A recent decision by the Canadian government to implement a 35 percent tariff on virtually all imported goods from Russia and Belarus that were not in transit prior to March 2, 2022, has raised red flags among farmers and member of the Canadian fertilizer industry, who said the tariff could severely restrict spring fertilizer supplies in Eastern Canada.
The tariffs are part of Canada’s decision earlier this month to withdraw the most-favored-nation status to Russia and Belarus as trading partners. Fertilizer industry participants told Green Markets that as much as 25 percent of phosphate fertilizers and 55 percent of nitrogen fertilizer used in Eastern Canada comes from Russia, mostly in the form of urea, UAN, and MAP.
“Right now, there are a lot of gray areas with the logistics of the Russian sanctions, and we are working with our government contacts to bring some clarity to them,” Fertilizer Canada told Green Markets. “While it’s having a negative overall effect to the whole industry, Eastern Canada will be disproportionately affected since they depend on Russian fertilizer imports. At this time, our members impacted by the sanctions are looking to source product to avoid issues of shipments being turned away or being subjected to the 35 percent tariffs.”
A letter drafted by the Ontario Agri-Business Association (OABA) is making the rounds among trade and farm groups in Eastern Canada. Addressed to members of parliament, the letter urges the Standing Committee on Agriculture and Agri-food (AGFI) to hold an emergency meeting to tackle the supply chain challenges that the Canadian fertilizer industry currently faces, and specifically the impact the tariff will have on spring fertilizer supplies.
“The agricultural sector is fully supportive of punitive actions against Russia resulting from their decision to invade Ukraine,” the letter states. “Although the tariff is intended to be a punitive action against the Russian economy, the consequences will ultimately be felt by Ontario farmers through spring fertilizer supply shortages and price increases.”
The letter notes that Canadian farmers and the fertilizer industry have adapted to a variety of recent challenges, including supply chain disruptions and product shortages related to COVID-19, a global shortage in shipping containers, and a general lack of available labor.
“We have faced these challenges head on and adapted quickly,” the letter states. “However, we find that the implementation of a 35 percent tariff on fertilizer imports from Russia on pre-existing orders and with minimal global sourcing alternatives at this late stage prior to spring will severely impact already tight fertilizer supplies and escalated farm level fertilizer prices.”
While expressing support for a tariff on Russian fertilizer imports that were ordered on or after March 3, the letter urges lawmakers to withdraw the tariff on fertilizer imports from Russia and Belarus that have a documented fertilizer purchase order made prior to March 2, 2022.
“Purchase orders for Russian fertilizer are typically made by Canadian based companies who import fertilizer into Eastern Canada several months in advance of shipments being initiated,” the letter states. “As a sector, our position is that fertilizer importers should not be penalized for business decisions made prior to the implementation of the tariff.”
The letter further urges that any tariff payments made by fertilizer importers be put “in-trust” until the federal government clarifies its tariff policy. This would allow Canadian companies importing fertilizer into Eastern Canada to recoup tariff payments if amendments are made to the current policy to “mitigate the undue burden placed on the domestic fertilizer supply chain,” the letter states.
In addition, the letter asks that any vessel shipments of fertilizer of Russian or Belarus origin that are currently in transit be allowed to offload at the Port of Hamilton and the Port of Montreal if all other necessary shipping requirements are followed.
“It is vital to Ontario farmers that vessels currently enroute to Canada from the Black Sea/Baltic region are permitted to deliver the fertilizer that Ontario farmers vitally need during the spring planting season,” the letter states. “If this is not allowed to happen, there is the very real probability that some Ontario farmers will not be able to access adequate fertilizer to grow their crops.”
Finally, the letter asks the Canadian government to consider providing compensation to fertilizer importers, distributors, ag retailers, and farmers for the “undue financial hardships” associated with the implementation of the 35 percent tariff on fertilizer.
“The timing of the tariff decision and implementation significantly impacted long established supply chain operations and agreements that had already been negotiated and logistics established,” the letter states. “The tariff negatively impacts product availability with no feasible global sourcing alternatives weeks before the crucial spring planting period. The tariff further escalates farm level pricing due to tariff fees being incorporated into mid-spring fertilizer imports.”
Based on existing warehouse capacity in Eastern Canada, one industry participant speculated that Ontario can store roughly 40-50 percent of its spring fertilizer needs ahead of demand. The balance, he said, is dependent on in-season rail for potash tons from Western Canada, and import vessels for a majority of the urea and UAN, as well as approximately 40 percent of the region’s spring phosphate needs. The urea and UAN imports are most often from Russia, with phosphate imports split evenly between Russia, Morocco, and the U.S.
“Typically we like to think we can get going in spring with the product on hand, but when the planting season is underway we are dependent on the vessels,” he told Green Markets.