizer producers out of business,” said Łukasz Pasterski, a spokesperson for Fertilizers Europe. “Around 20% of the EU’s production capacity is temporarily offline. The longer the situation lasts, the greater the risk of temporary closures becoming permanent.”

Fertilizers Europe is calling on the EU and member states officials to take measures to reverse this growing negative trend.

Europe is no stranger to sanctions against fertilizer imports. Belarus, a large potash producer, has been banned from selling its fertilizers to the EU. As a result, over the past several years Belarussian fertilizers in Europe largely have been replaced by deliveries from Canada and Israel, said Doriana Milenkova, analyst for Farm Inputs and Sugar with Rabobank’s RaboResearch.

“Russia, on the other hand, is not banned from exporting fertilizers, as EU sanctions explicitly exclude food supplies and fertilizers,” Milenkova added.

The recent hike in deliveries primarily is attributed to a recovery trend. 

“Trade data indicates that the share of Russian products in the EU market is 25% for 2024, significantly lower than the period from 2014 to 2021,” Milenkova said. “However, Russian exports have shown a recovery in traded volumes after a dip in 2022.” 

This rebound is driven by Russia’s competitive production costs, as Russian producers have access to cheaper feedstocks like natural gas and phosphate rock, which is no longer the case for EU producers, the Rabobank analysts explained.

In this context, the European fertilizer industry is threatened not only by cheaper Russian fertilizers but also by products from other resource-rich regions like North Africa, the Middle East, and the United States, Milenkova said.

Dependency concerns

The EU used to be heavily dependent on natural gas imports from Russia, which the Russian authorities occasionally used as political leverage. 

European fertilizer manufacturers warn that now Russia wants to play the same trick with fertilizers. 

“The EU is in the process of successfully decoupling its economy from Russian gas as a matter of European security and strategic autonomy,” Pasterski said. “Although most of Europe managed to find new sources of gas to replace Russian supplies, Europe is now deepening its dependency on Russian nitrogen fertilizers, which are gas in the solid form. Europe must take all necessary measures to avoid replacing one dependency with another, especially when it comes to a strategic sector such as fertilizer and food.” 

Moreover, the existing pricing policy of the Russian fertilizer exporters suggests that centralized efforts are being made to increase the presence of Russian goods in Europe and kick European competitors out of the game. 

“Currently, Russian producers place fertilizers minimally below the EU fertilizer market price in order to undercut EU producers while maximizing their own profit,” Pasterski said. 

European businesses now fear that the Russian side’s endgame is to push its share of the European market to a critical level, after which possible export restrictions on fertilizer exports would appear to be particularly painful for European agriculture. 

Some recent Russian actions fuel these fears. During a government meeting in September, Russian President Vladimir Putin tasked several ministries with considering imposing restrictions on the export of some critical commodities to “unfriendly countries.” Putin mentioned uranium and titanium as examples of what could be banned but indicated that the counter-sanctions list could be broader than that. 

However, the Russian strategy of keeping prices just below the level of European manufacturers also means that possible restrictions would be manageable for European farmers. As long as the price gap between Russian and European fertilizers is not huge, the production costs along the supply chain will experience only a moderate impact, and European food inflation should not also accelerate. 

“As a precautionary measure, the EU could introduce a phase-out period between the announcement of measures and their enforcement,” Pasterski said. “This would allow time for any market adjustments, including the resuming of full domestic production. The EU market would also remain open for imports from other exporters.” 

Rabobank analysts, however, said the risks of Russian dominance in the European fertilizers market are not very high. 

“EU has various alternative sources for fertilizers supply,” Milenkova said. “Production curtailment amid the 2022 gas price hike only expanded those options. For example, the share of Egypt and Morocco imports increased. In this respect, we do not expect ‘dependence on Russian fertilizers’ to grow in the EU.”

Self-destructive move

Russian analysts suggest that the problems in the European fertilizer industry run far deeper than just the fierce competition with Russian imports. They said banning deliveries from Russia, in this context, would be equal to “shooting yourself in the foot.” 

It is unlikely that EU consumers will be able to find a reasonable alternative to Russian fertilizers, Leonid Khazanov, an independent Russian analyst, claimed. 

“They (Russian fertilizers) will most likely find a replacement (to European customers) in the face of farmers from China, India, Brazil, and African countries,” Khazanov said. “They will willingly buy mineral fertilizers exported from our country.” 

Russian analyst Kirill Klimentyev added, “The purpose of sanctions is to cause economic damage to the country against which they are imposed. In the case (of European restrictions against Russian fertilizers imports), Russia will be able to find another buyer for high-quality and cheap fertilizers. Europe will have to replace a large supplier, bearing higher costs.”

Indeed, in addition to Europe, Russia saw a surge in fertilizer exports to India and Brazil in 2024. 

As a result, Andrey Guryev, head of the Russian Fertilizers Manufacturers Association, forecasts a 10% increase in Russian fertilizer production to a record 64 million tonnes in 2024 and an increase in fertilizer exports to the level of 2021. 

According to the Federal Customs Service, Russian fertilizer exports amounted to 37.6 million tonnes, including 14.5 million tonnes of nitrogen, 11.9 million tonnes of potash, and 11.2 million tonnes of complex fertilizers. The overall export value was estimated at $12.5 billion. 

Fertilizer production in Russia may grow to 63 million tonnes, including up to 30 million tonnes of nitrogen fertilizers, up to 16 million tonnes of potash, and around 17 million tonnes of complex fertilizers, Elena Sakhnova, an independent analyst, calculated. Exports, she added, may amount to 40 million tonnes, including 18 million tonnes of nitrogen fertilizers, 12 million tonnes of potash and 10 million tonnes of complex fertilizers.  

“Russia and Belarus exports have successfully found new destinations, most notably India and Brazil, which require significant volumes of imported fertilizers for their large agricultural sectors,” Milenkova said.

However, the potential European sanctions would not be entirely painless for the Russian fertilizers industry. If the analogy with Russian natural gas exports is extended to the fertilizer trade, the future of Russian fertilizer manufacturers following the possible European ban seems rather grim. 

Before 2022, the Russian natural gas monopoly Gazprom was the highest earner in the Russian economy. However, in 2023, Gazprom plunged to a net loss of 629 billion roubles ($6.9 billion), its first annual loss in more than 20 years. Russian analysts indicated that the financial performance was ruined amid dwindling gas trade with Europe, once its primary sales market.

A drop in sales to Europe is only the tip of the iceberg. Reports indicate that other Russian trade partners have started demanding more attractive prices on new contracts, taking advantage of the vulnerable Russian position when the choice of sales market became limited.