European fertilizers face new EU challenges

The EU fertilizer industry faces a series of challenges from Brussels, including reform of EU agricultural support, increased emission and environmental standards, trade defence measures, and the conclusion of an investigation into Russian state-controlled Gazprom's trading practices.

Argus spoke to Jacob Hansen, director general of European fertilizer manufacturers' lobbying organisation Fertilizers Europe.

Are you happy with the European Commission's decision in the Gazprom competition case?

Gazprom was not playing by the rules. It was a nightmare dealing with a Gazprom that used its dominant position on the market. The commission's decision on Gazprom's trading practices shows how the firm played EU national markets against each other and had different prices for different countries while not allowing sales between EU states. That is anti-competitive. But even if good for the future, the commission's decision, by not imposing a fine, does not correct past damage. Most importantly, it will not correct dual pricing with lower gas prices for Russian firms and higher prices for export. Dual pricing enables Russian producers of downstream products, like fertilizers, to compete at unfair cheap prices on the EU market. That puts EU fertilizer producers at a major disadvantage. We want the commission to apply other enforcement tools to reform Russian domestic gas prices and ensure a level playing field for European fertilizers.

Farmers are calling for EU anti-dumping duties on Russian fertilizer to be lifted. Do you see that happening?

The commission is currently reviewing duties on imports of ammonium nitrate from Russia. We do not know when the commission will present their verdict but they now have to make a decision on the duties, possibly after the summer. If those duties were ever removed, it would be extremely difficult for the EU fertilizer industry to compete with Russian firms, as ammonium nitrate is a core product in the EU. There clearly still is dumping. This has not changed.

We are a very energy-intensive sector and very concerned by gas prices going up in Europe. It hits our bottom line. Some 3-4pc of total EU gas consumption goes to fertilizers. On top of that, we also have Russia on our doorsteps — so carbon leakage is never far away. Russian fertilizer firms have an artificially low, non-market based gas price. EU anti-dumping duties on Russian fertilizer products compensate for that very cheap gas price in Russia.

The commission's long-term emissions-reduction strategy could look at specific sectors, including fertilizers. Do you expect more challenges here?

It is good that the commission looks at what reducing greenhouse gas (GHG) means at sector level. And there is a role for our industry in de-carbonising Europe. If you move to a hydrogen-based economy, then you will need to store energy. Ammonia is very energy-intensive and can be used as energy storage. The missing link on the way to a de-carbonised economy is ammonia via the fertilizer industry. So you will need a local ammonia industry in Europe to store energy. As an industry, we are examining the steps by which we can play a role.

Is your industry able to make even greater emissions reductions?

As a sector, we have made huge steps forward on reducing nitrous oxide (N2O) emissions. We did that technically by abatement or end-of-pipe technology in most of the plants. For carbon dioxide (CO2) emissions, it is difficult as we are already very efficient. We also use natural gas as a raw material in itself. Over the past ten years, our benchmark improvement has been around 0.2pc/yr. And energy efficiency gains are quite small, if you consider that new fertilizer plants are expected to last for 30-40 years. And once again, due to higher gas prices, there have not been many new plants in Europe.

Are you happy with the commission's common agricultural policy (CAP) financing proposal and its tougher conditions, also on use of fertilizers.

The new CAP will have a greater environmental focus. I am happy with that. The new CAP will have a farmer sustainability tool for nutrient management. This does not just mean mineral fertilizers but also manure. We are ready to work together with farmers on how to use mineral fertilizers better. I expect farmers to become more tuned in to quality fertilizers as opposed to bulk fertilizers. But volume is not going to grow. In some countries, such as Germany, there might be a reduction. In southeast Europe, we could see greater volumes, as these countries are often not producing so much per hectare, partly due to their fertilizer use. Applying balanced N, P and K fertilization is also necessary to prevent nitrogen loss.

Do you have open issues as EU states and the European Parliament negotiate the final text of the revised fertilizers regulation?

We have three main issues. On cadmium, we do not accept any limit below 60mg/kg P2O5 for two reasons. It would not deliver additional environmental improvements and would also leave the European phosphate fertilizer market to Russian competitors. We have to be able to source from other places than Russia. The second issue is the continuous use of industrial by-products in mineral fertilizers. We serve the whole economy. The way the original draft regulation was phrased, we would have to obtain individual approval for by-products. We need a procedure that is not too bureaucratic. The third issue is the quality of fertilizers, and we are disappointed by the low levels of nutrient content proposed. And it is not acceptable that mineral fertilizers were not as precisely defined as organic fertilizers.