Comments
A direct economic impact of Russia’s Ukraine war is that prices of food, energy, fertilisers will tend to rise unless the animosities end soon. This is especially due to the fact that Ukraine is a major foodgrain — wheat and corn — producer, Russia, a major supplier of natural gas to Europe, and the Black Sea area is a major hub of fertiliser production and trade.
The conflict has already taken a toll on the energy markets all over Europe. Russia supplies about one-third of Europe’s natural gas supply, the main feedstock to major power and chemical producers who will be forced to shut down the units if gas prices continue to rise.
Heating and power prices are already rising, and media reports say by the month-end the situation is going to worsen for households, businesses and heavy industries which need energy at a fair price to operate comfortably.
For India, the conflict is going to impact fertiliser supplies and prices in a big way. Around 2.4 million tonnes of ammonia was shipped from Pivdenny port (Odessa) in 2021, of which, only 0.15 million tonnes was from Ukraine and the rest from Russia, supplied through the Togliatti Azot and Rossosh pipelines.
Russia is the second-largest producer of ammonia, urea, potash and the fifth-largest producer of complex phosphates. The country accounts for 23 per cent of the global ammonia export market, 14 per cent of urea, 21 per cent of potash and 10 per cent of complex phosphates.
Disrupting the market
The war has already started disrupting the global fertiliser market, as Russia is a leading supplier of fertiliser and related raw materials. It is also the largest exporter of urea, NPKs, ammonia, UAN and ammonium nitrate, and the third-largest potash exporter. In the phosphatic sector, traditionally dominated by China and Morocco, Russia is a major exporter with four million tonnes per year of DAP/MAP shipments last year. The Black seaports of Yuzhny and Odessa are major fertiliser-handling ports with pipeline transport facilities for ammonia from Russia.
India depends heavily on imports for meeting its fertiliser raw materials (natural gas, sulphur and rock phosphate), intermediates (ammonia and sulphuric and phosphoric acids), and finished products (diammonium phosphate, potash and complex fertilisers) requirements. The self-sufficiency in urea production achieved by 2000 was lost due to unfriendly policies which discouraged further investments in the sector for two decades and also due to the privatisation move and closure of a number of plants on account of low energy efficiency which paved way for large-scale exports.
India, the world’s largest urea importer, also significantly imports phosphatic and potassic fertilisers. Urea imports amount to 8-9 million tonnes per annum mostly from China, Oman, Ukraine, and Egypt. China has restricted urea imports since October 2021. As gas prices go up, imported ammonia price also follows suit. A significant part of the supply shortage could be met by maximising production in the newly commissioned fertiliser plants at Gorakhpur, Barauni and Sindri.
On an average, five million tonnes of phosphatic fertilisers are imported to India mostly from China, Morocco, Saudi Arabia, Russia and Jordan. Potash supplies (around four million tonnes a year) are fully imported from Canada, Russia, Belarus Jordan, Lithuania, Israel, and Germany. Current imports, of course, are going to be at much higher rates due to the emergent situation in these countries.
Earlier, our major suppliers of DAP were Saudi Arabia, Morocco and China. China has already restricted exports of DAP last year, so India is already constrained to tap Morocco and Saudi Arabia and Jordan. Estimates of fertiliser subsidy allocation of ₹1.05-lakh crore for 2022-23 in the recent Budget are likely to go haywire on account of the war. Here again, disruption in production in Russia and Ukraine and closure of plants in Europe will result in an increase in fertiliser commodity prices all across the world. A shift in product movement from traditional markets will lead to price volatility in the global fertiliser market, which will significantly impact availability. Had India continued the fertiliser expansion policy of the 1980s and 1990s, where fertiliser PSUs contributed significantly to meet the demand for mineral-based plant nutrients, we would not have been in such a precarious situation.
Today, Indian farmers find it hard to get easy access to fertiliser products whose prices have also skyrocketed. Only urea, which still remains under administrative price control, is cheap and affordable to farmers. The need of the hour is for the government to tie up alternative supplies quickly and ensure adequate availability of mineral nutrients to the farmers. Any laxity on this front will affect the food security of the nation in a couple of years.
A variety of sanctions have been imposed or contemplated on Russia by the US, European Union, the UK, Japan, Germany, Canada and Australia. They include the freezing of assets, banning trade, investments, purchase of sovereign debts, access to fintech solutions, banning the use of airspace, stock exchanges, blacklisting of politicians and officials, and so on.
The broader picture
Modern governments find it difficult to sustain operations and people are put to numerous difficulties in everyday life without the support of these transactions. Even domestic transactions are adversely impacted on account of these sanctions. In a war situation, governments perceive the value of domestic capabilities and the need to foster policies promoting and nurturing the public sector.
All these highlight the need for self-reliance at least in critical areas such as IT/ ITeS capabilities, banking, technology development and the rapidly emerging frontier technologies and advancing developments in current science. Professionals and organisations including quality and standards regulators need to relook, re-engineer and dedicate themselves to ensure national capabilities and shun self-imposed walls in the name of independent working. They should adopt a cooperative and collaborative approach.
The writer is a former Secretary to Chief Minister, Kerala, and Chairman Public Sector Restructuring and Audit Board, Kerala
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.