Brazil Replenishes Stockpiles of Russian Fertilizer

RIO DE JANEIRO – When the first Russian missile hit Ukraine, the reverberation was felt 6,500 miles away, on the vast Brazilian farms that grow much of the world’s soybeans.

Russia supplies a quarter of Brazil’s fertilizer, and sanctions aimed at punishing Moscow for its aggression have threatened to trap exports of this vital commodity. That poses a danger not only to the Brazilian economy, but also to the world’s ability to feed itself.

Within days, Brazilian officials had warned farmers to cut back on a crucial amount of fertilizer, and experts forecast that the country – one of the largest exporters of corn, soybeans, sugar and coffee – only three months left before it runs out.

Now, two months later, Brazil is replenishing its fertilizer stockpile – with help from Russia. Just as Russian gas has flowed through pipelines into Europe, hundreds of thousands of tons of Russian fertilizer have reached Brazil since the invasion. And more are on the way.

Brazil scrambled to buy Russian fertilizer on the eve of the invasion to keep shipments coming early in the war. And although buying Russian fertilizer itself is not banned, Brazilian buyers have faced sanctions against Russian banks and logistical hurdles that experts fear will remain cut. transaction.

But buyers have been trying to figure out how to work around those obstacles, including using a Russian bank that was exempt from sanctions and getting support from Citigroup in New York.

The shipments are good news for global food supplies and prices, but bad news for the West’s strategy of economically isolating Russia to weaken President Vladimir Putin’s resolve in Ukraine.

Edward Fishman, a former Obama administration official who helped design previous measures against Russia and Iran, said. “What they don’t freeze are flows into the economy, mainly through the sale of goods.”

“Until that gap is closed,” he added, “it lengthens Putin’s runway.”

Russia’s invasion of Ukraine has created a dilemma for countries and corporations that value anti-economic values. Much of the world agrees that Russia should be punished for its invasion of Ukraine, but government officials and business leaders are grappling with the economic realities of doing so.

The biggest example is Russia’s oil and gas, an economic lifeline much larger than Putin’s fertilizer. Countries around the world have continued to buy fuel from Russia, while trying to cut ties with Moscow in other ways.

Fertilizers in Russia face similar difficulties.

Ukraine and Russia are among the world’s largest exporters of wheat, corn and barley, and the war has left most of these crops calloused, raising prices and exacerbating global food shortages. bridge.

Russia also accounts for about 15% of the world’s fertilizer exports. Blocking those exports that would deprive Mr. Putin of another source of income could boost Russia’s war against Ukraine. However, United Nations officials and other experts have warned that curbing Russia’s fertilizers will drive prices higher and deplete food supplies.

Faced with the prospect of such a crisis, the United States created a remedy in its sanctions at the end of March to explicitly allow the purchase of Russian food and fertilizers. While financial sanctions are still complicating transactions, US officials have worked to reassure other governments and business leaders – including meeting with government and industry officials. industry in Brazil – that the purchase of Russian fertilizers is not prohibited.

Europe sets a one-year cap on imports of some Russian fertilizers, allowing only 2.6 million tonnes to enter the continent in a year – less than half of Europe’s imports in 2021. .

With some of that fertilizer now in the hands of farmers in Brazil, economists predict a slowdown in recent price hikes and improved crop yields, increasing the likelihood that farmers will recoup some of the gains. food shortages due to the Russian invasion.

“It’s always testing prices and that’s really important,” said Josef Schmidhuber, an economist who has studied the impact of conflict on food for the United Nations Food and Agriculture Organization. “If Brazil downsizes next year because of a lack of fertilizer, that would certainly be bad news for a global food crisis.”

Russia’s biggest fertilizer buyer is Brazil, which imports about a quarter of its fertilizer from Russia.

Earlier this year, when Russian troops gathered on the Ukrainian border, Brazilian President Jair Bolsonaro posed for pictures with Putin in the Kremlin. At the meeting, a week before the invasion, Mr. Bolsonaro said Brazil stood “in the solidarity with Russia. On the same trip, he said Brazil would double its purchases Russian fertilizers.

After the invasion began, Mr. Bolsonaro said Brazil would remain neutral and made clear why. “What happened 10,000 kilometers away in Ukraine resonates in Brazil,” he say. “We have a special business relationship with Russia.”

“For us,” he added, “the question of fertilizer is sacred.”

Whether that fertilizer supply can reach Brazil, however, still seems to be questionable.

Sanctions on Russian banks are quickly making financial transactions more difficult, companies that facilitate transactions are suspending business because of concerns about the consequences, and many shippers proved ambiguous because of high insurance premiums and safety concerns. The West also imposed sanctions on financiers who own two of Russia’s biggest fertilizer producers.

Compounding the problem is Belarus, Russia’s closest ally, and a major producer of a major fertilizer called potashwas hit with its own sanctions in February for forcing a commercial plane to land to arrest a dissident.

Potassium, made from the potassium salt and often mined from the evaporating seafloor, is important for growing soybeans, which Brazil produces more than any other country. Since the start of the Russian invasion, the price of potash has increased by 50%.

Before the war, Brazilian buyers bought more potash from Russia than usual, leading to the import of 750,000 tonnes of fertilizer in March, most of which was potash, according to government statistics. That was a record for March and up 14 percent from the same month last year.

However, buying new still faces many difficulties. So Brazil and other countries looked for other ways to buy from Russia.

Brazilian buyers have largely turned to Gazprombank, a large Russian bank that is not sanctioned because it handles many energy transactions for countries that continue to buy Russian gas.

Brazilian importers have also used Citigroup as an intermediary for many transactions, in part because they believe it can help avoid any potential pitfalls with the U.S. Treasury Department, according to two banking officials familiar with the matter. access to the transactions spoke on condition of anonymity because they were not authorized to discuss the business. Larger banks like Citigroup often help facilitate such international transactions.

Once the United States made it clear that Russian fertilizers were not sanctioned, it also became easier to find shippers willing to ship the goods.

In recent weeks, a major Russian fertilizer company has sold more than 165,000 tonnes of potash to Brazilian buyers, with shipments expected to arrive in June, according to an executive involved in the transaction. , who is not authorized to speak publicly. That’s already half of Russia’s potassium reaching Brazil by June 2021.

According to Ben Isaacson, a fertilizer analyst with Scotiabank, Russia could also find other willing buyers for its potash in China and Southeast Asia.

“Russia is getting rid of their potassium,” he said. “It’s not as tight a situation as we thought.”

Last month, Mr. Bolsonaro met with the head of the World Trade Organization and asked the agency for help in protecting the fertilizer industry from further sanctions if the United States and other Western countries tighten their policies. their books as the war dragged on.

However, the Brazilian government says the new Russian shipping line will provide enough fertilizer for Brazil’s main crops for the next few months.

But concerns about access to the Russian market have created a new impetus for Brazil to become more self-sufficient. Mr. Bolsonaro and his allies have pushed for the opening of the Amazon rainforest to mining potassium salts to make potassium salts. A legislative bill was adjourned only after massive protests in the Brazilian capital.

As for potash, “we have no alternatives today,” said Neri Geller, a Brazilian congressman and farmer who supported the bill. “We depend on Belarus and Russia. So if it doesn’t come from there to here, how are we going to do it? ”

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