Question Period Note: IMPACT OF RUSSIAN TARIFFS ON FERTILIZER PRICES

Q1 - How is the department supporting the sector amid high input prices? Q2 - When will the Government return funds collected by the tariff on Russian fertilizers back to the sector? Q3 - How will this funding help producers with fertilizer management? Q4 - How can Canadian farmers and producers apply?

R1 - To provide rapid cash flow to producers, we amended the Advance Payments Program, a low-interest federal loan program.

The interest-free portion of this program was increased from $100,000 to $250,000 for the 2022 and 2023 program years. Budget 2023 provided an additional $13 million to further increase the interest-free limit from $250,000 to $350,000 for the 2023 program year.

The change represents an additional estimated savings of up to $84 million over the two years for the approximately 11,000 producers who take advantage of advances above $100,000. R2 - The Government will not be granting tariff relief for Russian fertilizer in order to preserve the integrity of Canada’s response measures to the war against Ukraine.

Some fertilizer importers paid a substantial amount of duty on imports of Russian fertilizer last year. These duties represented approximately 1 percent of total fertilizer expenditures in Eastern Canada this year.

We are committed to provide further support to the sector given the additional pressure faced by impacted producers. My department is currently finalizing details of the On-Farm Climate Action Fund, $34.1 million will be available to Eastern Canadian growers to optimize fertilizer use and reduce GHG emissions. R3 - Funding aims to provide Eastern Canadian producers additional financial support in their adoption of practices that optimize fertilizer use and reduce GHG emissions from synthetic fertilizer use.

These practices help adopters apply fertilizers in a way that minimizes negative impacts on the environment while maximizing crop yields. The funding will help improve crop productivity, increase profitability for farmers, and protect the environment in the long-term. R4 - Canadian farmers and producers can apply directly to one of the (13) recipients for cost-shared funding support to implement Best Management Practices (BMPs). They are encouraged to use the On-Farm Climate Action Fund Web Tool for Farmers to determine which recipient organization best serves their needs.

Fertilizer Production and Canadian Imports

Fertilizer products vary depending on the nutrients sought by growers, but generally, the most important nutrients are nitrogen (N), phosphorus (P) and potassium (K). Farmers will apply fertilizer with different ratios and amounts of these nutrients depending on the crop they are growing. For example, a high ratio of nitrogen is used to grow corn while soy requires minimal nitrogen as it produces its own.

Farmers largely depend on synthetic fertilizers, as opposed to organic fertilizers such as manure, due to their higher nutrient content. There are currently no valid cost-effective alternatives to synthetic fertilizers.

Nitrogen fertilizers are produced from natural gas, while phosphorus and potassium are mined. Canada is the world’s largest producer and exporter of potassium and is self-sufficient. About 95% of Canadian potash fertilizer production is exported. Canada largely relies on imports of phosphorus fertilizers, primarily from the United States. Canada is a net exporter of nitrogen fertilizers with 45% of its production being exported. However, this production is concentrated in Western Canada and it is often cheaper for Eastern Canada to import fertilizer than transporting it by rail from Western Canada. As such, Eastern Canada is dependant on nitrogen fertilizer imports most of which come from Russia. In 2021, 39% of Eastern Canada’s nitrogen fertilizer imports came from Russia (654, 509 metric tonnes (MT), valued at $356M CAD). Approximately 51% was destined for was Quebec, 46% was for Ontario. with the last 2% for PEI.

Securing Nitrogen Russian Fertilizer for Eastern Canada

Despite sanctions against Russian goods, including fertilizer, Canada received all the nitrogen fertilizer supply it needed for the 2022 and 2023 growing season thanks to the collaboration of industry and various federal departments..

Moving forward, Eastern Canadian fertilizer suppliers have successfully established new supply chains to replace Russian nitrogen fertilizer supplies with alternative sources from Northern Africa and the Caribbean, as well as continued trade with the United States.
Impacts of the Russian War Against Ukraine on the Price of Nitrogen Fertilizer

Fertilizer is the largest on-farm expense for crop producers. Prior to the conflict, the price of fertilizer had already reached historic highs, especially the price of nitrogen fertilizer, which nearly doubled in price in 2021. An example of this is Alberta anhydrous ammonia prices increasing from $871/tonne in January 2021 to $1,441/tonne in January 2022 (Note: the department only has access to Alberta monthly fertilizer prices). This rise was due to growing commodity prices, a global increase in acreages of grains and oilseeds which require significant quantities of fertilizer to produce, restricted supply of natural gas (a primary feedstock in the production of nitrogen fertilizer), and restricted supply of fertilizer in the global market due to both China and Russia banning select exports.

At the onset of Russia’s war against Ukraine in March 2022, fertilizer prices reached historic peaks. By May 2022, the price of nitrogen-based fertilizers spiked. For example, Alberta producers paid nearly $2,200/tonne for anhydrous ammonia. However, since the price spikes in late spring 2022, prices have declined to pre-invasion levels. From April to June 2023, Alberta prices for anhydrous ammonia have averaged $1,600/tonne, which is in line with prices in February 2022.

On March 3, 2022, Canada revoked MFN (Most Favoured Nation) trade status for Russia and Belarus thereby applying a 35% tariff on all imports into Canada from these countries, including fertilizers. This has further reduced Canadian imports of Russian nitrogen fertilizer, which is usually the cheapest fertilizer available for Eastern Canada, and drove prices higher in Canada. Given the enduring nature of Russia’s illegal war against Ukraine, Budget 2023 proposed legislative amendments to make MFN withdrawal permanent, which received Royal Assent on June 22, 2023.

Where industry has made alternative arrangements for fertilizer, it has been at considerably higher prices. Fertilizer importers, with one company in particular, paid a substantial amount of duty on imports of Russian fertilizer this year. However, AAFC estimates suggest that this represented only around 1 percent of total fertilizer expenditures in Eastern Canada this year.

Available Support for Farmers Amidst Rising Fertilizer Prices

The federal-provincial territorial business risk management suite is available to help producers manage losses caused by risks that are beyond their control such as natural disasters, weather events, and severe market volatility. Existing programs, such as AgriStability and AgriInvest, are in place to assist producers when they experience income declines, both large and small.

Additionally, the federal government offers the Advance Payments Program (APP), a federal loan guarantee program that provides agricultural producers with easy access to low-interest cash advances. The APP allows Canadian farmers to obtain cash advances on the expected value of their commodities, thus helping them meet their financial needs over their production and marketing cycle. The federal government has made changes to the APP in recent years to enhance the program, providing producers with access to increased interest-free loan amounts.

On June 23, 2022, the interest-free portion of the APP was increased from $100,000 to $250,000 for the 2022 and 2023 program years. Budget 2023 proposed to further increase the interest-free limit from $250,000 to $350,000 for the 2023 program year. On June 23, 2022, As a result, recent estimates, which take into consideration interest rate increases, suggest participating producers will save an average of $8,600 in interest costs over these two years. The change represents an additional estimated savings of up to $84 million over the two years for the approximately 11,000 producers who take advantage of advances above $100,000.

In 2022, the Advance Payments Program provided $3.5 billion in total advances to 18,721 producers across Canada. A total of 9,512 producers were able to benefit from the increase, and of these, 5,069 were able to maximize the benefit at $250,000 interest free.

For the 2023 program year to date, a total of 18,599 producers (value of $3.8 billion) have received advances. A total of 5,347 producers received interest free advances above $250,000, and of these, 3,909 received the maximum interest free benefit of $350,000.

OFCAF Support – Nitrogen Management

AAFC’s On-Farm Climate Action Fund (OFCAF) can directly support producers in the adoption of nitrogen management practices that will help optimize fertilizer use and reduce GHG emissions from synthetic fertilizer. Farmers can access nitrogen management funding from 13 OFCAF delivery organizations nationally, which will help support the costs of adoption. Through the adoption of these practices, farmers can reduce the amount of excess fertilizer that enters water bodies, helping to protect and preserve these ecosystems.

In consultation with agriculture industry associations in Eastern Canada, Budget 2023 provided OFCAF with an additional $34.1 million in nitrogen management funding that will be targeted to support Eastern Canadian farmers undertake projects to adopt nitrogen management practices.

• The Government is aware of the importance of fertilizer for Canadian famers while also recognizing Russia’s illegal war against Ukraine.

• We worked with industry partners to ensure that Canadian farmers had access to a reliable source of fertilizers, enabling Canada to continue to do its part during this time of global food insecurity.

• Industry leaders have adjusted to the current situation and have established new supply chains in order to continue to obtain supplies from countries other than Russia.

• In terms of fertilizer markets, global prices have significantly declined since their peaks in 2022, thus relieving some pressure on the sector.