July 23. 2024. 2:36

The Daily

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As Russia shifts from gas exports to fertilizers, it is time for the EU to act

The EU needs to take urgent action to stop imports of Russian fertilizers financing its bloody war against Ukraine.

At a time when the EU is working on decoupling its economy from Russia, the figures are startling! Since the 2020/2021 agricultural season, EU imports of Russian urea have doubled. Russia now accounts for around a third of the EU’s total imports. France imports 80% of its fertilizer needs from Russia.

Sales of Russian fertilizers are providing a major source of revenue and foreign currency earnings for the Russian state and its gruesome war machine. It is estimated that sales of this one product provided revenues of over €1.5 billion in 2022-2023. In addition, Russia has introduced a 10% export tax on fertilizers and a tax on excess profits. Both are going directly to fund occupying forces.

While EU member states have reduced the amount of Russian gas they buy since the invasion of Ukraine in 2002, imports of urea have soared. The price of gas is the main factor in the cost of making urea. As Russia regulates gas prices and keeps them low, this has made it possible for fertilizer makers to undercut EU producers.

As EU farmers’ dependence on Russian fertilizers has grown, the state of our domestic fertilizer industry has suffered from the impact of cheap imports. Around 20% of EU fertilizer capacity is currently lying idle because of a lack of demand as cheaper Russian urea has replaced fertilizers made in the EU. Russian exporters have priced their products in a very targeted way, so they are slightly but consistently cheaper than the EU’s production costs.

So, Russia is hitting the EU with a double whammy: it is using its exports of fertilizers to make European farmers dependent on Russian producers; and using the proceeds of export sales to fund its war machine.

The Europeans fertilizers industry calls on the EU to take the strongest possible action to stop Russia using urea exports as a weapon.

More than two years after the invasion, with little sign that Russia’s barbarous war machine is stopping, the EU is looking for new ways to increase the impact of measures to choke Russia’s economy and cut off its sources of revenue. Stopping fertilizer exports is an obvious way for the EU to achieve its aims and limit Russia’s ability to continue its bloody occupation of Ukraine.

Similarly to the measures recently adopted on grain imports, one solution would be to impose tariffs on Russian fertilizers. But the EU needs to move quickly to bring in these duties.

One more thing: there have been fallacious arguments that penalising Russian fertilizer exports could affect Russia’s ability to supply countries that import a lot of their food and fertilizer needs. This risk is vastly overstated. The proposed measures would only apply to the EU, allowing Russia to redirect exports to other markets. At the same time, the EU fertilizer industry has enough capacity to produce the fertilizer needed for the EU market if imports from Russia were blocked. As a result, the worldwide supply of fertilizers is expected to increase and the impact on prices, if any, would be downwards.

The EU could also agree measures to protect EU farmers against the effect of imposing tariffs on imports of Russian urea. For example, there would be a period between the tariffs being announced and being imposed. This would give EU producers time to ramp up production to meet demand. Farmers would not go without the fertilizers they need as the EU has sufficient spare capacity to meet internal demand.

There is an additional benefit to stopping imports of Russian urea: Russian fertilizers have a much higher environmental footprint than EU fertilizers. EU ammonia production (for ammonium nitrate-based fertilizer, which is the most commonly used by EU farmers) emits around 60% less greenhouse-gas emissions that Russian producers.

If EU farmers become more dependent on imports from Russia, European agriculture will struggle to decarbonise. Recent developments threaten the EU fertilizer sector’s competitiveness and thus ability to finance green investments to reach climate neutrality by 2050.

Imposing tariffs on Russian fertilizer is a way for the EU to achieve several of its policy goals at the same time. It deprives Russia of revenue to fund its war machine, stops EU farmers from becoming dependent on Russian exports and prevents the destabilisation of the EU’s fertilizer market. This would enable EU producers to continue the green transformation of their plants.

There is no time to waste for a policy with so many benefits for the EU, its farmers and, most importantly, the people of Ukraine.