FILE PHOTO: Mill manager Josh Wheeler examines a pile of processed potash at the Mosaic Potash Colonsay mine storage facility in Colonsay, Saskatchewan in this September 24, 2009 file photo. Picture taken September 24, 2009. REUTERS/David Stobbe/File Photo
The European Union’s (EU) efforts to limit Russia’s war chest will likely continue to intensify despite news of a potential ceasefire with Ukraine, as the EU must now shoulder more responsibility for its own security given the rupture in the transatlantic alliance.
Yet the bloc continues to overlook one of the Kremlin’s critical revenue channels: fertilisers.
Russian fertiliser exports to the EU surged by over 33% last year alone, reaching 6.2 million tonnes worth over 2.2bil or about US$2.4bil.
This trade, exempt from sanctions, generated an estimated 550mil in tax revenue for the Russian state.
Poland, by far the biggest buyer of Russian fertilisers, saw purchases more than double last year.
The war in Ukraine disrupted global energy markets, which significantly reduced the EU’s domestic fertiliser production.
The price of natural gas, the main input commodity for the production of fertilisers, surged to record-high levels following the onset of the conflict, and at one point, roughly 70% of ammonia production capacity in Europe was either shut down or idled.
Russian producers have successfully tapped this supply gap to expand sales to the most vulnerable markets.
While the EU has diminished Russian natural gas imports from 40% of the total in 2021 to around 10% after the halt in the Ukrainian gas transit at the end last year, Russia has taken advantage of its enormous gas production surpluses to successfully replace part of the gas export revenues with fertilisers sales.
This increase in Russian fertiliser sales is not confined to Europe.
Globally, Russian companies have capitalised on post-invasion price volatility by offering fertilisers at steep discounts of over 20%, enabling them to capture greater market share.
South American market
Nowhere is this more evident than in Latin America, where agricultural exports are a core economic driver.
Brazil has become the world’s largest market for Russian fertilisers, accounting for 25% of Moscow’s global sales of around US$4bil per year.
Russia’s fertiliser strategy appears to mirror its historical use of natural gas exports: it leverages supply dependence to secure strategic influence.
By embedding itself in global food-production chains, Moscow has gained new geopolitical leverage, particularly in regions like Latin America and South Asia that are highly exposed to agricultural shocks.
Any future disruption in Russian fertiliser exports, whether from sanctions or market shifts, could have severe implications not just for regional economies, but for global food prices.
Strategic loophole
The fertiliser dependence goes two ways, though.
The Russian fertiliser industry is heavily reliant on exports, with 64% of its production sold abroad. However, the shifting dynamics of the global fertiliser market have opened a strategic loophole allowing several large Russian companies to profit by effectively controlling the fertiliser trade with the European Union.
These leading Russian producers – Uralchem, Acron Group and EuroChem – are consequently flush with cash and expanding aggressively.
EuroChem recently opened a US$1bil fertiliser plant in Brazil, while Uralchem is building major new production facilities in Russia’s Perm region.
The European fertiliser industry, meanwhile, continues to struggle.
Domestic producers face higher labour costs, stricter environmental regulations, and weaker policy support.
To level the playing field, European manufacturers have called for a more forceful response. The industry organisation Fertilisers Europe has proposed an immediate tariff floor of 30%, which would increase every six months.
But some European producers argue that a response now may be too late as Russia has already seized nearly a third of the EU’s fertiliser import market, up from just 17% in 2022.
This has placed domestic producers at a competitive disadvantage and deepened the bloc’s exposure to geopolitical risk.
The EU is also pursuing structural change.
The European Commission is reviewing regulatory constraints under its Nitrates Directive to enable greater use of manure-based fertilisers while addressing environmental concerns such as nitrogen run-off.
However, such transitions will take time, and Russian producers’ grip on the market is continuing to expand now.
The fertiliser trade has become a critical blind spot in Europe’s sanctions regime.
But limiting Russian fertiliser revenues could become a geopolitical necessity now that the bloc can no longer depend on US support in any efforts to pressure Moscow.
Inaction may no longer be an option. — Reuters
Martin Vladimirov is the director of the Geoeconomics Programme of the Centre for the Study of Democracy. The views expressed here are the writer’s own.
