Brazil's Diplomatic Efforts in Addressing Food Security

This article is a collaborative effort with my esteemed colleague, Joshua Mayfield, a Legal Analyst.

This piece aims to connect the dots between commodity and energy production and the consistent supply of food, highlighting the global economy’s initiatives to maintain food security. It will also explore the implications of future industrial policies shaped by geopolitical dynamics.

I present significant cases and evidence from credible media and experts to elucidate trends in global commodities, energy transition, and food security.

For similar content, consider following the publication: Areas & Producers.

Exploring the Paradigm Shift

This publication investigates a Paradigm Shift by examining business news, legal cases, and international relations.

I reference a compelling analysis from the Institute for the Study of Diplomacy at Georgetown University as the catalyst for discussing Brazil's Fertilizer Diplomacy.

While I may not completely concur with the article's interpretation of China's ethnic issues within Middle Eastern geopolitics, I find its use of Defensive Realism to analyze Middle Eastern diplomacy quite relevant.

Brazil's Engagement in Fertilizer Diplomacy

On May 3, 2022, Brazil announced its diplomatic visit to North Africa aimed at engaging with Jordan, Egypt, and Morocco regarding “Fertilizer Diplomacy.” This initiative highlights Brazil's challenges in securing fertilizer imports amidst the ongoing Russia-Ukraine conflict.

Given that Russia is a leading global fertilizer exporter, Brazil is intensifying its efforts to implement a new fertilizer strategy introduced by President Bolsonaro earlier this year. Brazil's National Fertilizer Plan even includes proposals to extract potash from underground reserves in the Amazon Rainforest, which has sparked protests among indigenous communities.

Defining Fertilizer Diplomacy

The term "Fertilizer Diplomacy" has transformed the narrative surrounding the global fertilizer market. It suggests that fertilizer markets are increasingly vulnerable to geopolitical influences, particularly in light of the unprecedented food crisis and renewed geopolitical tensions, as seen with Russia and Belarus, major players in potash production.

> For a deeper understanding of potash’s importance and current dynamics in the global fertilizer market, check out this article on Canada’s Nutrien Ltd.: [Nutrien Ltd. CEO Transition](https://readmedium.com/what-went-down-at-the-worlds-largest-potash-producer-nutrien-ltd-c174d19e403d).

The concept of “Fertilizer Diplomacy” began to take shape around the time Russia implemented countermeasures against Europe concerning the Nord Stream 2 pipeline, particularly during a period of soaring natural gas prices exacerbated by the COVID-19 pandemic.

In 2020, analysts from Geopolitical Futures reported that Russia's production of mineral fertilizers surged by 5%, reaching approximately 54.8 million tons, while the global average was about 2%.

Further insights regarding fertilizer prices from 2021-2022 can be found in the following articles:

• Fertilizer prices to rise moderately in 2021
  • Despite resilience amidst the pandemic, fertilizer prices have varied significantly. [World Bank](https://blogs.worldbank.org)
• Fertilizer prices expected to remain higher for longer
  • Since early 2022, fertilizer prices have surged by nearly 30% following last year's 80% increase. [World Bank](https://blogs.worldbank.org)

The reality is that fertilizer diplomacy appears to be unraveling during one of the most challenging periods in recent history—marked by a global pandemic, food crisis, and inflation—alongside Russia's invasion of Ukraine, which has profoundly impacted commodities and the global economy.

It's clear that governments are increasingly viewing essential global commodities as tools for diplomatic engagement, adding geopolitical dimensions to supply and production strategies. As political leverage expands, countries are likely to utilize fertilizer as leverage in significant political decisions.

Conversely, should fertilizer prices stabilize, this diplomacy could enhance global economic recovery and alleviate the food crisis. Africa stands out, with Morocco aspiring to be a primary supplier, thereby boosting agricultural productivity and modernization—an essential step for the continent's growth and advancement.

Understanding Defensive Realism

Defensive Realism is a theory in International Relations (IR) within the Neorealism framework. It posits that the international system is characterized by anarchy, compelling nations to prioritize their security while balancing capabilities relative to others.

According to Steven E. Lobell, countries must pursue security through moderate policies to avoid falling into domination or hegemony.

Geography and historical rivalries play a vital role in this framework.

This understanding is crucial for interpreting Brazil's fertilizer diplomacy. Engaging with the Middle East and North Africa (MENA) aligns with geographical considerations, ensuring Brazil interacts with similar cultures and constraints when dealing with suppliers.

These elements will be pivotal in assessing the efficacy of Brazil's fertilizer strategy. Utilizing Defensive Realism allows for a broader perspective on Brazil's approach to fertilizer diplomacy.

The publication Fertilizer View by FShow highlights Brazil's record-setting planting season in 2021-2022, estimating that its production of soybeans, corn, cotton, rice, and beans—totaling approximately 289.6 million tons—will account for 95% of its grain output for that season.

Despite the global fertilizer supply shock stemming from increased commodity prices and shortages, Brazil will continue to depend on international fertilizer imports. This exemplifies Defensive Realism, necessitating Brazil to maintain amicable relations with Russia, even as the U.S. and EU move to isolate Vladimir Putin's regime due to the Ukraine conflict.

The CF Industries Case: Reevaluating Industrial Policies on Fertilizer and Food Security

In June 2021, CF Industries Holdings filed a petition with the U.S. International Trade Court (USITC), alleging that urea ammonium nitrate (UAN) imports from Russia and Trinidad and Tobago were unfairly subsidized, harming domestic producers.

This case involves antidumping and countervailing duties (CVD) claims from CF Industries, directly influencing fertilizer prices and supply chains in the U.S., especially as MENA has assumed a more significant role in global fertilizer supply amidst the Russia-Ukraine war.

The USITC ruled in favor of CF Industries in August 2021, allowing the investigation into unfair subsidies for UAN exports from Russia and Trinidad and Tobago to proceed. Following this decision, CF Industries President and CEO Tony Will stated:

> “The preliminary ITC decision is a crucial step towards creating a level playing field for U.S. UAN producers and their workers. CF Industries will remain actively involved in ongoing investigations to restore fairness in our competitive industry and ensure American UAN producers can reliably supply fertilizers to U.S. farmers for years.”

This ruling ignited a response from the American farming community. For instance, during a Farmers for Free Trade meeting in August 2021, Ed Gresser, President and Director for Trade and Global Markets at the Progressive Policy Institute, voiced concerns over trade retaliation stemming from the Trump administration's trade war with China, which raised fertilizer prices by $55 million annually due to tariffs.

The USITC must assess the antidumping and CVD complaints from CF Industries under the Tariff Act of 1930. The pivotal question is whether U.S. industries are materially injured or threatened by UAN imports from Russia and Trinidad and Tobago.

This involves evaluating how subsidies from these governments disadvantage American fertilizer producers in the domestic market. CF Industries asserts that it cannot compete fairly for UAN fertilizers due to these subsidies.

CF Industries operates the world's largest nitrogen fertilizer plant—the CF Industries Nitrogen Complex in Donaldsonville, Louisiana—where it invested $41.4 million in September 2020. After announcing this investment, Tony Will remarked:

> “The capital investment we are making to enhance nitric acid production at the site will further expand Donaldsonville’s production flexibility and allow us to meet strong demand for the product, particularly from Louisiana’s robust chemicals sector.”

The Donaldsonville Complex produces various fertilizer products, including ammonia, granular urea, UAN, and diesel exhaust fluid. The legal dispute centers on UAN, a liquid fertilizer composed of 28-32% nitrogen, produced at the Donaldsonville facility.

This facility is also crucial for global fertilizer markets, as CF Industries increased its fertilizer exports from Donaldsonville in response to Russia’s invasion of Ukraine, along with sanctions on Belarus, which severely disrupted global fertilizer supplies.

On June 21, 2022, the U.S. Department of Commerce (DOC) issued a final determination in favor of CF Industries' complaint, ruling that imports from Russia and Trinidad and Tobago were unfairly dumped in U.S. fertilizer markets. The DOC found that UAN exports from Russia were sold below fair value at rates ranging from 8.16% to 122.93%, and were subsidized at rates from 6.27% to 9.66%. For Trinidad and Tobago, UAN imports were found to be dumped at a rate of 111.71% and subsidized at 1.83%.

However, on July 18, 2022, the USITC issued its final ruling:

> “A U.S. industry is not materially injured or threatened with material injury by reason of imports of urea ammonium nitrate solutions from Russia and Trinidad and Tobago that the U.S. Department of Commerce has determined are subsidized and sold in the United States at less than fair value.”

In response, on July 19, 2022, CF Industries contended that the CVD imposed by the DOC on UAN imports from Russia and Trinidad and Tobago must be upheld under the Tariff Act of 1930. Additionally, since President Joe Biden signed the Suspending Normal Trade Relations with Russian and Belarus Act on April 8, 2022, Russia forfeited certain privileges such as an “injury” test required for CVD orders.

CF Industries Vice President of Corporate Planning, Christopher Bohn, detailed the implications of Russia and Ukraine on UAN fertilizer markets in his testimony to the USITC, outlining three reasons why CVD rates should be implemented:

1. Russia has not and will not adhere to its proposed industrial natural gas price liberalization plan announced in 2006.
2. Ukraine has benefited from favorable pricing from Russia's Gazprom, allowing it to produce UAN at reduced gas prices.
3. Russian producer EuroChem has significantly lowered shipping rates since entering the U.S. urea market in 2006, facilitating further price reductions for UAN imports.

The ruling was a significant win for many American farmers opposed to tariffs on agricultural production and inputs. The University of Illinois projected a 34% decrease in net incomes for farmers due to rising fertilizer prices.

The tariffs on phosphate fertilizers exported from Russia and Morocco exemplify the challenges faced by the farming community in the United States.

What Lies Ahead?

In July 2022, Russian Foreign Minister Sergei Lavrov commenced his African Tour, coinciding with visits from French President Emmanuel Macron and U.S. Special Envoy for the Horn of Africa Mike Hammer to the MENA region.

This event is pertinent to the discussion on Brazil's fertilizer diplomacy in MENA, as many analysts contend that Lavrov's tour aimed to secure Russia’s food and fertilizer supply guarantees to MENA while garnering support amidst heightened sanctions from the U.S. and EU due to the war in Ukraine. For instance, Lavrov concluded the tour in Ethiopia, defending the country’s actions during the Tigray conflict.

Moreover, Lavrov commented on the current global scenario, criticizing the U.S. and EU's approaches in MENA:

> “I am sure the overwhelming majority of world countries do not want to return to colonial times.”

The UN General Assembly's vote on the war in Ukraine reflected this sentiment, with many abstentions coming from African nations. However, the BBC noted that while the U.S. and France have extended aid packages to combat food insecurity in Africa, Russia has yet to provide any support.

These recent developments indicate that the MENA region is becoming a diplomatic battleground between the U.S., EU, and Russia. Defensive realism suggests that the 17 abstentions from African nations in the UNGA vote signal an opportunity for these countries to secure supplies from Russian commodities while benefitting from the aid packages provided by the U.S. and France.

These nations must adopt moderate and reserved policies to ensure security and facilitate beneficial economic trade. They also cannot overlook the fact that Russia's invasion of Ukraine signifies a quest for hegemony, which they must evade to ensure their own security. The future will depend on the needs of MENA countries as they navigate their security frameworks, aiming for favorable relations with both the U.S. and Russia.

Commodity and energy issues are likely to intensify geopolitical trends, prompting shifts in industrial policies. For instance, the CF Industries case focused on applying CVD rates to UAN exports from Russia and Trinidad and Tobago. Whether this benefits domestic industries over American farmers remains to be seen in the long term, regardless of the final decision not to impose CVD.

While U.S. farmers exhibit an anti-monopolistic stance toward tariffs and duties on imports, it appears that the strategy may not align with their interests in light of emerging geopolitical trends and industrial policies.

To safeguard domestic fertilizer supplies, countries like China and Russia have implemented export bans and quotas since 2021. This should serve as a wake-up call for the U.S. farming community. The future of fertilizer markets will hinge on nations with geopolitical interests opposed to the U.S., as the COVID-19 outbreak has revealed significant potential impacts on the global economy.

If American farmers fail to regard fertilizer markets as a long-term challenge, traditional purchasing methods may resume. However, this raises questions about the costs associated with potential future fertilizer crises. Are we truly past the fertilizer crisis? Concerns over global food security have gained prominence in G7 discussions in 2022, indicating that commodities will play an increasingly vital role in shaping future strategies.

In conjunction with the impacts of the Energy Transition, ensuring a stable and secure supply of these commodities will become a critical issue for U.S. industrial policies moving forward. Other nations may also pursue legal actions against countries that unfairly subsidize exports of essential commodities like fertilizers.