March 29, 2018
Guest post by Helen Parker, Business analyst and legal advisor.
After milk quotas, market fluctuations, EU-induced overproduction, free trade deals facing more competitive United States producers, and impossible red tape, EU farmers may be in for yet another challenge, with the possible introduction of very restrictive limits on the cadmium in their phosphate fertilizers, which would drastically reduce supplies to the EU and drastically increase farmers costs.
Cadmium is naturally contained in sedimentary phosphate rock – a fertilizer commonly used to keep farming soil in good and vigorous shape. A 2002 study for the EFSA (European Food Safety Agency) raised the question as to whether this cadmium was a danger for public health.
These conclusions were –subsequently radically updated and later refuted by the same research team in 2012 and subsequently. The European Food Safety Agency, both in 2009 and in 2012, found that cadmium levels in EU foods were well within the WHO and FAO maximum recommended tolerable level. Recent findings elsewhere such as the US and New Zealand (which both have cadmium limits on fertilisers far higher than are proposed for the EU) have concluded that cadmium in fertilisers poses no health risk to farmers or the public.
But the trend was already set, by lobbying efforts on behalf of a few supplying countries which have volcanic phosphate rock – not sedimentary. Volcanic phosphate rock is naturally lower in cadmium but represents around only 5% of known global reserves. Most volcanic rock can be found in Russia and a few other more remote sources in Brazil, South Africa, and China. The European Commission itself has concluded that, if only low-cadmium phosphate were allowed onto the EU market, almost all of it would come from Russia.
And this is where trouble would start for EU farmers.
It takes no Ph. D. in economics to understand what happens to prices when demand stays high (about 3 million tons imported to the EU each year) and supply is dramatically reduced: prices will skyrocket and possible shortages will occur. As basically the only supplier of EU-legal phosphate rock, Moscow would be untethered by market demand and could dictate whatever prices it wished.
It could also probably protect itself from EU anti-trust laws by claiming, in truth, that other countries are able to supply low-cadmium rock, although this will be a fallacy. Low-cadmium phosphate rock suppliers other than Russia are if not insignificant, very minor players on the international market and would be unable to meet EU demand.
Even if farmers were able to stomach the prices they will be facing in such a perspective, lies the question of supply reliability. Russia is one of the main global producers, but only holds 2% of the world’s known reserves. Julia Paravicini reported the EU understanding, summarizing the political stakes. “This regulation should not be very political, but it is, since the reality is that it is about cadmium, and this comes with a lot of pressure from the industry because it will eliminate a part of the market, especially in Africa,” said one EU official working on the fertilizers file.” The entire agricultural European world would be at the mercy of any stock depletion, production disruption, logistics hamper or market over-tapping, with little or no alternative to maintain their own agricultural production.
Russia has also adopted a policy of boosting its domestic agricultural production, which includes prioritizing its fertilizer production for its own domestic use. This will have a double-negative effect on the EU: while reducing its exports and increasing fertiliser prices for EU farmers, Russia will at the same time increase its agricultural exports at low prices, undercutting EU farmers.
Then comes the mid-term political risk: Russia already owns the Eastern half of Europe with energy dependence, it could then own the Western side by holding agricultural outputs in its fist. Moscow has been known to throw its weight around Europe, threatening to cut off gas supplies in the middle of winter, if its demands were not met. Moreover, sanctions on Russia from the EU and the US following the recent Ukrainian conflict are likely to entice Moscow to fight back. Politico described this double-edged sword: “The 2014 Russian food-import ban cut access to a major export market for many European producers.” If this happens, European farmers will be the first in line to absorb retaliation: either the Russians will increase prices, over which they will have a complete monopoly, or simply refuse to sell, as they did to Ukraine with gas.
If Moscow were to carry out such a threat, it could inflict very important and long-lasting damage to the EU by cutting off fertiliser supplies: a lost agricultural season has long-term consequences. Reuters reporter Karen Braun covered Ukraine’s recent string of bad harvests, and wrote: “In 2011, the state weather agency said Ukraine could lose 30 percent of the winter wheat area, but it turned out to be under 20 percent, even in bad conditions. For the 2015 harvest, many agencies were underestimating the wheat crop by nearly 5 million tons even in late spring.” If Russia manages to tip the EU its way, it will have the ability to initiate bad EU harvests whenever it wants. Its lobbying has already had a significant impact, with the European Parliament voting (albeit by the narrowest of margins) for low limits.
Talks on the issue between the European Parliament and the 28 Member States began in early 2018. Until now, EU farmers had mostly been facing either Brussels bureaucracy or market fluctuations and mechanics. That alone was tricky enough to tackle. Brussels assessed the farming situation last year, and assessed that “MEPs in the agriculture committee said many European farmers are struggling”. “This is not people crying wolf, this is now families in serious danger of losing everything they have,” said British Conservative MEP James Nicholson. A prominent Green MEP from France, Jose Bove, said that “600 French farmers had committed suicide out of despair.” For the first time, an opponent of a new kind is arising: private Russian companies directly attacking them through Brussels, to regulate them out of business.Guest contributor