WTO Members Should Avoid Export Restrictions on Fertilizers to Deliver on Food Security
Fertilizers Are Crucial to Feeding the World
Our soils contain limited quantities of nutrients such as nitrogen, phosphorus, and potassium. These quantities are not sufficient to provide crops with all the nutrients they need, especially considering the amount of food required to feed a growing world population of 8 billion people.
Since the early 20th century, we have relied on fertilizers to fill that nutrient gap and increase agricultural productivity. The use of fertilizers—particularly synthetic ones—poses major environmental and health risks, and we certainly need to rethink their use and promote sustainable farming practices. Nonetheless, fertilizers help to feed 30% to 50% of the global population, according to the most conservative estimates.
It is, therefore, concerning that farmers recently faced historically high prices for this key agricultural input, largely due to high energy prices (natural gas is a key input for producing nitrogen-based fertilizers) and transportation costs. While lower energy prices may provide some relief in the short term and global fertilizer supply has continued to rebound in early 2023, risks remain.
Fertilizer Supply Is Highly Concentrated and Vulnerable to Shocks
Globally, a small number of countries dominate the production and export of fertilizers. China, Russia, the United States, India, and Canada accounted for more than 60% of the world’s fertilizer production in 2017–2019, according to the International Fertilizer Association. In terms of fertilizer trade, Canada, Russia, Belarus, Morocco, and the United States accounted for around 90% of the world’s exports of potassium-based fertilizers, while China, Russia, the European Union, Morocco, and the United States accounted for more than 75% of phosphorous-based fertilizer exports. Production of nitrogen-based fertilizer is less concentrated, with many gas-rich countries producing their own.
Given how concentrated fertilizer markets are, disruptions in supply by the main producing and exporting countries can cause almost immediate price spikes.
Given how concentrated fertilizer markets are, disruptions in supply by the main producing and exporting countries can cause almost immediate price spikes. The International Fertilizer Association’s latest Medium-Term Fertilizer Outlook shows that countries in Latin America, East Asia (except China), and Oceania are particularly vulnerable to fertilizer import shocks. Brazil and Mexico, for instance, rely on imports for as much as 60% of their fertilizer needs. In Africa, high global fertilizer prices put these important inputs out of reach for many of the continent’s smallholder farmers, depressing food production and exacerbating food insecurity on the continent.
Export restrictions imposed by producing and exporting countries also represent a risk to the global fertilizer supply and the affordability of fertilizers for farmers. Furthermore, the International Monetary Fund found that the reduced current and anticipated supply of food and fertilizers triggered a sharp rise in global food prices, creating food shortages in countries that could not shift supply quickly and putting additional pressure on prices.
Given the potentially harmful impact of such trade policies on fertilizer affordability and food security, especially in poorer countries, the World Trade Organization (WTO) has an important role to play in governing the adoption of such policies.
WTO Members Should Not Apply Export Curbs on Fertilizers
The pace of implementation of new export restrictions by WTO members has increased over the last few years. Since the outbreak of the war in Ukraine and up to February 2023, 29 members and 6 observers had applied 96 export restrictions on agricultural commodities—8 of which targeted fertilizer exports. Reduced global supply of fertilizers, coupled with higher prices, means farmers are likely to use less fertilizer, potentially taking a toll on crop yields in 2023. This has further contributed to shortages, price volatility, and uncertainty.
Against this background, what can WTO members do to facilitate trade in fertilizers?
First and foremost, they should refrain from imposing additional trade-restrictive measures on fertilizers in line with the language of the MC12 WTO Food Security Decision. This is a message they also heard from the WTO director-general when she urged G20 leaders to reduce or eliminate such export restrictions during the G20 Bali Summit in November 2022.
However, WTO members are likely to continue using export curbs where they deem it necessary to ensure the domestic availability of fertilizers. In these cases, any emergency measure introduced to address food security concerns shall be notified and implemented in accordance with WTO rules, as also underlined by the MC12 WTO Food Security Decision.
In this regard, notifying export restrictions in a timely and detailed manner can improve members’ understanding of the design and purpose of these trade-restrictive measures. It can also give them more time to react and weigh policy responses such as finding alternative suppliers (when possible) or rolling out emergency measures.
Despite the importance of early notifications of export restrictions on fertilizers, a joint Food and Agriculture Organization of the United Nations–WTO report from late 2022 showed that barely half of such restrictions had been communicated to the WTO.
Despite the importance of early notifications of export restrictions on fertilizers, a joint Food and Agriculture Organization of the United Nations (FAO)–WTO report from late 2022 showed that barely half of such restrictions had been communicated to the WTO. This uncertainty over fertilizer supply availabilities can exacerbate the price volatility associated with the use of export bans, duties, taxes, and quotas.
In this respect, WTO members should ensure they notify all their export restrictions on fertilizers pursuant to the 2012 Decision on Notification Procedures for Quantitative Restrictions (commonly referred to as the QR Decision). This means they would provide the following information to the WTO Committee on Market Access: a general description of the export restriction; the type of export restriction; the relevant tariff line code; a detailed product(s) description; the WTO justification for the restriction; the national legal basis; and information regarding the administration of the export restriction or its modification (if previously notified).
While not specified under the QR Decision, a courtesy translation of the relevant national law or regulation (with links to official government websites) into any of the three official languages of the WTO (English, French, or Spanish) could also facilitate a quick understanding of the design and purpose of these trade-restrictive measures by other WTO members.
Finally, members can commit to consulting each other and notifying any planned export curbs on fertilizers before they are applied. Such a commitment could be made in line with the 1978 Draft Understanding Regarding the Use of Export Control Measures (hereinafter, the 1978 Draft Understanding), which contains guidelines on how to address the uncertainties caused by export restrictions. These guidelines talk of engaging “promptly” in consultations with other General Agreement on Tariffs and Trade (GATT) contracting parties that may potentially be affected by these measures “normally within 30 days of the request” (p. 2) and of notifying them “to a maximum extent possible on a prior basis” (pp. 1–2).
Members can commit to consulting each other and notifying any planned export curbs on fertilizers before they are applied.
Some of these guidelines were somewhat enshrined, years later, under Article 12 of the WTO Agriculture Agreement, which sets out consultation and prior notification requirements for the introduction of export restrictions on agricultural products. However, fertilizers are not considered agricultural products under the Agreement on Agriculture. A best endeavour commitment by WTO members to incorporate the same consultation and prior notification principles that apply to export restrictions on agricultural products notified under the Agreement on Agriculture to export restrictions on fertilizers notified under the GATT 1994, could be one possible way forward. While non-binding, such language could be useful to create enough peer pressure among WTO members to engage in consultations with other WTO members that could potentially be affected by these export restrictions on fertilizers, as well as to notify them to a maximum extent possible on a prior basis.
Interestingly, the 1978 Draft Understanding also features other guidelines that could help WTO members draft best endeavour language in the absence of clearer disciplines for export restrictions. It speaks of “furnish[ing] information establishing that the product shortages in question are ‘critical,’ that the products are ‘essential’ to it, and the measure will be applied only ‘temporarily’” (p. 3). While providing such information (upon request) will not address the lack of clarity around the meaning of the terms “critical shortage,” “essential,” and “temporarily” under Article XI of the GATT 1994, it can provide further transparency on the design and purpose of export restrictions on fertilizers that WTO members impose going forward.
Having said that, facilitating trade in fertilizers would entail a joint effort by a wider group of members—not just the few large producers and exporters. Large fertilizer-importing countries also have a role to play in facilitating fertilizer trade.
One area where large importing countries have some room to facilitate trade in fertilizers is border measures (e.g., import tariffs). The joint FAO/WTO report notes that while the applied most-favoured nation tariff rate on all fertilizer categories in 2021 averaged 1.9%, a few WTO members apply tariffs ranging from 7.5% to almost 10% (China 9.6%, Zimbabwe 7.7%, Kazakhstan 7.5%, and India 7.5%). Reducing or removing these applied tariffs could enhance both access to and affordability of fertilizers without engaging in complex negotiations on the WTO-bound tariff rate for fertilizers.
Improving the transparency of notification procedures for export restrictions on fertilizers could be part of a broader package on food security at the WTO’s 13th Ministerial Conference. This could also be achieved by updating the QR Decision outside a ministerial conference. While such an approach would not solve the challenges posed by the imposition of future export restrictions on fertilizers, it could nonetheless signal the importance that WTO members attach to facilitating fertilizer trade to deliver on food security.
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