Article: Challenges in the agriculture sector, and their impact on Fertilizer markets

There are a number of challenges faced by the spread of Covid-19 on the agricultural sector and ultimately on fertilizer consumption. One of these is the reduction in manpower available to harvest crops, particularly cash crops where migrant workers are often widely used and where lockdowns, quarantine and border controls are already causing problems. In the EU, the Commission has issued guidelines to enable a free flow of migrant workers but it remains a concern and in the meantime some farmers are looking to try and delay the harvest by at least a month in the hope that by then the situation will have eased. If not, they face losing whole crops - a prospect which may limit the amount of investment in nutrients for top-up application. A similar situation is evident in India where a shortage of labour is threatening the harvest of winter crops and where there are already reports of rotting and damaged crops due to the inability to harvest.

Any loss of revenue whether through lower prices or loss of crop, will affect the purchasing power of farmers going into the next crop year and therefore potentially the demand for fertilizers. Bottlenecks in logistics and stranded product could lead to less being applied this year leading to a greater carryover of stored product and therefore less demand again for fresh supplies.

A mention here should also be made of the other plague that has the potential to devastate large swathes of crop production. The worst locust infestation for over 25 years is posing a significant threat to the farming sector in East Africa as well as parts of Iran and Southern Asia. On 4 April the FAO described the situation as "extremely alarming in the Horn of Africa, specifically Kenya, Ethiopia and Somalia where widespread breeding is in progress and new swarms are starting to form, representing an unprecedented threat to food security and livelihoods at the beginning of the upcoming cropping season". This could not come at a worse time: combined with the threat of the coronavirus in these vulnerable regions, any further risk to food production is critical. Earlier this year the Pakistan government declared the locust threat as a national emergency and with widespread rainfall at the end of March, a renewed surge in May threatens the western part of the country.

Nevertheless, there is a certain optimism about crop production going forward in anticipation of the need to ensure global food security at this challenging time. The outlook in Brazil, although pessimistic for sugar due to the drop in ethanol demand, is currently optimistic for corn and soy basis good margins and expectations of robust demand. Provided the logistics allow, and currently the government is supporting the movement of fertilizers as an essential commodity, this should prompt a steady flow of fertilizer into the country over the coming weeks and months. However, any constraints in deliveries by truck caused by the spread of the virus, as seen in China earlier this year, will impact eventual consumption.

From a fertilizer supply perspective, the spread of the coronavirus will almost certainly have some impact over the coming months whether directly on the performance of plants themselves, on the local infrastructure and transport systems or on the ability to deliver the product to the consumer, the latter for the reasons mentioned.

Most major fertilizer producers have laid out their operational and contingency plans for keeping the plants running during the epidemic. In both India and Jordan, the lockdown in 2-half March prompted a number of plants to suspend production but this also coincided with the seasonal turnarounds in the industry helping to mitigate the loss of output. Most of these plants have already resumed production or are planning to do so this month.

As the spread of the virus takes hold some production hubs will be more vulnerable than others. Whereas we anticipate that unless there are factors outside their control, the larger more efficient fertilizer producers in certain regions will continue to operate at a stable rate for the foreseeable future, production in some parts of the world are not looking as sure, for example in certain parts of Africa. Phosphate rock mining is relatively labour intensive and there are some reports of a curtailment in production as producers look to reduce the workforce needed at any one time in a bid to protect workers and contain the virus.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.