Fears that rising price of fertiliser could leave farms under-insured

A dramatic rise in the value of fertiliser, which has seen prices more than double in the space of a year, could be leaving farmers under-insured and crops under threat. A perfect storm of transport …

A dramatic rise in the value of fertiliser, which has seen prices more than double in the space of a year, could be leaving farmers under-insured and crops under threat.

A perfect storm of transport issues due to Brexit, the closure of fertiliser plants, the rising cost of gas and low availability of mined salts has created a price bubble which is further exacerbated by scarcity.

Ian Berry, Associate Director at A-Plan Rural explains what it means to rural businesses…

What’s the background story here and what are the big issues for farmers?

Farmers are experiencing a rapid rise in the cost of fertiliser. Just 18 months ago it was sold at £250 per tonne, but the price has now reached £600t and there are reports of it nearing £700t in some regions.

The impact is particularly acute because this is the time of year when many farms buy fertiliser, ready for the spring. There are fears it could have a knock-on effect on the yield for next year’s crops.

Can you explain what has caused the cost increase?

It’s a complicated concatenation of events, including:

  1. The rising cost of gas: fertiliser is made up of nitrogen, phosphate and potash, with nitrogen the main ingredient. So, when gas prices spike, it causes a knock-on effect.
  2. Two of the main fertiliser producers in Britain – Yara and CP Fertilisers – had to cease production temporarily, leading to a CO2 shortage. CO2 is a by-product of fertiliser production and is also needed for abattoirs. Production only re-started when the government stepped in.
  3. Depleted supplies of phosphate and potash. These are mined nutrients which are vital in fertiliser production. 
  4. Logistics issues. Brexit has had an impact on the logistic industry – as we saw in the petrol crisis – and similar problems with transport have added to the scarcity of fertiliser.

Is this a permanent price rise or will we see it dip again shortly?

Prices always fluctuate but nobody is currently predicting that the cost of fertiliser will dip soon. Not until gas prices drop, too, and supplies flow more quickly.

What are the insurance implications of these price rises?

It’s important that rural businesses review their sums insured. In particular, deadstock/loss of revenue/property and machinery values. These will likely now be inaccurate, so if there was a claim ‘averaging’ could apply.

With a weak supply chain in the current market – and added complications caused by Brexit – this is a situation which should be predictable in a risk assessment. When items are scarce it drives up prices.

There is also a business continuity issue here, too, because if fertiliser continues to be scarce it will affect yield in 2022. When you combine lower yield and higher prices, inevitably that means lower profit.

In all this, communication with your insurer is key to keeping your insurance accurate and comprehensive. A broker with expertise in the market, such as A-Plan Rural, will be able to provide you with advice on the matter.