The geopolitics of fertilizer; rivals weaponize sulfur — Marc L. Busch

Americans have benefited from a world economy that was optimized for efficiency. Energy was cheap. Sea lanes were open. Trade flows were predictable. Supply chains stretched across geopolitical rivals with relatively little concern for resilience or strategic vulnerability.

That system helped make food abundant and inexpensive. It also created hidden vulnerabilities that are now surfacing.

Most Americans rarely think about fertilizer until food prices rise at the grocery store. But fertilizer is less an agricultural commodity than the output of an expansive industrial system linking natural gas, chemicals, refining, shipping and energy infrastructure. When those industrial systems come under stress, fertilizer gets more expensive, and consumers eventually feel it at the grocery checkout.

Tensions over the Strait of Hormuz illustrate the problem.

Typically portrayed as an oil chokepoint, the strait is also one of the world’s most important fertilizer corridors. One-third of the fertilizer traded globally passes through it. Gulf countries supply 36% of global urea exports and 29% of the world’s ammonia exports. The strait is also the artery for more than half of the world’s traded sulfur — a byproduct of oil refining that is indispensable to phosphate fertilizer, and as a practical matter all farmers must use it for their daily operations.

When tensions involving Iran brought transit through the strait to a standstill, fertilizer markets tightened up almost immediately. Shipping costs spiked. Diesel prices soared. Urea prices surged. China suspended its exports of sulfuric acid, which is a staple of fertilizer. In May, China also restricted its fertilizer exports to protect its domestic markets. Because fertilizer production is energy-intensive, those disruptions cascaded into agricultural markets.

This is not a temporary commodity shock. It reflects something far more structural about the changing global economy.

The inputs for fertilizer production, more generally, are geographically concentrated, even though demand is global. China and Russia combine for 53% of global phosphate production. Canada, Russia and Belarus dominate potash production.

Therein lies the rub: fertilizer and affordable food depend on global supply chains concentrated among America’s geopolitical rivals and are vulnerable to strategic chokepoints.

The Russia-Ukraine conflict is Exhibit A. Ukrainian strikes on Russian refining and fertilizer infrastructure have reduced the availability of sulfur and ammonia. Sanctions and export restrictions have also sharply cut Russian ammonia exports, which are 80% below prewar levels.

China serves as Exhibit B by restricting fertilizer and sulfuric acid exports to protect domestic agriculture. Those controls take 40 million metric tons of fertilizer off global markets.

The United States produces 70% of its sulfur needs, but American refiners export the vast majority of it, with China serving as a top destination. However, once the sulfur arrives in China, the finished fertilizer product is subject to export restrictions that keep it within China’s border. In other words, U.S. companies are shipping raw sulfur to state-owned Chinese enterprises, which then refuse to send finished fertilizer back to the world market.

These aren’t obscure commodity disruptions. Sulfur and ammonia are indispensable to fertilizer production. Sulfur is essential for phosphate fertilizer, and ammonia is used to make nitrogen fertilizer. When sanctions tighten and shipping lanes are closed, fertilizer costs go up, along with food prices.

The strait may have exposed a vulnerability in American food supply chains, but China’s protectionist and manipulative trade policies are exacerbating it.

Despite all this, many policymakers continue to blame food inflation on domestic fertilizer production. That diagnosis fundamentally misunderstands how global commodity markets work.

The costs of fertilizer are set globally, not locally. American producers can’t quickly replace disrupted international supply, especially when they are being continually outbid by state-backed foreign entities.

Fertilizer plants are capital-intensive, heavily regulated and take years to construct. Punitive policies aimed at U.S. fertilizer production would therefore accomplish nothing beyond weakening domestic production capacity at precisely the wrong moment.

Washington needs to think differently about fertilizer and broader food affordability challenges. That means strengthening domestic fertilizer production and refining capacity while coordinating with allies on agricultural supply chain security, among other things.

The government has taken steps to shore up resilience, reviving nearly $700 million in fertilizer grants and extending the Jones Act waiver to move ammonia along the Gulf Coast.

More fundamentally, fertilizer can no longer be treated as merely another agricultural commodity. It’s a strategic industrial infrastructure and a staple of America’s national security. To that end, U.S. officials should focus on resolving broader geopolitical challenges such as cracking down on China’s manipulative trade practices, particularly regarding sulfur and fertilizer.

The real story about fertilizer inflation is not domestic price fear-mongering. It’s that food affordability has become inseparable from geopolitics, and public officials must first prioritize efforts to bring calm to these global conflicts before conditions get much worse.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University. He wrote this for InsideSources.com.