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Fertilizer producers to fully meet increased demand from Russian farmers for 5 million tonnes of fertilizers in 2022

18.06.2021 | News

In 2022, Russian mineral fertilizer producers will meet in full the increased demand from domestic farmers for 5 million tonnes (100% of the nutrient content) of mineral fertilizers. The needs of Russian farmers for next year were announced by the Ministry of Agriculture of the Russian Federation. To achieve this, companies in the sector are planning to invest another RUB 500 billion in 2021–2022 in the development and modernisation of their fertilizer production facilities.

Commenting on the results of the first five months of operations in the mineral fertilizer industry this year and on the industry’s prospects for the 2021/22 season, the President of the Russian Fertilizer Producers Association (RFPA) and CEO of PhosAgro, Andrey Guryev, said:

“The companies in our industry are accustomed to working in an environment where the actual demand for mineral fertilizers exceeds the wildest expectations of experts at the beginning of the year. Last year, this difference reached 600 thousand tonnes, and Russia’s Agriculture Ministry raised its consumption forecast twice. Nevertheless, producers managed to adapt their production plans to the needs of the priority domestic market, to supply all of the necessary volume for crops in 2020 and to lay a solid foundation for the 2021 harvest. This year, the initial forecast has already been increased by 20%, from 3.8 [million tonnes] to 4.5 million tonnes, and it will be met in full. Sufficient fertilizer has already been provided for spring field work, and there is enough to cover 70% of the demand through the end of year.

“According to preliminary information announced at working meetings with representatives of the Russian Ministry of Agriculture, Russian agricultural producers will need mineral fertilizers containing about 5 million tonnes of active ingredient next year. The members of the RFPA are ready to meet this need in full while ensuring the high quality and performance of their products”, concluded Mr Guryev.

To fulfil these plans, RFPA members intend to invest almost RUB 500 billion in 2021–2022. In total, the industry has invested over RUB 1.3 trillion in the last seven years alone, since the start of the industry’s latest investment cycle, and about RUB 2 trillion will be invested in the next seven years to meet the growing demand in the priority Russian market, which is going to double by 2025 (last year, according to the Russian Ministry of Agriculture, farmers increased their purchases of mineral fertilizers by 13%; this year, by 19%; in total, over the past five years, Russian agribusiness has increased its consumption of mineral fertilizers by 50%). As a result of investments made since 2013, the mineral fertilizer industry will nearly double in capacity by 2026.

“The development of this programme was made possible thanks to the Russian government’s creation of new instruments to stimulate investments, which have already become a driver of long-term sustainable growth in Russian industry”, noted Mr Guryev.

In 2020, the combined investments by industry companies accounted for over 35% (RUB 407.6 billion) of investment agreements under the agreement on the protection and promotion of capital investments, making mineral fertilizer producers the leading industry in the Russian economy in this area. An investment priority is the introduction of best available technologies covering key areas of the industry: developing the most important mineral deposits, deep processing of raw materials, producing high-tech products, modernising and upgrading infrastructure, ensuring energy efficiency and resource conservation, and reducing the environmental impact.

In addition to the construction of new and modernisation of existing facilities, investments will be aimed at further increasing the availability of mineral fertilizers through the development of regional logistics networks to stockpile products in various regions of the country. Products ordered ahead of time are delivered to the regions in advance and stored in manufacturers’ warehouses until the start of field work. And the prompt delivery of fertilizers to fields ensures that they can be applied at the optimal time. As of today, the storage capacity of manufacturers’ logistics networks exceeds 1.5 million tonnes (in physical weight) and continues to grow.

“The RFPA, the Ministry of Agriculture and the Ministry of Industry and Trade have repeatedly urged farmers to plan their purchases of mineral fertilizers for the season in advance. Obviously, all parties benefit from this approach. Producers plan their production and schedules in accordance with the needs of farmers, which makes it possible to avoid a stampede of demand during the season, which means preventing the very possibility of a shortage of fertilizers in the regions, especially during periods of peak demand”, said Mr Guryev.

After a 40% drop in prices for key types of mineral fertilizers in 2019–2020, a recovery is now underway in Russia – as it is in the rest of the world. In many respects, the increase in demand for fertilizers outside Russia is also the result of higher food prices: in the spring, the FAO’s price index for agricultural products reached its highest point since 2011.

In Russia, the principles of economic analysis of pricing practices developed by the Federal Antimonopoly Service are being successfully applied, and producers of mineral fertilizers are implementing a set of measures to constrain prices in the face of dramatic changes in the macroeconomic situation.

Today, the cash flow that farm operators have available allows them to purchase a sufficient amount of fertilizers and invest in future harvests. The RFPA welcomes the mechanism of state-supported agricultural insurance that was recently signed into law by Russian President Vladimir Putin. This will make it possible to reduce the risks of the potential impact of weather conditions on the profits of agricultural enterprises, to extend the planning horizon and to invest more vigorously in innovative agricultural technologies. This is especially important for small farms, which account for a significant share of the consumption of mineral fertilizers in Russia.

“The mineral fertilizer industry survived for three years at minimal prices, and a natural, fundamental price recovery is now underway. Moreover, it is taking place in the context of the highest prices for agricultural products in history. If you look at the basket of products produced by Russian agricultural enterprises and the basket of mineral fertilizers necessary for the production of these crops, it is clear that fertilizers are more affordable than they’ve been at almost any point over the past eight years”, stressed Mr Guryev.

The development of exchange trading – an electronic platform that enables farmers to quickly find and purchase the brands of mineral fertilizers they need – is also aimed at ensuring non-discriminatory access for agricultural producers to mineral fertilizers. As of today, all of the members of the RFPA trade on the St Petersburg International Mercantile Exchange (SPIMEX), and the range and volume of products sold are constantly increasing. Since the beginning of the year, the trading volume has already increased severalfold, and by the end of May it was double what it was for all of 2020.

“Producers of mineral fertilizers together with the Federal Antimonopoly Service, the Ministry of Agriculture and the Ministry of Industry and Trade have been developing exchange trading over the past four years. But exchange trading, as an additional sales channel, has seen particular demand this year, with higher prices for agricultural products and a dramatic increase in demand for fertilizers”, said Mr Guryev. “The exchange is a mechanism for fair trading and transparent market pricing; it’s logical that it determines pricing levels”, said Mr Guryev.

In the short term, producers of mineral fertilizers intend to introduce small exchange lots (starting at 5 tonnes), which will increase the attractiveness of trading for small farms and farmers. Down the line, market indicators can form the basis for long-term contracts with formula pricing.

In addition to SPIMEX’s centralised electronic platform, producers are actively involved in the development of digital projects regarding digital agricultural ecosystems. In the future, they will cover nearly every sphere of farming operations and will meet the needs of agricultural enterprises in terms of digital services throughout the entire life cycle of agricultural products.

In addition, fertilizer producers, together with Russian scientific organisations and agricultural universities, will focus their efforts on the development in Russia of a personnel training system for agribusiness that is focused on rapid adaptation to innovations and the development of high-tech agricultural production in Russia.

The law on agricultural products, raw materials and advanced foodstuffs, developed at the initiative of the Russian President, will also play a role in bolstering the competitiveness of Russian agribusiness. 

 

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