A shortage of natural gas has led to a halt in production at some fertiliser factories, resulting in the formation of a black market to meet demand. Natural gas is not only a source of energy in the production of fertilisers, though it can be replaced by alternatives, but it is also a raw material for them in its own right.

Egypt’s fertiliser producers have seen problems since the devaluation of the pound in 2022 due to increases in the cost of natural gas. The decline in the global prices of fertilisers from $1,000 per ton two years ago to $300 today has also eaten into export revenues.  

The state obliges private-sector fertiliser producers as well as state-owned ones to sell part of their production, 30 and 50 per cent, respectively, to the Agriculture Ministry at subsidised prices.

As a result of the shortages, a ton of fertiliser has rocketed in price to more than LE15,000, according to recent media reports, with subsidised fertilisers, normally sold for LE4,800 a ton to farmers, sold on the black market for LE21,000, surpassing the profits made from some types of crops.

Sources familiar with the negotiations between the Fertiliser Chamber, the Chemical Industries Export Council, parliamentary representatives, and government bodies said the government is working on a two-pronged plan to resolve the crisis.

It is trying to increase the gas supply to fertiliser factories to meet the quantities needed until the end of the season, and there are plans to raise the price of a ton of subsidised fertiliser to LE6,300.

According to estimates provided by the Ministry of Public Enterprise, Egypt’s total fertiliser production last year amounted to eight million tons of nitrogen and four million tons of phosphate fertilisers.

Moataz Mahmoud, head of parliament’s Industry Committee, said the crisis could be resolved by implementing the terms of the State Ownership Policy Document, thereby separating ownership from management and allowing the state to function solely as a regulator without interfering in market mechanisms.

In 2023, Egypt’s chemical industries and fertiliser exports amounted to over $6 billion, down from $8.63 billion in 2022 and declining by around 30 per cent. From January to the end of April, chemical industries and fertiliser exports accounted for 22 per cent of Egypt’s total exports, dropping by eight per cent compared to the same period last year.

Fertiliser and petrochemical companies make up 50 per cent of the raw materials sector on the Egyptian Stock Exchange. This sector ranks second with a market capitalisation of LE324.28 billion, or 18.12 per cent of the total listed on the Stock Exchange.

Hussein Abu Saddam, head of the Farmers Syndicate, anticipates that the crisis will gradually be resolved in the short run as the government is making strenuous efforts to ensure an adequate and fair distribution of fertilisers. In winter, demand for fertilisers decreases, which will also eventually help to lower prices on the black market.

Abu Saddam said that demand for fertilisers on the black market is not high as the majority of farmers cannot afford to buy them at inflated prices. Many farmers are turning to organic fertilisers as an alternative to chemical fertilisers, he said.

In the long term, the government should move towards removing subsidies on fertilisers and instead offer cash support, Abu Saddam said.

The current fertiliser subsidies system is flawed, he added. Some people may use fake documents showing they have agricultural land and thereby qualifying them for subsidised fertilisers. Some landowners who rent out their land may obtain subsidised fertilisers and then sell them on the black market, where their tenants are also compelled to purchase them.

Some farmers may receive excessive quantities of fertilisers for certain crops, leading to a surplus that finds its way onto the black market. Some farmers may also misinform agricultural associations about growing fertiliser-intensive crops to secure larger quantities of state-subsidised fertilisers, Abu Saddam stated.

Nader Noureldin, an expert with the UN Food and Agriculture Organisation, warned that the delay in resolving the fertiliser crisis could lead to grave consequences.

If fertiliser prices rise beyond what farmers can pay, or if fertilisers become unavailable due to economic or import crises, then farmers will only be able to use 50 per cent of the required quantities for each crop, leading to a 30 per cent decrease in production.

If farmers are unable to purchase fertilisers at all, crop production may decline by 50 per cent, he added.

The losses would not only be incurred by farmers, Noureldin said. The state would be the biggest loser, because any decline in crop production places an additional burden on the state’s strategic foreign-currency reserves.

If yields from important crops such as wheat, corn, rice, beans, lentils, soybeans, and sugar from beets or cane decrease, the government will have to import larger quantities of these commodities to compensate for the decline in local production.

This would lead to a reduction in the country’s foreign-currency reserves and an increase in the prices of these commodities in the marketplace, he said.

Noureldin said the government should intervene through the Ministry of Agriculture and the regulatory authorities to resolve the crisis. A failure to act promptly could result in the state paying the price after the summer crop is harvested in November.

The fertiliser crisis is expected to impact crops such as rice, corn, soybeans, sunflowers, cotton, vegetables, fruit, and others. Given the intense heat of this year’s summer season, with additional fertilisers needed to compensate for the effects of the high temperatures, the government will need to address the black market in fertilisers just as it previously tackled the black market in foreign exchange.

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* A version of this article appears in print in the 1 August, 2024 edition of Al-Ahram Weekly