Brazil Replenishes Stockpiles of Russian Fertilizer

RIO DE JANEIRO — When the first Russian missiles struck Ukraine, the reverberations were felt 6,500 miles away, on the vast Brazilian farms that grow much of the world’s soybeans.

Russia supplies a quarter of Brazil’s fertilizers, and sanctions meant to punish Moscow for its invasion 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 invasion. And more is on its way.

Brazil scrambled to buy Russian fertilizer just ahead of the invasion to keep shipments coming early in the war. 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 invasion of Ukraine has created a dilemma for nations and corporations that pits values against economics. Much of the world agrees that Russia should be punished for its invasion of Ukraine, but government officials and business leaders are grappling with the economic realities of doing so.

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 war 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 that can fuel Russia’s war against Ukraine. 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 inflicted by Russia’s invasion.

“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, with Russian troops gathering at the Ukrainian border, President Jair Bolsonaro of Brazil posed for photos with Mr. Putin in the Kremlin. At the meeting, a week before the invasion, 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 invasion 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 invasion, potash prices have soared by 50 percent.

Ahead of the war, 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 war drags 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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