From Brazil to Vietnam to Kenya, rising fertiliser prices are tightening the belts of coffee farmers. Global Coffee Report examines the current state of play, the impact of war, and why money does talk.
It has been a white-knuckle ride for coffee producers around the globe of late.
Sky-high fertiliser prices – compounded by Latin America La Niña weather extremes decimating harvests, China curbing phosphate exports to protect its own agricultural industry, the global pandemic impacting shipping, and European Union sanctions following Russia’s invasion of Ukraine, according to New Europe reports – have tested the mettle of growers.
So much so, that the fertiliser price spike has been dubbed by finance analyst Bloomberg as a “mega emergency”.
At the crux of the matter is that coffee farmers need to pay sustained above-average prices for fertiliser exports to create high nutrient soil to optimise bean yield.
The result? Financially struggling coffee growers – particularly small-scale ones in developing countries such as the world’s largest coffee producer Brazil, the world’s second largest coffee producer Vietnam, and Kenya – are using less or no fertiliser at all, translating to lower yields, smaller-sized plants, and poorer green bean quality for the next harvest.
Prices “though the roof”
Fertiliser price spikes “definitely affected” amounts and ratios used in farms, especially during the first half of 2022 as prices went “through the roof”, according to coffee expert Albert Scalla from commodity brokerage StoneX. “Costs have cut into their profitability, even with the sharp rise in coffee prices. Several origins report reduced use of fertilisers by coffee farmers, which inevitably will be reflected in the future in terms of yields and farm productivity.”
Scalla has seen this first hand, having returned from an extensive crop tour in Brazil in December 2022 with co-operatives, agronomers, and farmers.
Brazilian coffee producers, he says, are needing to look for ways to minimise costs associated with fertiliser price spikes by being more attentive to the exact needs of the farms. This means conducting “more extensive soil analysis, applying only the minimum needed doses of nutrients and looking for substitutes such as more organic matter”.
Although the Brazilian Ministry of Agriculture took great steps to secure more fertiliser in 2021-2022 than in previous years, as concerns from the looming conflict in Ukraine exacerbated global fertiliser prices during the initial months of the war, Scalla says it’s still a tough time for farmers in Brazil and other countries.
Reason being is that many farmers in developing countries don’t have funds to lock in prices and stockpile fertiliser supplies to buffer against future price hikes.
“Unfortunately, fertiliser price hedging is still a novelty in the coffee producing community; it’s hardly used at all,” admits Scalla. “When prices reached lows of $267 per metric tonnes – some of the lowest levels after the pandemic – neither producers, cooperatives or government entities took advantage to lock in prices, even with our multiple StoneX advisories and reports sent out. Prices have since reached $1200 to $1400 metric tonnes, before easing down to the current figure of $650 per metric tonne (as of 10 December 2022), but that’s still more than double from the lows.”
There’s no quick fertiliser price hike fix in sight as the war drags on, which is not ideal given Russia is one of the world’s leading producers and exporters of fertiliser.
A report from the Food and Agriculture Organisation of the United Nations notes that in 2021, Russia ranked as the world’s top exporter of nitrogen fertilisers, the second leading supplier of potassic fertilisers, and the third largest exporter of phosphorous fertilisers.
As Josh Linville, Vice President for StoneX told The Washington Post in August 2022, “The Russia-Ukraine conflict is another black swan in a pond full of black swans”.
Yet, in an update to Global Coffee Report in December 2022, Linville conceded the war in Ukraine had a lesser impact than previously expected.
“When companies started pulling out of Russia in response to the invasion, it was feared that sizeable fertiliser exports would vanish. However, as Russia has played politics with their fertiliser exports, flows have continued and have helped lower price ideas,” Linville says.
As to how challenging it is to access fertiliser for coffee at the moment, he says “the situation is not as dire as it was in the fourth quarter of 2021 and the first quarter of 2022, but fears continue to persist. European nitrogen production issues continue today, and Chinese/Russian exports are questionable, going forward. The market has been more steady but is far from normal.”
Rising fertiliser prices for coffee continue to affect producers right now, Linville notes, because “simply put, it costs more to grow coffee and these costs are likely to be passed down to end users in the form of higher coffee prices”.
“Fortunately, phosphate and potash values have fallen steadily since late March/early April with phosphate down approximately a third and potash down 40 per cent. Nitrogen values have seen price pressure recently with Middle Eastern price ideas down approximately 25 per cent since early September,” Linville says.
“Our message to the industry has continued to be risk management in the form of locking in both inputs (fertiliser) and outputs (coffee sales). Securing only one side or the other of that equation causes more risk. Locking in both sides secures the value and helps to hedge an extremely volatile marketplace.”
João Moraes, Director of Food Chain and Global Key Accounts at Yara, a global Norwegian fertiliser company, acknowledges the European conflict and resulting sanctions has cast a long shadow.
“The war in Ukraine has negatively impacted businesses and industries worldwide. The gas price has skyrocketed, which has a direct impact on the European fertiliser industry. As a result, Yara and other ammonia producers have had to curtail some production in Europe,” he says.
Although Yara has been able to respond to the war by relying on its global production system, importing ammonia for fertiliser production to allow it to still serve customers worldwide, Moraes concedes there’s no question the war is adding to the threat to global food security: “We need urgent and massive investments in renewables to reduce dependency on Russia and to decarbonise the fertiliser industry and make it more resilient in the future.”
To do that, Moraes sees a strong opportunity for coffee producers to tap into demand for carbon reduction and regenerative agriculture practices.
“There are no ‘green’ coffee supply chains with farmers’ business in ‘the red’. Farmers can be the best environmental agents. Promote a positive ‘coffee ecosystem’ by working close to your coffee suppliers in order to secure [not only] farmer income, [but also to attain] coffee security of supply (volume and quality), [plus] fair distribution of wealth and development of relevant stakeholders to increase production safety, the research pipeline, technification and rural extension,” he says.
Ensuring producers have quality plants, and lots of them, is also key.
“Farmers can only make money at the peak of quotations if they have coffee fruits to harvest,” Moraes says. “Crop nutrition is responsible for short-term results in yield and quality. Lack of balanced nutrition can also incur yield and quality reductions that might impact farmer living income. The global average production is 16 bags per hectare while Brazil and Vietnam have averages of 30 and 40 bags per hectare respectively. There is no way to reduce carbon emissions in coffee without filling yield gaps. Cutting fertiliser as an input means deforesting new areas to attend to the growing demand and keeping farmers in poverty.”
Developing countries snapshot
The challenge, however, is that coffee farmers in developing countries struggle to afford the fertiliser they need to make their soil nutrient rich to ensure their crops thrive. You need to invest money to make money, in other words.
That’s the dilemma facing the International Women’s Coffee Alliance (IWCA), a network of 14,000-plus members working throughout the coffee value chain worldwide, who are feeling the pinch of higher fertiliser prices.
“Costs are so high that our budgets have been affected surpassing any profit-earning capacity. To keep our farms in proper conditions, with expected yields and to prevent layoffs, we’ve been forced to inject more capital knowing our return is far from a fair price,” says Carolina Mathies Hill from IWCA El Salvador. “The costs and commercial structure for most coffee farmers are a pressing matter, diminishing our country’s production and forcing the bankruptcy of many producers.”
Lucia Ortiz from IWCA El Salvador concurs: “Rising agricultural prices on fertiliser have affected a lot of our producers by only applying a small amount of fertiliser to the plants, not applying anything at all or having to look for other type of fertilisation more organic.”
This scaling back, she explains, has led to an increase in coffee rust, anthacnosis disease, and a need for producers to spend more money on traps and fungicides. Her tip for coffee farmers? Give the plant at least 50 per cent what it needs and then try to add some organic products like pulp, dry fruits or foliar. It’s another way to feed the plant and is not as expensive as the granulated products. Also, clean the farm so you don’t get too much competition between weeds and coffee trees, and allow both 50 per cent light and shade because if you have more sunlight, you need more fertiliser.
Meanwhile, in Guatemala, fertiliser prices have risen over 70 per cent since the war began, notes IWCA Guatemala representative Ana María Bonifasi.
“Not only does this affect the bottom line of farmers, but it’s also causing many smaller or financially-strained farms to abandon fertilising altogether,” Bonifasi says. “This affects nutritional quality of the soil, creating poorer coffee cherries in the long run.”
She says it will disenfranchise already struggling farms in countries where mechanical production isn’t possible, like Guatemala, furthering the gap between mega coffee farmers at low altitudes and higher altitude smaller producers who rely on high quality coffees to find buyers who will pay more for their crops.
“Most fertilisers use natural gas in their creation and since the war sanctions heavily include natural gas, not as much fertiliser is being created, lowering supply and raising prices,” says Bonifasi. “Not only is fertiliser more expensive to produce, but there’s less of it. It’s in low supply, but since fewer farms are buying it, it’s still somewhat accessible. You need the capital to buy it though: something many farms simply don’t have.”
Bonifasi’s final advice to coffee farmers is to be more efficient with fertiliser, making sure it’s being precisely applied. And embrace the worm route: “get into more affordable vermicompost as soon as possible.”
This article was first published in the January/February 2023 edition of Global Coffee Report. To read the research paper, click HERE.