Fertilizer diplomacy: How ammonia could hobble Black Sea grain deal

Who would have thought that fertilizer could be the stuff of great power politics and diplomacy?

The United Nations has been engaged for weeks in intensive closed-door negotiations aimed at enabling Russia to pipe large amounts of ammonia gas, a key ingredient in nitrate fertilizer, across a battle line through Ukrainian territory to the Black Sea. From there, it will be shipped off to ports worldwide, part of a multibillion-dollar transaction expected to improve farm yields and ease global hunger.

A diplomatic source familiar with the negotiations said that the basic pact had been agreed last month, but that a number of factors — including a Russian-orchestrated referendum on the annexation of eastern Ukraine and differences over where to host a signing ceremony — had delayed implementation.

Since then, the parties have added new demands, and Russia has launched dozens of deadly missile strikes against Ukrainian cities in retaliation for its alleged role in bombing a vital bridge linking Russia to occupied Crimea, complicating efforts to close the deal, according to the diplomatic source.

“There are a lot of moving pieces,” said one senior U.N. official, who spoke on condition of anonymity because of the confidential nature of the talks. “That’s all I can say.”

At stake is the landmark U.N.-brokered Black Sea grain deal, which facilitated the export of about 3 million metric tons of Ukrainian grains from the port of Odesa that had been blockaded by Russia. The deal stands out as one of U.N. Secretary-General António Guterres’ greatest diplomatic achievements, reconnecting Ukraine’s farmlands to international markets, but Russia has complained that the West has not lived up to its side of the bargain.

The grain deal was part of a tit for tat package of understandings that included a commitment by the U.N. to allow export of Russian agricultural products, particularly ammonia. But Russian President Vladimir Putin has since protested that the European Union has blocked his fertilizer from reaching their export destinations in the global south.

U.N. officials fret that Russia may not agree to extend the mandate of the grain deal when it expires in late November unless it can ship its ammonia, two U.N. sources told Devex. The U.N. reopened talks on ammonia to address Russia’s concerns, and to ensure the ongoing success of the grain deal.

Guterres “is committed to having an extended and expanded Black Sea Grain Initiative,” Stéphane Dujarric, the U.N. secretary-general’s spokesperson wrote in an email. “He and his team are also working actively to remove the last obstacle so as to facilitate the export of Russian grain and fertilizer.”

U.N. sees ammonia pact as key to averting global food crisis 

The basic outline of the ammonia deal currently under negotiation was previously reported by the Financial Times and Reuters, and confirmed by two diplomatic sources familiar with the talks. The U.N. has sought to overcome Ukrainian objections to dealing directly with Moscow by brokering a two-part deal: The Russian company, Uralchem, would ship its ammonia gas to the Ukrainian border, where it would be purchased by an American trading company, Trammo, according to the sources.

At that stage, Trammo will strike a second agreement with Ukrainian authorities allowing it to transport its ammonia across Ukrainian territory to the Black Sea port of Yuzhne. The Financial Times reported it would allow for the export of 2 million tons of ammonia each year, at a value of $2.4 billion.

While sky-high food prices have gotten the bulk of attention, with alarm growing over malnutrition and hunger, there are deeper, underlying concerns about fertilizer prices which have remained stubbornly above historic levels, even when commodities such as wheat and corn have moderated on markets.

Part of the issue is the shock to energy markets, also due to Russia’s war. With gas coming offline, fertilizer producers are losing a major input into their product. If Moscow gets more ammonia flowing, there is hope to prevent worst-case scenarios, such as farmers’ yields dropping sharply for staple foods. Even more, farmers in low-income countries may switch away from producing food to cash crops such as tobacco, simply to stay afloat, unless fertilizer costs come down — and soon, given that the planting season schedule does not wait for international negotiations to conclude.

The new ammonia pact is being negotiated by a U.N. task force led by Rebeca Grynspan, a Costa Rican economist who leads the U.N. Conference on Trade and Development. Grynspan is scheduled to continue negotiations over the deal with Russian officials in Moscow on Sunday, according to Dujarric.

“Russia, as the world’s largest exporter of fertilizer, has a vital role to play in ensuring there will be sufficient food production for next year,” George Fominyen, a spokesperson for the World Food Programme, told Devex by email.

“We are currently seeing a global food crisis that is largely due to high prices, making access to food more difficult,” Fominyen added. “But without fertilizer in 2022, the current crisis could grow into one of food availability in 2023, as harvest yields decrease.”

The talks hit a snag

The failure of the talks could spell misery for hundreds of millions of people, particularly in low- and middle-income countries, whose livelihood depends on crops that use Russian fertilizer. In a sign of its importance, Putin and Guterres have personally discussed the ammonia negotiations.

”To remove the obstacles that still exist in relation to the export of Russian fertilizers is absolutely essential,” Guterres told reporters after a Sept. 14 phone call with Putin.

The talks have hit a number of snags, the diplomatic source told Devex. Initially, the United Arab Emirates offered to host the signing ceremony, but Turkey, which presided over the signing for the grain deal, wanted to do it on its territory, he said.

Ukrainian President Volodymyr Zelenskyy, meanwhile, was reluctant to sign a pact that benefited Russia at a time when Putin was moving to formally annex large swaths of eastern Ukraine, according to the source. But Ukraine has an interest in ensuring that the grain deal doesn’t collapse.

Zelenskyy also sought to condition approval of the deal on Russia’s willingness to release Ukrainian detainees, the Financial Times reported. Ukraine last month credited Turkey and Saudi Arabia with brokering a prisoner swap, though it is unclear whether the deal was linked to the ammonia talks.

Russia, meanwhile, tried to squeeze additional concessions out of the deal, pressing Guterres to persuade European governments to lift sanctions on Russian firms from the SWIFT financial system. It remains unclear whether Russia succeeded.

While Washington and European capitals have imposed harsh sanctions against Russia, they have exempted agricultural exports. At the same time, they are sensitive to concerns among low- and middle-income nations that the sanctions, in addition to the war in Ukraine, are impeding the distribution of food, seeds, and fertilizers.

“It’s worth repeating: the sanctions that we’ve imposed on Russia collectively and with many other countries exempt food, exempt food products, exempt fertilizers, exempt insurers, exempt shippers,” U.S. Secretary of State Antony Blinken said in June, before meeting with Germany’s Foreign Minister Annalena Baerbock.

Louis Epstein, Trammo’s senior vice president & general counsel, said the company “does not know the current status of the talks” and “is waiting to hear.” He referred Devex to an earlier quote from the company’s CEO, Ed Weiner, provided to Reuters.

“The absence from the market of ammonia formerly shipped through Ukraine has caused substantial hardship in countries dependent on that product. We believe that resumption of shipments will help to stabilize fertilizer prices worldwide and to avoid a global food crisis,” Weiner said.