Fertiliser prices steady as concerns mount over future tax

GB fertiliser markets have remained flat for the majority of 2024 with limited demand on-farm, but tighter supplies both in the UK and across Europe plus higher gas bills may push up prices in the new year.

Traders at Frontier say UK fertiliser sales have been roughly 15% behind this year, which may lead to more purchasing in early 2025, but a lower production volume has meant that stocks of UK ammonium nitrate have reportedly already sold out for January.

The area of cropped land using fertiliser and application rates have generally declined during the past five years.

See also: Carbon tax on fertiliser due to hit farms and food prices

However, the British Survey of Fertiliser Practice showed the nitrogen application rate in 2023 was 77 kg/ha, up by 6 kg/ha on the previous year, predominantly due to better affordability than during the exceptionally high prices of 2022.

More recently, GB fertiliser prices have been more stable, with UK ammonium nitrate holding at £342/t in November, granular urea at £369/t, and potash MOP at £327/t.

Carbon tax on fertiliser

The introduction of the Carbon Border Adjustment Mechanism (Cbam) on 1 January 2027 is due to force up fertiliser prices, adding further costs for farm businesses, although free allowances for businesses could help to offset some of the impact.

However, a lack of detail from government on potential free allowances and tariff rates has left the industry guessing.

Several manufacturers have suggested to Farmers Weekly that Cbam could add an additional £50/t-plus to the cost of fertiliser on-farm in some circumstances.

The NFU has suggested arable farms may be the worst hit, with fertiliser accounting for 12% of total farm costs, and this could lead to an uneven playing field for British farmers and growers.

Meanwhile, United Oilseeds has forecast that a higher nitrogen price as a result of Cbam could lead to a £15/t increase in the production cost of rapeseed.

Potential scenarios

The Agricultural Industries Confederation (AIC) has carried out economic modelling to determine how varying future carbon prices and allowances could impact on the cost of fertiliser.

Jo Gilbertson, head of fertiliser at AIC, told Farmers Weekly that continued access to free allowances could dramatically reduce the potential “carbon tax”.

It is not known whether free allowances will be retained for businesses in the UK after 2025, but speculation is mounting within industry that rather than completely removing the allowance, the government may commit to a tapered approach and a gradual imposition of Cbam similar to the EU.

AIC calculations suggest that a worst-case scenario could add an inflationary levy of £152.5m on imported fertilisers from outside the EU.

However, it suggests the actual figure will be much lower after taking into account UK- and EU-produced fertiliser.

Mr Gilbertson suggested roughly 40% of nitrogen fertilisers are currently sourced from outside the EU.

He said: “If the carbon price is £35/t for urea then Cbam will probably come out at about £36/t, assuming no free allowance.

“However, at the moment the free allowance is about 80%, which significantly affects it.

“After taking into account the free allowance, you basically end up with £9.90/t for Cbam urea coming in from outside the EU.”