Fertiliser prices were increasing even before Russia invaded Ukraine, a professor says. Photo / 123RF
By Sally Murphy and Andrew McRae of RNZ
Farmers will face increased costs for fertiliser as global demand is affected by import bans and tariff hikes imposed on Russia because of its invasion of Ukraine.
And those higher costs will eventually be passed on to the consumer.
In response to the war, the Government has announced a 35 per cent tariff on all imports from Russia.
In 2021, New Zealand imported nearly $18 million worth of fertiliser from Russia, one of the world's major suppliers.
While this was only about 15 per cent of fertiliser imports last year, worth $1.03 billion, the loss of Russian fertiliser on the world market will be keenly felt.
Lincoln University Professor of Agricultural Economics Alan Renwick said it will have a major knock-on impact on food prices generally.
''We are in competition for the fertiliser that is available and clearly, it will go to where the highest price is paid, so if there is a disturbance in the market such as that, then our prices will rise.''
He said fertiliser prices were increasing even before Russia invaded Ukraine.
''Fertiliser requires a lot of natural gas in its production and those prices have been rising, so there was already major pressure on fertiliser prices before the Russian, Ukraine incident occurred.''
He said the Ukraine crisis had exacerbated the situation.
''This was a real response in a sense partly to the higher fuel prices that were occurring as we were moving out of Covid and the world was getting going again. It has just made a bad situation worse."
Fertiliser Association chief executive Vera Power said the international market was being squeezed.
"At the same time a lot of other countries are looking to secure their own supplies, so they are exporting less and this comes on top of already strained shipping challenges around the world.
"It is certainly making for a very complex international environment.''
Power said the two major fertiliser companies, Ballance Agri Nutrients and Ravensdown, had not been importing product from Russia recently.
She said fertilisers came from a number of countries, including China, Canada, Saudi Arabia, Vietnam and South Africa.
''There's a huge range of countries.''
''The relationships that the major co-ops have internationally become increasingly important," she said.
Renwick said the two co-ops, which were responsible for about 95 per cent of the imports, will continue to source supplies elsewhere.
''Maybe not a case of we can't get the fertiliser but the fact is we are going to have to pay top dollar to get that fertiliser and that is where the pressure is going to come on to our cost of production, particularly in our dairy sector, where they obviously use a lot for grass to increase dairy production.''
Last year 2.7m tonnes of fertiliser was imported into New Zealand.
Colin Hirst from Federated Farmers said farmers can use less fertiliser for a while, but there was a limit.
''... we can normally handle a year or two of not putting as much on or not at all. It is that whole price versus value thing that farmers will always try and work out and see how it all might pan out.
"Potentially they will use a whole lot less until the prices come back to a more reasonable figure I suppose.''
''It will catch up with you eventually, so it's about maintaining the existing levels of the elements in the soil. If you don't maintain those levels, your productivity will fall away.''
He said the reduction in the use of fertilisers applied to phosphate and potassium, but not nitrogen.
Hirst said the three big expenses for farmers were interest rates, fertiliser and then labour.
On his South Canterbury arable farm he spent about $250,000 a year on fertiliser.
''And we are facing probably a 30 per cent rise on that.''
Professor Renwick said when prices rose farmers needed to think very carefully about how they used fertiliser and consider other options.
''Maybe use legumes or nitrogen-fixing plants in our system. We can move to perhaps more use of organic fertilisers.
"There is a range of things we can apply to make sure we are getting the maximum out of the fertiliser we are using. It is as much about timing and reducing a little bit but it has a major impact on the system, that is for sure.''
Power said there was no risk of the country running out of fertiliser.
Volumes were lighter as investors are thinking more about the summer holidays.