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?
Q5 – What is the current status of Sollio’s appeal with Canada Border Services Agency (CBSA)?

R.1 - To provide rapid cash flow to producers, we temporarily amended the Advance Payments Program, a low-interest federal loan program.

As farm operating costs remain uncertain heading into this crop year, the interest-free limit was recently increased from $100,000 to $250,000 for the 2024 program year. This change is expected to provide an additional $4,916 in interest savings to producers for a total savings of up to $58.7 million this program year, and a total interest savings of $188.2 million over the three years. R.2 - 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.

Through the On-Farm Climate Action Fund, $34.1 million is available to Eastern Canadian growers to optimize fertilizer use and reduce GHG emissions. R.3 - 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. R.4 - Canadian farmers and producers can apply directly to one of the (5) 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. R.5 - We are aware of the situation. As this case is under review by CBSA, any questions related to the enforcement of the Customs Act and recourse activities should be directed to the CBSA.

We understand that both Sollio representatives and CBSA officials had an opportunity to appear before the AGRI Standing Committee (November 2024) to explain their perspectives on the matter.

AAFC is aware of the importance of fertilizer for Canadian farmers. We continue to work with the fertilizer value chain to help ensure an adequate supply for Canadian farmers.

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. Over 90% of Canadian potash fertilizer production is typically exported, and import quantities are very small. 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 was, prior to 2023, dependant on nitrogen fertilizer imports, most of which come from Russia.

Securing Nitrogen Russian Fertilizer for Eastern Canada
Despite sanctions against Russian goods, including fertilizer, 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, albeit at a higher cost.

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 and rose further in 2022.These increases were due to strong crop prices, supply chain issues related to the pandemic, high natural gas prices (a primary feedstock in the production of nitrogen fertilizer), and restricted supply of fertilizer in the global market due to China, Russia, and Belarus banning select exports.

Since then, most regular trading routes on world nitrogen markets have reopened and, prices have fallen.

Fertilizers Remain Relatively Expensive
Each fertilizer type is subject to different market and geopolitical forces that affect their price:
• Urea, an important nitrogen (N) fertilizer, is now worth about one-third of what it cost in 2022, at the start of the Russian invasion. However, it remains high compared to 2020 prices.
• Potassium Chloride (K) prices also spiked in 2022, fell in 2023, but are still significantly more expensive than in 2021.
• Phosphorous (P) prices also rose significantly in 2022. The main driver of this hike was China’s decision to limit P exports to curtail domestic inflation and protect their citizen’s food security. Prices of phosphate rock, the main ingredient in P fertilizer, also recently fell but, remains high when compared to 2020.

Fertilizer prices are quite volatile as global geopolitical decisions can greatly affect their price and availability. Because of recent geopolitical events, fertilizers will remain expensive for the 2024 growing season. For example, DAP fertilizer prices (a mix of N and P) are 50% more expensive when compared to 2020 prices .

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.

On March 25, 2024, the interest-free limit was again temporarily increased to $250,000, which was confirmed in Budget 2024. Approximately 11,950 producers are expected to save an additional $4,916 in interest as a result of the change. This represents a total interest savings of up to $58.7 million for the program year 2024, and a total savings of $188.2 million for producers over the three-year period.

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 most 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.

First announced in Budget 2021, the $704.1million On-Farm Climate Action Fund is an initiative to help farmers tackle climate change. The Fund is part of the Government of Canada's Agricultural Climate Solutions initiative, which falls under the more than $5 billion Natural Climate Solutions Fund. In consultation with agriculture industry associations in Eastern Canada, Budget 2023 provided OFCAF with an additional $34.1 million in nitrogen management funding to support Eastern Canadian farmers who undertake projects to adopt nitrogen management practices

Sollio’s Appeal with CBSA
On March 2, 2022, the Canadian government withdrew Russia and Belarus’s entitlement to the Most-Favoured-Nation (MFN) tariff. This resulted in a 35% tariff on virtually all goods that originated in these nations and that were not already in transit, including fertilizers. Shipments en route to Canada on or prior to March 2nd were exempted from the tariff.

There is an ongoing CBSA case involving Sollio, who is seeking relief from tariffs for past fertilizer shipments. This case is under review by CBSA. As such, any questions related to the enforcement of the Customs Act and recourse activities should be directed to the CBSA.

On November 21, 2024, Sollio representatives participated in the Standing Committee on Agriculture and Agri-Food (AGRI) and indicated that their inability to import Russian products leaves them more vulnerable to geopolitical risks in other source countries. AAFC is aware of the importance of fertilizer for Canadian farmers. We continue to work with the fertilizer value chain to help ensure an adequate supply for Canadian farmers.

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

• Since Russia’s invasion of Ukraine, we have remained in regular contact with importers and suppliers of fertilizer products to help ensure an adequate supply for Canadian farmers.

• Although still high, global fertilizer prices have significantly declined since their peaks in 2022, thus relieving some pressure on the sector.