Fertilizer tariff burdens Ontario growers

Canadian farmers are wondering why some inputs already bought and paid for are arriving with yet another invoice after a 35 per cent tariff was imposed on all Russian fertilizer imports.

The reason is simple, though the situation is messy.

If fertilizer ordered before March 2 was already on Canadian soil, the tariff is irrelevant but if it was still on a boat, it’s a different story.

Why it matters: Any Russian fertilizer ship wishing to dock and unload its cargo at a Canadian port must first pay the 35 per cent tariff, even if the onboard product was purchased before March 2.

Farmers in Eastern Canada are particularly reliant on Eurasian fertilizer, most notably nitrogen. The tariff imposed by the federal government in response to the war in Ukraine is one of many actions taken to economically isolate and cripple Russia.

Brendan Byrne, Essex area farmer and chair for Grain Farmers of Ontario, says the way the Canadian government has applied the tariff means all incoming ships must pay the tariff before unloading in Canadian ports. There are no allowances for transactions completed before March 2.

“That’s created some havoc on the retail side. Now that fertilizer is being picked up, those conversations are happening at a retail level,” says Byrne.

The additional costs are trickling down until they hit the farm gate. While crop prices are good now, it’s not ideal to absorb larger fertilizer costs that are already at high levels.

“The farmer is at the bottom of the chain. If things don’t get sorted out, those costs will be offloaded to the farmer,” says Byrne.

The situation for retailers is also messy, says Russel Hurst, executive director for the Ontario Agri Business Association. He says input suppliers are struggling to navigate the disruption of pre-existing supply chain norms and customer expectations.

“About two-thirds total tonnage of grower needs are on hand domestically in the pre-spring period. The latter third is brought in season. It’s been this way for 20 years,” says Hurst.

“The business transaction happens months before the boat comes in. The reality is boats can’t come up the St. Lawrence till spring anyway. Now spring is happening. It takes a boat weeks to get here. It becomes excruciatingly difficult to find alternative sources.”

When alternative sources are found, however, buyers are in a poor bargaining position. Even fertilizer acquired from places not subject to tariffs comes at strategically induced premiums.

Jim Campbell, general manager for Agris Co-operative, says the tariffs imposed by the Canadian government affect every dealer differently. However, it’s certain that suppliers are being forced to pay higher prices, which increases pressure not to incur unnecessary costs by keeping large inventories. Growers are now trying to make decisions later in the year.

“What we have observed is that other international markets that can serve Canada had marked increase in demand once the Russian tariffs were announced,” Campbell says. “This increased demand had the expected impact of increased pricing.”

From Hurst’s perspective, more people would accept the post March 2 situation if purchasers could show that product had been bought and paid for before that date.

“We essentially have three buckets of fertilizer in the market. We have product on hand, product that has a tariff attached to it and is still on its way, then product importers purchased after the March 3 tariff decision that isn’t from Russia,” says Hurst.

“As a retailer you could have one or multitudes of scenarios. Each will take a different tactic in terms of how they communicate the cost of fertilizer and what shows up in a bill.

“From a grower standpoint, that can be incredibly confusing… The quick estimate is $90 to $120 million in tariff related loses. We’re not going to know the true costs until after spring.

“The grower or end user always gets the short end of the stick. In this case the additional cost to growers is really significant.”

Farm groups are working to facilitate supplier-customer communication about these difficulties. Campbell reiterates that Agris is striving to work closely with customers. He and Hurst say suppliers must be transparent with customers when communicating input costs, though Hurst adds hard price-per-tonne costs like tariffs are comparably easy to communicate.

With soft costs like buying alternatives under duress and logistical challenges, the task is more onerous.  

While the pandemic and war have given many people what Campbell describes as “a lot of heartburn,” his assessment of fertilizer supplies suggests stabilization.

Supplies have been tight for the last eight to 10 months, and the Russian invasion of Ukraine has not lessened the strain, but local supplies for spring are adequate for growers in his area.

“We don’t need to be worried about not having enough to plant this crop and provide food to it at an appropriate level. In any tight supply plan, dealers have plans for existing customer base,” says Campbell.

Hurst says the industry continues to communicate the severity of the situation to the federal government, particularly as a number of fertilizer-carrying ships are still enroute to Canadian ports and must be allowed to deliver their cargos.

For his part, Byrne is concerned about possible fertilizer shortages. Though there appears to be enough supply to get started, he is less confident about continued supply.