Covid-19 Casts Shadow Over Fertiliser and Crop Protection Supply Chains
Global lockdowns are leading to uncertainty about the availability of fertilisers and agrochemicals, and price dynamics will also increase. This will potentially create abnormalities in filling the supply chains towards the start of the planting season in the Southern Hemisphere. Supply chain risks are exacerbated by a consolidated global production system that is pushing its products through a myriad of channels to each and every farmer across the globe.
Introduction
The disastrous spread of Covid-19 comes just ahead of the growing season across Europe and North America. The timing could have been a lot worse for grain farmers; the majority of farm operations will be able to run as normal, with the majority of their production inputs (seeds, fertilisers and agrochemicals) already at, or near, the farmgate. But we do see increased risk awareness creeping into the agricultural community and its supply chains.
Uncertainty about the availability and price dynamics of fertilisers and agrochemicals will increase as a result of the lockdowns. This will potentially create abnormalities in filling supply chains towards the start of the planting season in the Southern Hemisphere. Supply chain risks are exacerbated by a consolidated global production system that is pushing its products through a myriad of channels to each and every farmer across the globe.
A Closer Look at Brazil’s Supply Chains
Fundamental differences in the structure of the world’s fertiliser and agrochemical markets and supply chains, require a different approach to supply chain risk management per region. To illustrate this, we take a look at the Brazilian markets for potash fertiliser and herbicides. Brazil’s huge agricultural commodity exports rely heavily on imported fertilisers and agrochemicals. Lockdowns triggered by Covid-19 in many countries coincide with the period in which these means of production must move from production centres across the world to Brazilian farmgates. This means a smooth start of the Brazilian grain production season is potentially in danger.
Substantial Concentration Risks in Potash
Potash is a globally standardised commodity, traded in Panamax vessels, before it is transported by rail, barge, and truck to Brazilian farmgates. The big risk looming over the industry is a Covid- 19-triggered supply disruption. Brazil is still eager to get up to 8m mt of potash this year (equivalent to 160 Panamax vessels, or 400,000 truckloads). This potash mainly needs to come from landlocked mines in only three countries (Canada, Belarus, and Russia), with three ports handling the bulk of the volume, supported by numerous trucks and train wagons for inland transport. That this is not a theoretical risk is showcased by the closure of a potash mine in Spain last month; there weren’t enough workers to operate the mine. The risk of bottlenecks in the supply complex will increase price volatility. An actual disruption will see a huge price volatility increase that will substantially increase the risk in the supply chain, all the way from miner to importer, wholesaler, distributor, and retailer to the farmer.
Weed Control Not Threatened
The global herbicide market is dominated by eight agrochemical companies that operate global supply chains, originating in dozens of countries. These top-eight suppliers have registered over 70 herbicide Active Ingredients in Brazil that they market through almost 200 branded formulations. These 70-odd Active Ingredients can be produced in 125 registered plants that are located in 22 countries. This spread makes them less vulnerable to supply chain risks. Even further mitigating these risks, is the fact that these top-eight suppliers are challenged by a diverse set of smaller companies fighting for their share of the market.
Contrary to potash, the structural risks in the herbicide supply chain differ per crop. Brazilian soybean and corn farmers’ dependence on ‘glyphosate made in China’ represents a risk. Alternative sources are available but will likely come with a substantial price increase. The diverse origination of the batallion of ‘side kick’ herbicides available to the Brazilian farmer to combat the glyphosate tolerant weeds, substantially mitigates the supply chain risks. Although rangers heavily rely on Picloram, availability isn’t likely at stake. As only 2 suppliers dominate this market, upward price pressure might occur if Picloram supply from 1 or 2 countries is disrupted. Sugar cane farmers have the most varied herbicide portfolio at their disposal so they don’t need to worry so much.
