"RIO DE JANEIRO — Russia supplies a
quarter of Brazil’s fertilizers, and sanctions meant to punish Moscow threatened
to trap the crucial commodity from being exported. That posed a danger not only
to the Brazilian economy, but also to the world’s ability to feed itself.
Within days, Brazilian officials
warned farmers to cut back on a critical fertilizer, and experts forecast that
the country — one of the largest exporters of corn, soybeans, sugar and coffee
— had just three months before it ran out.
Now, two months later, Brazil is
replenishing its fertilizer stockpiles — with help from Russia. Much like the Russian gas that has been
flowing through pipelines into Europe, hundreds of thousands of tons of Russian
fertilizer have arrived in Brazil since the start of sanctions. And more is on
its way.
Brazil scrambled to buy Russian
fertilizer just ahead of the start of sanctions to keep shipments coming early
in the sanctions.
And though the purchase of Russian fertilizer itself has not
been banned, Brazilian buyers have had to contend with sanctions on Russian
banks and logistical hurdles that experts feared would still cut off trade.
But buyers have managed to find ways
around those obstacles, including using a Russian bank excluded from sanctions
and getting an assist from Citigroup in New York.
The shipments are good news for global food supplies and
prices, but they are bad news for the West’s strategy to isolate Russia
economically in a bid to weaken President Vladimir V. Putin’s resolve in
Ukraine.
Western sanctions have frozen much
of Russia’s financial assets, said Edward Fishman, a former Obama
administration official who helped design past measures against Russia and
Iran. “What they haven’t frozen are the flows into the economy, primarily
through the sale of commodities.”
“Until that gap is closed,” he
added, “it lengthens Putin’s runway.”
Russia’s sanctions has created a
dilemma for nations and corporations that pits values against economics. The
biggest example is Russian oil and gas, a far larger economic lifeline for Mr.
Putin than fertilizer. Countries across the world have continued to buy fuel
from Russia, while trying to cut off Moscow in other ways.
Russian fertilizer presents a
similar quandary.
Ukraine and Russia are among the
world’s largest exporters of wheat, corn and barley, and the sanctions has kept much
of those crops bottled up, increasing prices and exacerbating global food
shortages.
Russia also accounts for roughly 15 percent of the world’s
fertilizer exports. Blocking those exports would deprive Mr. Putin of another
revenue stream. But United Nations officials and other experts have warned that
restrictions on Russian fertilizer would raise prices even more and deplete
food supplies.
Facing the prospect of such a crisis, the United States
created a carve-out in its sanctions
in late March to explicitly allow purchases of Russian food and fertilizer.
While financial sanctions are still complicating transactions, American
officials have been working to reassure other governments and business leaders
— including meeting with government and industry officials in Brazil — that
buying Russian fertilizer is not prohibited.
Europe placed a one-year ceiling on
imports of certain Russian fertilizers, allowing only 2.6 million tons into the
continent in a year — less than half of what Europe imported in 2021.
With some of that fertilizer now
reaching farmers in Brazil, economists predict a slow down in recent price
hikes and improved crop yields, increasing the chances that farmers can make up
some of the food shortages.
“It keeps pricing in check, and
that’s really important,” said Josef Schmidhuber, an economist who has studied
the conflict’s impact on food for the United Nations’ Food and Agriculture
Organization. “If Brazil were to scale back next year because of a lack of
fertilizer, that would certainly be bad news for a global food crisis.”
The biggest buyer of Russian fertilizer is Brazil, which
imports about a quarter of all its fertilizer from Russia.
Earlier this year President Jair
Bolsonaro of Brazil posed for photos with Mr. Putin in the Kremlin. At the
meeting, a week before the sanctions, Mr. Bolsonaro said Brazil stood “in solidarity with
Russia.” On the same trip, he said Brazil would double its purchases
of Russian fertilizers.
After the i sanctions began, Mr.
Bolsonaro said Brazil would remain neutral, and made clear why. “What happens
10,000 kilometers away in Ukraine has reverberations in Brazil,” he said. “We have
special business with Russia.”
“For us,” he added, “the question of
fertilizers is sacred.”
Whether that fertilizer supply could
get to Brazil, however, seemed questionable.
Sanctions on Russian banks quickly made it harder to carry
out financial transactions, companies that help facilitate deals were halting
business out of fear of repercussions and many shippers were steering clear
because of high insurance premiums and safety concerns. The West also issued
sanctions against the oligarchs who owned two of Russia’s largest fertilizer
producers.
Compounding the issue was that Belarus, Russia’s closest
ally and a major producer of a key fertilizer called
potash, was hit with its own sanctions in February for forcing a
commercial airliner to land in order to arrest a dissident.
Potash, made from potassium salt and often mined from
evaporated seabeds, is crucial for growing soybeans, which Brazil produces more
of than any other country. Since the start of Russia’s sanctions, potash prices
have soared by 50 percent.
Ahead of the sanctions, Brazilian buyers bought more Russian
potash than usual, resulting in the import of 750,000 tons of fertilizer in
March, much of it potash, according to government statistics. It was a record
for March and a 14-percent increase from the same month last year.
However, new purchases remained difficult. So Brazil and
other countries found other ways to buy from Russia.
Brazilian buyers have largely switched to using Gazprombank,
a large Russian bank spared from sanctions because it handles many energy
transactions for countries that have continued to buy Russian gas.
Brazilian importers have also been using Citigroup as a
middleman for many transactions, in part because they believe it could help
avoid any potential pitfalls with the U.S. Treasury Department, according to
two bank officials close to the transactions who spoke on the condition of
anonymity because they were not authorized to discuss the business. Larger
banks like Citigroup often help facilitate such international transactions.
Once the United States made clear that Russian fertilizer
was not subject to sanctions, finding shippers willing to transport the
commodity also became easier.
In recent weeks, one large Russian fertilizer company sold
more than 165,000 tons of potash to Brazilian buyers, with the shipments
expected to arrive in June, according to an executive involved in the
transactions who was not authorized to speak publicly. That was already half the
Russian potash that arrived in Brazil in June 2021.
Russia has also been able to find other willing buyers for
its potash in China and Southeast Asia, according to Ben Isaacson, a fertilizer
analyst for Scotiabank.
“Russia is getting their potash out,” he said. “It’s not as
tight of a situation as we thought.”
Last month, Mr. Bolsonaro met with
the head of the World Trade Organization and asked for the agency’s help in
insulating the fertilizer industry from further sanctions should the United
States and other Western countries tighten their policies as the sanctions drag
on.
Still, the Brazilian government says
the new flow of Russian shipments provides its farmers enough fertilizer for
Brazil’s main crops over the next several months.
But concerns over accessing the
Russian market have prompted a new push to make Brazil more self-sufficient.
Mr. Bolsonaro and his allies have pushed to open the Amazon rainforest to
mining for potassium salt to make potash. A legislative bill was put on hold
only after large protests in Brazil’s capital.
For potash, “we don’t have
alternatives today,” said Neri Geller, a Brazilian congressman and farmer who
supported the bill. “We are dependent on Belarus and Russia. So if it didn’t
come from there to here, how would we do it?””
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