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Maintaining food security through subsidized fertilizer
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Fertilizer raw material price (US$/ton) (World Bank/Bloomberg)
F
ood security has become a strategic agenda for many countries, including Indonesia. The Food and Agriculture Organization (FAO) defines food security as the availability, at all times, of adequate food supplies of basic foodstuffs to sustain a steady expansion of food consumption and to offset fluctuations in production and prices.
There are two points highlighted by the FAO – adequate supply and stable price. This can be achieved by ensuring the food supply meets the demand and by minimizing the obstacles in global food distribution. Optimizing crop productivity becomes more important, including in Indonesia.
However, the current war between Russia and Ukraine creates a hurdle in the global food supply. Ukraine and Russia are the top exporters of wheat and corn, with a global market share of 21.3 and 10.8 percent respectively. The war in the Black Sea prevents any export activities for months, creating a shortage in the global wheat supply.
As a result, some countries have secured their food supply by restricting exports for a defined period. For example, Russia, Ukraine, India and Pakistan banned wheat exports for some months this year forcing wheat prices to skyrocket to their all-time record at US$14.3 a bushel in March.
Additionally, some countries are also limiting their fertilizer exports, including raw materials, for some time to secure their domestic needs, such as Russia, China and Ukraine. Combined, they exported 29.2 percent of fertilizer globally in 2021. Limited fertilizer supplies in the past few months have driven prices up significantly, especially in March-May.
On top of that, the conflict in Ukraine has also forced energy prices to rise significantly, including the price of crude oil, coal and natural gas. Unfortunately, natural gas plays an important role as the main source of energy in the fertilizer sector.
World Bank data show the average price in the first seven months of 2022 of di-ammonium phosphate (DAP), phosphate rock and potassium chloride rose by 50, 128 and 142 percent respectively compared with the same period in 2021.
