Take it from the fields: The Ministry of Agriculture and agrarians opposed the increase in fertilizer prices
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- Take it from the fields: The Ministry of Agriculture and agrarians opposed the increase in fertilizer prices
The Ministry of Agriculture did not support the increase in prices for mineral fertilizers for Russian farmers, as this could lead to an increase in the cost of agricultural products, the agency told Izvestia. The Ministry of Agriculture, together with the Ministry of Finance, the Ministry of Economic Development and the Ministry of Industry and Trade, was instructed by Deputy Prime Minister Alexander Novak to work out the issue of indexation. Agrarians believe that price increases will jeopardize the fulfillment of the president's strategic goal to increase agricultural production by 25% by 2030, given that more than 60% of mineral fertilizers are exported, where the cost is not limited in any way.
Why did the Cabinet disagree about the increase in fertilizer prices?
The Ministry of Agriculture sees no reason to index the selling prices of mineral fertilizers. Such a decision may lead to a decrease in their availability to agricultural producers and a significant increase in the cost of agricultural products, the press service of the department told Izvestia. Earlier, Deputy Prime Minister Alexander Novak instructed the Ministry of Agriculture to work on this issue together with the Ministry of Finance, the Ministry of Economic Development and the Ministry of Industry and Trade.
The Ministry of Agriculture noted that the current price limits set in the trade and marketing policies of mineral fertilizer producers have not been achieved by all companies. At the same time, the Ministry of Agriculture is ready to consider reasonable proposals from interested parties to develop optimal solutions, the ministry said.
A source close to the government told Izvestia that the indexation initiative is unjustified and will lead to a decrease in the availability of fertilizers.
— The current mechanism for fixing marginal prices for fertilizers has made it possible to stabilize their cost and ensure accessibility for farmers. This, in turn, supported the growth in the purchase of top dressing, which is one of the main factors in increasing yields," the source explained.
He also noted that the industry currently faces an important task to increase production. For example, grain harvests are expected to reach 170 million tons by 2030, but it is almost impossible to achieve this without affordable mineral fertilizers. At the same time, their prices have increased significantly over the past year, which raises serious concerns. For example, for ammophos — by almost a quarter, for carbamide — by more than 12%, for azofoska — by almost 10%. The dynamics of the increase continues even now, he added.
In addition, according to him, in conditions when farmers' costs are increasing in all areas, including machinery, logistics, plant protection products and the cost of borrowed funds, additional increases in fertilizer prices will inevitably affect the cost of agricultural production.
— This issue is under the jurisdiction of the Ministry of Industry and Trade, the curator of the mineral fertilizers industry. The designated proposals must initially be evaluated by this agency. The Ministry of Finance has not yet received these proposals, the press service of the Ministry of Finance told Izvestia.
Earlier, the head of the Ministry of Industry and Trade, Anton Alikhanov, told the media that his ministry and the Ministry of Economic Development support the indexation of the cost of mineral fertilizers by the amount of accumulated inflation. At the same time, he noted that some producers of top dressing have approached the limit of prices currently set.
Mikhail Rybnikov, the head of Phosagro, said at the time that the Russian Association of Fertilizer Producers (RAPU) had asked the authorities to index domestic prices at the end of last year. He recalled that at that time RAPU proposed to raise them by 15%, later this bar stopped at 10%.
Currently, the cost of mineral fertilizers in the Russian Federation is fixed only for the domestic market, while there are no restrictions for the external market. According to the Russian Association of Fertilizer Producers, production exceeded 63 million tons in 2024. Of these, 40 million tons (more than 60%) were exported. Moreover, some of them were sold to countries unfriendly to the Russian Federation. According to media reports, last year was a record year for supplies to Poland, which is one of the leaders of anti-Russian states. 952,000 tons of fertilizers from Russia were sold there, which is 140% more than in 2023.
As Izvestia reported earlier, France, Germany and Italy, which announced sanctions against Russia, are also among the countries where an increase in demand for fertilizers was recorded last year.
Izvestia sent requests to the Ministry of Economic Development, the Ministry of Industry and Trade, as well as to the Federal Antimonopoly Service with a request to comment on their position on price increases. The editorial board also addressed questions to the Russian Association of Fertilizer Producers and the largest producers with a request to clarify the need for cost indexation.
— In accordance with the recommendations of the Federal Antimonopoly Service, marginal prices were indexed in June and September 2022. Further indexing has been cancelled. Thus, fertilizer producers supply their products to farmers at prices in the fall of 2022. Despite the fact that food inflation over the same period, according to Rosstat, amounted to 25%, the Association of fertilizer producers explained the need for indexation.
They noted that until recently, fertilizer producers managed to successfully operate within the price limit set by the FAS recommendations, but today there are a number of objective prerequisites for cost indexing.
— In particular, the prices of natural gas (the main raw material for the production of mineral fertilizers) have increased by a third since October 2022, including after a three-fold indexation of the cost. Since January 1, 2025, the MET rate for potash and phosphate ore has been increased. And taking into account the repeated increases in tariffs of natural monopolies for gas, electricity and rail transportation, the growth in the cost of fertilizer production in Russia has reached 25% since October 2022, depending on the product, the association explained.
What can the indexation of fertilizer prices lead to?
The decision to raise marginal prices for mineral fertilizers at the present time may seriously slow down the development of the industry, Babken Ispiryan, Deputy chairman of the Council of the People's Farmer Association, told Izvestia. According to him, in the last few years the cost of agricultural products has not increased, while the profitability of production, especially in crop production, on the contrary, shows a decrease.
— The increase in prices for mineral fertilizers is an increase in the cost of agricultural products. Manufacturers have no other option but to include these additional costs in the cost of production. This means that the Central Bank's rate, which is calculated taking into account food inflation, will not decrease in the near future, but may even increase. For farmers, as well as many others, this means that access to credit financing is difficult," the farmers' representative explained.
According to him, it is also important to note that over the past five years, prices for mineral fertilizers have risen much higher than for agricultural products.
— We all remember that the president set a strategic goal to increase the production of agricultural products by at least 25% by 2030. We will not be able to accomplish this task without affordable mineral fertilizers," the business representative believes.
Members of the Union of Grain Exporters and Producers do not support the proposal to index fertilizer prices, said Ksenia Bolomatova, executive director of the organization.
— The increase in the price of wheat under the terms of sale on FOB Novorossiysk terms since 2020 has amounted to no more than $35. At the same time, against the background of sanctions pressure, the cost of crop production increased and, as a result, the profitability of production decreased.: the cost of the Labor Compensation Fund, seeds (+25%), etc. increased, as well as the cost of purchasing and maintaining agricultural machinery increased many times. The cost of fertilizers in the cost structure averages 22%, their further growth will lead to a decrease in the culture of land use, which will affect fertility and, as a result, food security of the country," explained the representative of the union.
Ksenia Bolomatova also noted that the cost of fertilizers is regulated only on the domestic market and is not limited beyond its borders. According to her, in the sales structure, for example, Phosagro, the domestic market accounts for up to 30% of sales, while the rest is exported.
— The issue of indexing should be approached very carefully. In the current economic realities, any changes in the pricing policy for fertilizers can seriously affect the final beneficiaries of such a decision, farmers," Ilya Bereznyuk, Managing partner of Agro & Food Communications, told Izvestia.
According to him, today agricultural producers are already facing various challenges: from fluctuations in product prices and rising production costs to climate change and falling profitability in the industry as a whole. The expert also recalled the key interest rate, which remains at 21% so far.
— Let me remind you that the voluntary freezing of marginal prices for fertilizers in 2021 occurred at the price peak of that period, which allowed producers to have a margin of commercial safety for a long time, but later the cost was increased. At the same time, crop yields began to decline due to various factors," the expert noted.
He believes that it is necessary to return to the topic of indexation of the marginal cost of fertilizers when the price of final products of farmers and, as a result, their incomes begin to rise.
— In essence, it is proposed to transfer part of the farmers' margin to the producers of top dressing. Meanwhile, the fertilizer market is an oligopoly, and the crop production market is very close to a market with perfect competition," Andrei Dalnov, chief industry analyst at Rosselkhoznadzor, told Izvestia.
According to him, this means that due to the use of economies of scale, in most cases fertilizer producers receive large margins both in relative and absolute terms even without price indexing.
— Anyway, a comparative analysis of the economic indicators of fertilizer producers and farmers is needed to make a decision. For many medium and small enterprises in agriculture, such a measure can mean a critical reduction in margins, which will lead to a reduction in production this or next season and complicate food security," the expert emphasized.
On the contrary, for producers of mineral fertilizers, price indexation in the domestic market may not be significant, since in some cases the actual selling price of fertilizers may not reach the current price threshold, Andrei Dalnov believes. He also drew attention to the fact that the actual prices of a number of major types of fertilizers on the domestic market have already increased by 10-20% over the year, according to Rosstat.
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