Energy Crunch Hits Fertilizers in Another Threat to Food

(Bloomberg) --Europe’s energy crisis is spreading to the fertilizer industry and threatening the meat sector, risking tighter food supplies and even higher prices.

Norwegian fertilizer maker Yara International ASA on Friday said record-high gas prices are hurting its production, and by next week will have curtailed about 40% of its European ammonia output capacity. That comes after CF Industries Holdings Inc. said it’s halting two U.K. plants due to soaring energy costs. 

Shutdowns also risk hitting other parts of the food supply chain by crimping supplies of carbon dioxide, which has a wide range of uses from stunning animals for slaughter to food packaging that boosts shelf life.

Fertilizer prices jumped in the past year as a crop rally helped farmers boost purchases of the nutrient. They’ve been further supported after Hurricane Ida struck the heart of the U.S. fertilizer industry and Storm Nicholas threatened more damage in the Gulf of Mexico. Higher costs of the key farming input risk further exacerbating global food inflation at a time when hunger is on the rise.

Yara trades about one-third of the world’s ammonia, which is used in fertilizers, but also relied on in industries such as automotives, textiles, healthcare and cosmetics. The company, which said it will curb output at a number of plants, produces ammonia in Europe at sites in the Netherlands, Germany, Norway, Italy, France, U.K. and Belgium.

Fertilizers are crucial to feeding the world’s growing population, and is so important that one type -- potash -- is part of mining giant BHP Group’s shift toward commodities of the future as it exits fossil fuels. Crop nutrient trading is largely focused on annual contracts or in the spot market, rather than on a futures exchange.

Food Pain

A United Nations measure of global food prices is already near the highest in a decade. Costs jumped as extreme weather hurt crop prospects, the pandemic affected supply chains and shipping costs rose. That’s increased inflation risks for central banks and consumers, particularly those in poorer nations that are dependent on imports.

As well as curbing output of fertilizers crucial to feeding the world’s growing population, plant closures could further tighten supplies of carbon dioxide that’s produced as a byproduct. The gas is used to stun poultry and and pigs, and any shortages would be another headache for farms and processors already suffering from a lack of workers. 

The food sector also relies on CO2 for use in packaging to extend the shelf life of products such as meat and vegetables.

“It’s quite alarming really,” said Nick Allen, head of the British Meat Processors Association. “We’re talking between days and weeks from this really hitting hard, unless somewhere in the world -- ideally here in Europe -- there are supplies of this that can replace that amount of CO2 very quickly.”

Other industrial giants are also feeling the pain from surging gas and power prices that’s raising fears of a long-lasting impact on inflation. Europe’s top chemicals firm BASF SE has warned of the impact of the jump in electricity costs, while copper producer Aurubis AG said high energy prices are dragging down profits.

(Updates with CO2 impact below ‘Food Pain’ subhead)

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