500% jump in fertiliser company profits likely fuelling food price inflation – new analysis

Fertiliser company profits leapt 500% in 2022, relative to 2020, new analysis [1] from the Energy and Climate Intelligence Unit (ECIU) shows, as the public weathered food prices hikes of almost 20% [2].

Most conventional fertilisers are made using natural gas. And record gas prices in 2022 helped push fertiliser prices to an all-time high. The most commonly used fertiliser is ammonium nitrate, which was £719 per tonne in 2022, compared to £217 per tonne in 2020.

These markups have bumped the fertiliser bill for farmers £1.17 billion higher in 2022 than it was in 2020. Prices have begun to come down in 2023, but farmers have still spent £479 million more this year than at the same point three years ago.

Despite soaring fertiliser costs in 2022, recently published Government data showed [3] UK farmers still made a modest profit. In the same period, retailer profits were generally flat [4], indicating the higher fertiliser costs were likely passed onto the consumer.

While British shoppers struggled with mounting food prices, fertiliser supply companies made unprecedented profits. The three main companies that supply the UK market – CF Industries, Yara and Origin Enterprises [5] - made a combined net profit of £5.45 billion in 2022. This marks an upsurge from £909m in 2020.

Yara’s European division recorded profits of £578m in 2022, compared to £123m in 2020, with CF Industries making a gross margin of £1.28 billion on ammonia production in 2022, compared to £133m in 2020. In 2021, CF Industries, which is the biggest fertiliser manufacturer in the UK received a bailout [6] from the UK government after halting ammonia production because of high costs. These windfalls echo the never-seen-before profits made by oil and gas companies over the past 18 months.

Tom Lancaster, Head of Land, Food and Farming at the Energy and Climate Intelligence Unit (ECIU) said: “With retailer profits holding steady and farmers slightly in the black, it is inevitable that the consumer is footing the bill again, this time in the form of record profits for some of the world’s biggest fertiliser companies driven up by the gas crisis. With the Bank of England predicting food price inflation to remain high, the effect of high gas prices on our weekly shop is lingering well into 2023.”

ECIU’s fertiliser price analysis comes amid widespread reports of ‘greedflation’ helping to fuel food price increases [7]. Of the three main fertilisers UK farmers use, ECIU analysis suggests they used 90% of the total 2023 usage by the end of May, meaning that any further falls in the fertiliser price in the rest of the year are unlikely to lower food prices.

Recent analysis from the Office for Budget Responsibility (OBR) [8] illustrates that the exposure of UK farming to volatile gas prices is symptomatic of the wider economy. If gas a price crisis of a similar magnitude to last years occurred every decade, it would add 13% of GDP to public debt by 2050/51, compared to the 6% of GDP the OBR estimate as the total cost of public investment to complete the transition to net zero by the middle of the century. The previous oil and gas price crisis happened in 2008.

Although gas-based fertilisers dominate the UK market, low carbon alternatives are increasingly viable, such as those made from wastes and other residues [9].

Pawel Kisielewski, CCm Technologies CEO said: “The gas price crisis has increased fertiliser costs for farmers feeding through to higher prices for the public. It doesn’t need to be like this, there are waste streams here in the UK that can be transformed into fertiliser rather than relying on processes utilising virgin gas. This would break the link between gas prices and conventional fertilisers. Alternatives exist, higher fertiliser prices don’t need to mean higher food prices for consumers.”

There is growing evidence that sustainable farming methods help build soil fertility, and reduce the need for fertilisers at all, with farming methods such as cover crops and clover rich ‘leys’ helping to improve soil health and trap nutrients. With farming the biggest cause of river pollution [10], and 40% of nutrients applied to farmland lost to the environment [11], reducing fertiliser use would also help to clean up Britain’s rivers, as well as reduce farmers’ costs.

Martin Lines, UK Chair of the Nature Friendly Farming Network said, “With input prices increasingly volatile, farming with nature helps reduce my fertiliser bill, whilst maintaining my yields. As a result I’m less dependent on fossil fuel inputs and less exposed to global price shocks. Healthy soil is more resilient to flooding and drought as well, making me more able to adapt to the worst impacts of climate change.”

ENDS

Notes to editors:

1. The analysis, Fertiliser prices in 2022/2023 and selected company fertiliser performance, is available here: https://eciu.net/analysis/reports/2023/fertiliser-prices-in-2022-2023-and-selected-company-fertiliser-performance
2. Food price inflation in the year to May 2023 was 18.9%, having been 19.5% in the year to April 2023, and 19.8% in the year to March 2023: https://www.ons.gov.uk/economy/inflationandpriceindices/datasets/consumerpriceinflation
3. According to Defra UK Total Income from Farming (TIFF) data published in May 2023, UK TIFF in 2022 was £7.9 billion, an increase of £1.1 billion (16.6%) from 2021. Following an “exceptional year of price volatility, this large increase in TIFF was driven by price increases across the majority of commodities in this account, which more than offset increases in input prices.”: https://www.gov.uk/government/statistics/total-income-from-farming-in-the-uk/total-income-from-farming-in-the-uk-in-2022
4. https://www.theguardian.com/business/nils-pratley-on-finance/2023/may/08/uk-supermarkets-profiteering-sainsburys-tesco
5. https://www.ibisworld.com/united-kingdom/market-research-reports/fertiliser-nitrogen-compound-manufacturing-industry/
6. https://www.theguardian.com/politics/2021/sep/22/why-is-the-uk-bailing-out-us-co2-supplier-cf-industries
7. ‘Greedflation’ refers to the reported potential for companies to use high prices in order to inflate profits under the cover of high background inflation.
8. https://obr.uk/docs/dlm_uploads/Fiscal_risks_and_sustainability_report_July_2023.pdf
9. https://www.ccmtechnologies.co.uk/
10. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/709493/State_of_the_environment_water_quality_report.pdf
11. https://www.fwi.co.uk/arable/crop-management/nutrition-and-fertiliser/6-steps-to-improve-your-fertiliser-use-efficiency

For more information:

George Smeeton, Head of Communications, ECIU, Tel: 07894 571 153, email: george.smeeton@eciu.net