The Russian Federation and Ukraine are among the most important producers of agricultural commodities. Both countries are net exporters of agricultural products and play leading supply roles in global markets of foodstuffs. Furthermore, the Russian Federation is a key player in the energy sector and the world’s largest fertilizer exporter.

The war in Ukraine has left the world short of important grains and fertilizers, which could tighten food supplies. Fertilizers saw a global increase in mid-2022 over preceding years. During the first quarter of 2022, the World Bank’s Fertilizer Price Index climbed more than 10% over 2021 to an all-time high in nominal terms. International benchmark prices of fertilizers rose similarly throughout 2021, with many quotations reaching all-time highs. Additional fertilizer shortages may have global consequences, especially in developing countries, where price repercussions might dramatically restrict usage and result in poor local harvests during lower global supplies and record global prices.

GCC in the center of climate change, water scarcity, and food security

Increasing temperatures are a key risk that GCC (Gulf Cooperation Council) countries must mitigate while battling climate change. The GCC’s economy could reduce by 20% by 2050 if the temperatures increase further by 2°C, compared to a case where temperatures remain at pre-industrial levels (Livemore, 2021). Along comes the need to meet water demand with a depleting supply and water recharge, driving the region to its highest water scarcity.

If this challenge is taken up as an opportunity, GCC fertilizer producers can benefit greatly. For instance, fertilizer companies like Yara are introducing new-age products that consume less water than normal fertilizers. This can be implemented for domestic and export markets. Most of the fertilizers produced in the GCC are exported to countries like India, the USA, Brazil, etc.

The GCC fertilizers industry can reap the benefits of new-age agricultural practices of water-holding capacity, such as drip irrigation, vertical farming, crop covering, hydrogels, drought-tolerant crops, dry farming, etc., provided contamination of water is in check.

Exhibit 1: Fertilizer exports in 2022 by the GCC and key importers of fertilizers from the GCC

Source: UN Comtrade

Exhibit 2: Food security rankings, 2021-2022

Source: Economist Impact

Food Security in the GCC Region

The GCC region imports about 80%-90% of its food requirement. Thus, food security is one of its top priorities. Some of the GCC countries like UAE, Saudi Arabia, Oman, and Bahrain have improved their food security rankings from 2021 to 2022 due to various initiatives. An increase in domestic production was one of the major reasons certain GCC countries showed significant improvements in food security in the years leading up to the pandemic.

Some of the key initiatives taken by GCC countries include:

• A free trade agreement (FTA) initiated between the GCC countries and India focuses on food security, energy security, technology transfers, etc.
• The use of novel technologies such as “precision fermentation” converts energy and a handful of ingredients (like CO₂, H₂O, etc.) to a variety of proteins and other food ingredients (energy-to-food) without negative environmental impacts.
• Investments in large-scale commercial farming in African countries and other regions that have arable land. For example, Saudi Arabia has also invested heavily in Africa’s agribusiness.

Way Forward

By 2050, global demand for food will be 56% higher than in 2010, and the world will need to feed an estimated 2 billion more people.[1] In contrast, the GCC is predicted to have a total population of 80 million by 2040.[2] Food consumption in the GCC is predicted to rise from 46.8m tons in 2020 to 52.4m tons in 2025, for an annual growth rate of 2.3%. The disruption to global supply chains precipitated by the pandemic and the more recent invasion of Ukraine by Russia have underlined the dire need to invest in domestic production capacity and supportive technological solutions. In addition to enhancing self-sufficiency in staple food items over the medium to long term, the GCC countries must invest in supportive technology solutions (including agri-tech), diversify import streams, and invest in existing and new food processing enterprises.

In terms of the fertilizer industry, GCC fertilizer producers have successfully captured CO₂ for fertilizer feedstocks. This has helped them achieve sustainability targets such as GHG reduction. Another key forward-thinking initiative for implementation by GCC fertilizer companies includes:

• Capacity additions of portfolio diversification of fertilizers:
  • GCC fertilizer companies are in a better position in the cost curve of fertilizers with large exports to counties like India, the USA, and Kuwait. The GCC can leverage the FTA with India to export more since India accounts for ~30% of total fertilizer exports from the GCC.
  • Portfolio diversification of fertilizers: The development of specialty fertilizers like water-soluble fertilizers, controlled-release fertilizers, nitrogen stabilizers and inhibitors, etc., will improve the bottom line.

References:

[1] A transformed fertilizer market is needed in response to the food crisis in Africa (worldbank.org)

[2] The State of Food Security and Nutrition in the World 2022 (fao.org)

[3] Global Food Prices to Remain Elevated Amid War, Costly Energy, La Niña – World | ReliefWeb

[4] Agri-tech & Food Security in the GCC Response Report, April 2022 – Oxford Business Group

[5] GCC-Fertilizer-Market-Outlook-Challenges-and-Opportunities-for-GCC-Fertilizer-Producers_ES.pdf (gpca.org.ae)