In July of this year Congressman Marion Berry (D-AR) and two cosponsors introduced legislation to eliminate import restrictions on ammonium nitrate imports from Russia and urea from Russia and Ukraine. Both products are used as nitrogen fertilizer by U.S. farmers. U.S. producers of nitrogen fertilizers have been under cost pressures from the high cost of natural gas, and the U.S. industry is restructuring even with these import restrictions.

According to data compiled by the Economic Research Service of USDA, in the year that ended on June 30, 2005 U.S. agriculture used 22 million tons of fertilizer on a nutrient content basis and 55 million tons of total material. Nitrogen accounted for 56 percent of the fertilizer on a nutrient content basis, potash 23 percent and phosphate 21 percent. The U.S. has only limited potash deposits and imports about 80 percent of its total use, with 90 percent of the imports from Canada. The opposite is true of phosphate with ample deposits in the U.S., and about 50 percent of production is exported. Over half the nitrogen fertilizer used on U.S. farms is imported.

Import restrictions on nitrogen fertilizer from Russia and Ukraine date back to the mid-1980s when the former Soviet Union and Eastern European countries began exporting urea at low prices to generate hard currencies. In 1986 a petition was filed with the U.S. International Trade Commission (USITC) alleging that solid urea was being sold into the U.S. market at less than fair value (LTFV) and hurting the U.S. fertilizer industry. After the Soviet Union split apart in the early 1990s over a dozen individual countries were covered by the duties. Most of the countries dropped out of the market over the next ten years and only Russia and Ukraine remain. Ammonium nitrate imports from Russia became an issue in the late 1990s, and in August of 2000 the USITC ruled that Russian ammonium nitrate was sold at LTFV.

The U.S. nitrogen fertilizer industry has been extensively studied by government agencies and private analysts and the primary factor causing change is the price of natural gas. It accounts for 70-90 percent of the cost of producing anhydrous ammonia, a product that is directly used as a fertilizer and is a building block for other nitrogen fertilizers. Before the high natural gas prices of the past two years, the U.S. went from the world’s largest exporter of nitrogen fertilizer in the 1980s to the largest importer in the 1990s. A September 2003 General Accounting Office study found that when natural gas prices had averaged $5 per million Btu in the U.S. they were $0.60 per million Btu in the Middle East, $0.40 in North Africa, $0.70 in Russia and $0.50 in Venezuela. Much of this is “stranded gas” that is far from industrial and residential users and lacks pipelines to move it to markets. To have value, it must be transformed into another product.

The import restrictions on selected products from Russia and Ukraine have not prevented increased imports of nitrogen fertilizer into the U.S. Anhydrous ammonia imports from Trinidad and Tobago in the Caribbean increased from 1.7 million tons in 1995 to 5.0 million tons in 2005. During that time anhydrous ammonia imports from Canada have ranged from 1.0 to 1.5 million tons per year. Imports from the Ukraine increased from 350,000 tons in 2001 to 1.3 million tons in 2005, while imports from Russia have averaged about 1.0 million tons per year over the past five years.

From 1995 to 2005 imports of ammonium nitrate from the Ukraine to the U.S. have been about 20,000-30,000 tons per year. Imports from Russian have ranged from 75,000 to 250,000 tons per year. Romania, one of the countries in the 1986 petition, has recently increased exports to 150,000 tons per year. Imports from the Netherlands have averaged 100,000 to 200,000 tons per year. Imports from Canada have increased from about 400,000 tons per year in 1995 to 600,000 tons per year in 2005.

U.S. imports of urea have grown sharply from 1995 to 2005. Bahrain is up from zero in 1995 to 250,000 tons in 2005, while Kuwait has gone from zero in 1995 to 500,000 tons in 2005 and Qatar from zero to 800,000 tons in 2005. Saudi Arabia has increased exports to the U.S. from about 180,000 tons per year to over 500,000 tons per year. Trinidad and Tobago has increased exports from 200,000 tons per year to 500,000 tons. Venezuelan imports have increased from 20,000 tons in 1995 to 480,000 ton is 2005. Imports from Canada have been 1.5-2.0 million tons per year.

These imports have had a major impact on U.S. nitrogen fertilizer producers. In testimony to Congress in September, The Fertilizer Institute reported that 24 nitrogen production plants have closed since 1998/99 and ammonia production has declined by 35 percent. U.S. ammonia plants have a history of shutting down temporarily when natural gas prices are high for short periods of time, but the closures since 1998/99 are unprecedented and most of them are permanent.

In December of 2005 the USITC recommended that the antidumping duties on urea from Russia and Ukraine remain in place for another five years. A similar decision was made in March of this year on ammonium nitrate from Russia. Representative Berry’s two bills, H.R. 5879 and H.R. 5880, would terminate the limitations on imports of ammonium nitrate from Russia and suspend the antidumping duties for urea from Russia and the Ukraine.

All types of fertilizers are increasingly being traded in international markets as crop producers seek the lowest cost supplies. Large spreads between the price of natural gas in high demand industrial markets and stranded gas in less developed markets will continue. U.S. crop producers and the fertilizer production and distribution industries face permanent changes in the world market for fertilizer. U.S. government policies need to also recognize those changes.