Is Europe in danger of food insecurity or devastating food prices?

Mikuláš Peksa:

“Food prices going up, bread will get more expensive”, “High gas prices make industrial fertiliser prices soar”, “Food crisis in Europe”. We see headlines like these almost every day in the media – but how can we make heads or tails of the tangle of information on growing food prices, fertiliser shortages, and wheat stocks in Europe?

How is all this connected with the rising energy prices – especially gas prices? What is the EU doing to ensure food security and support farmers? You can find the answers to these questions in this article on Europe’s food security.

What is the problem? It has started before the war

Europe has struggled with growing food prices even before Russia’s war on Ukraine. Droughts, increasing fuel and fertiliser costs, and price surges in the energy sector. However, all this became much more pressing after Russia invaded Ukraine. The price of grain, especially wheat, which is mainly exported by Ukraine and Russia, has reached a record high. There are also concerns regarding the supply of sunflower and sunflower oil, as Ukraine is the world’s majority exporter.

Fertiliser shortages?

The Czech Republic is self-sufficient in wheat and barley production – in fact, it is an exporter. As such, it will not be as affected by export restrictions or suspension as countries that are entirely dependent on importing these commodities. However, Russia’s war in Ukraine and the associated price hike in Russian gas will likely affect grain prices in Czechia. It will most importantly be reflected in a price increase on industrial fertilisers, which most farmers currently need to produce grains. The final cost is, of course, also partially dependent on the price of these commodities on the Paris Stock Exchange, which determines European grain prices. That will inevitably experience a certain price surge as a result of the interrupted supply from Russia and Ukraine. Europe as a whole is also self-sufficient in terms of most agricultural products – with several exceptions, such as feed protein, where the prices may skyrocket.

Why is natural gas so important for fertiliser production? 

Natural gas is the primary source of hydrogen, which, alongside nitrogen, serves as the main ingredient for ammonia production, which is essential for producing urea. That is used for fertilisation as well as the production of other fertilisers. However, urea production is insufficient in Europe, meaning most fertiliser producers must import it from abroad. The Czech Republic does not produce urea at all. Currently, urea production is limited even further due to growing gas prices. The biggest urea and fertiliser exporter for Europe is Russia, but Russia has stopped its exports. Other significant exporters include Belarus, or the more distant Algeria and Egypt. Fertiliser prices have therefore climbed up to a record high in mid-March 2022, amounting to ca. 20,000 CZK per ton of urea. At the beginning of last year, the price was around 6,000 CZK.

Moreover, the price surge of fertiliser came at a very inopportune time – the time for nitrogen fertilisation to stimulate growth is now, in spring, which is the time for sowing. However, last autumn, many farmers decided to wait before buying fertiliser for the upcoming season because they were hoping for a decrease in the already rather steep prices. As such, they will now be forced to use less fertiliser than in previous years, which may, in turn, mean lower yields – or they will have to turn to alternatives to chemical fertilisers.

Crisis as an opportunity

The current shortage of chemical fertilisers can also be viewed as a unique opportunity for using newer, greener, and more modern farming techniques, which go hand in hand with the Green Deal. Farmers oriented toward both crop production and livestock farming have already started substituting manure or slurry for chemical fertilisers. Other alternatives include composts with sewage sludge compounds or organic fertilisers.

What steps is the EU taking? 

The current food supply situation has been one of the most hotly debated topics of the last weeks in the EU. Therefore, the European Commission reacted to the current challenges in food security and production by presenting a robust package of measures for dealing with supply shortages of raw materials and the growing input costs of their production.

– Aid to farmers

One of the most important measures is an aid package worth 500 million EUR to support the food producers most impacted by the effects of the war in Ukraine. This exceptional financial support will mainly go to farmers who employ sustainable farming practices. It can also cover input costs such as fertilisers or energy, which have grown considerably. Farmers will also receive more advances on direct payments as part of rural development support. The package also introduces a provisional exemption on farmland use, allowing any food and feed crops to be grown on fallow land. That will raise the EU’s production capacities, despite the limited availability of fertile land.

– Independence on import and research support

Europe’s long-term goal is to rapidly lower the dependence of agricultural production on energy and feed imports and stop energy-inefficient fertiliser imports. One of the possible solutions is to diversify import sources and make bilateral trade agreements. The flagship EU programme Horizon Europe, focused on financing research and innovation, will also fund investment to develop alternatives to existing synthetic fertilisers. The European Commission proposes a higher efficiency of nitrogen use, transitioning to green ammonia or biomass valorisation. New eco-friendly fertilisers will also prevent land degradation and ensure sustainable and healthy agricultural production.

– Solidarity with Ukraine

Apart from ensuring food security and affordability for its member states, the EU will also continue providing humanitarian food aid to war-torn Ukraine. Apart from supplying food, drink, and fuel, the EU will also aid Ukrainian farmers so they can sow this year. This will secure the food supply for Ukraine itself, as well as the supply of specific main export commodities, such as oily seeds, to other countries. The EU has also established an emergency fund for Ukraine amounting to 330 million EUR, which aims to ensure access to essential goods and services for Ukrainians and help them restore local civil infrastructure, strategic planning development, and energy supply.

There is nothing to fear

The main takeaway is that Europe’s raw material supply security is not at risk, despite the current thorny situation. It is likely we will have to find a way to cope with a slight increase in food prices, but the EU is already adopting a wide range of measures to mitigate the impacts of Russia’s war in Ukraine in all areas, especially when it comes to food. And what is more, it is providing continuous support to the war-struck Ukraine to limit the impact of the food crisis as much as possible.