The CF Industries Case: Rethinking Industrial Policies Around Fertilizer Supplies & Food Security

In June 2021 CF Industries Holdings filed for a petition at the U.S. International Trade Court (USITC) alleging that urea ammonium nitrate (UAN) imports into the American fertilizer markets from Russia and Trinidad and Tobago were unfairly subsidized, and thus causing harm to domestic fertilizer producers in the United States.

This legal case is an antidumping and countervailing duties (CVD) complaint, brought by the lawyers of CF Industries, which would have a direct impact on fertilizer market prices and supply chains in the United States. This case also is related to geopolitical trends, as the Middle East and North Africa (MENA) region has taken on a much more important role in the global supply of fertilizer products since the Russia-Ukraine war led to major supply chain disruptions.

The USITC ruled in favor of CF Industries’ complaint in August 2021 to continue the investigation into unfair subsidies for UAN fertilizer exports from Russia and Trinidad and Tobago. In response to the decision, CF Industries President and CEO Tony Will said:

The preliminary ITC decision is an important step towards leveling the playing field for US UAN producers and their workers. CF Industries will continue participating actively in the ongoing investigations in order to restore fairness to our highly competitive industry and ensure that American UAN producers remain a reliable source of fertilizers for American farmers for years to come.

This has caused quite a stir among the American farming community. For instance, during a Farmers for Free Trade meeting in August 2021, Ed Gresser, president and director for Trade and Global Markets at Progressive Policy Institute, expressed on behalf of American farmers that trade retaliation from the Trump Administrations trade war with China has also caused fertilizer prices to rise to the tune of $55 million in tarrifs annually.

As for the legal issues at stake, the USITC must judge the antidumping and CVD cases brought by CF Industries in accordance with the Tariff Act of 1930. The key issue is “to determine whether an industry in the United States is materially injured or threatened with material injury, or the establishment of an industry in the United States is materially retarded, by reason of imports of urea ammonium nitrate (UAN) solutions from Russia and Trinidad and Tobago…”

This means that the subsidies provided by the governments of Russia and Trinidad and Tobago must be judged in the context of how it disadvantages and damages the ability of American fertilizer producers (i.e. domestic industry) to sell fertilizer in the domestic markets.

In this case, CF Industries claims that it cannot fairly compete in the domestic markets for UAN fertilizers due to those subsidies.

CF Industries operates the largest nitrogen fertilizer plant in the world — the CF Industries Nitrogen Complex in Donaldsonville, Lousiana — for which it invested $41.4 million in September 2020. After announcing the new capital investment to the public, CF Industries President and CEO Tony Will said:

The capital investment we are making to enhance nitric acid production at the site will further expand Donaldsonville’s production flexibility and enable us to meet strong demand for the product, particularly from Louisiana’s strong chemicals industry.

The Donaldsonville Complex produces a variety of fertilizer products, including Ammonia, Granular Urea, Urea Ammonium Nitrate (UAN) and Diesel Exhaust Fluid. The legal dispute revolves around UAN, a liquid fertilizer that contains a nitrogen content of 28–32% when combined with urea, nitric acid and ammonia, all of which CF Industries produces at the Donaldsonville facility.

This facility is also significant to global fertilizer markets as CF Industies boosted its fertilizer exports from Donaldsonville in response to Russia’s invasion of Ukraine, in addition to sanctions on Belarus, which severely disrupted global fertilizer supplies.

On 21 June 2022 the US Department of Commerce (DOC) issued a final determination in favor of CF Industries’ complaint. The DOC ruled that imports from Russia and Trinidad and Tobago were unfairly dumped into fertilizer markets in the United States. For Russia, the DOC found that rates ranging from 8.16% to 122.93% were being sold at less than fair value for UAN exports, while rates ranging from 6.27% to 9.66% were being unfairly subsidized by the government. For Trinidad and Tobago, UAN imports were found to be dumped at a rate of 111.71% while being unfairly subsidized at a rate of 1.83%.

In a sharp turn of events, however, the USITC issued its final ruling on the case on 18 July 2022:

A U.S. industry is not materially injured or threatened with material injury by reason of imports of urea ammonium nitrate solutions from Russia and Trinidad and Tobago that the U.S. Department of Commerce (Commerce) has determined are subsidized and sold in the United States at less than fair value.

On 19 July 2022 CF Industries retorted that the countervailing duties (CVD) imposed by the DOC on UAN imports from Russia and Trinidad and Tobago must be enforced by law in accordance with the Tarriff Act of 1930. Moreover, since USA President Joe Biden signed the Suspending Normal Trade Relations with Russian and Belarus Act on 8 April 2022, so this means that Russia is no longer entitled to certain privileges such as an “injury” test that must justify a CVD order.

In response to the final ruling, CF Industries Vice President of Corporate Planning, Christopher Bohn, issued a statement about the effects from Russia and Ukraine on the UAN fertilizer markets in the United States. In the testimony to the USITC, Bohn breaks down three elements for why the CVD rates should be applied:

1.) Russia has not and will not follow through on its so-called industrial natural gas price liberalization plan announced in 2006

2.) Ukraine received favorable treatment from Russia’s Gazprom which allowed it to produce UAN with favorable gas price reductions

3.) Russian producer EuroChem has significantly lowered shipment rates since the company entered the USA urea market in 2006; this allows buyers to seek further price reductions for UAN imports

Of course, the ruling was a big win for many American farmers who have been much against applying tarriffs to agriculture production and crop inputs. For instance, the University of Illinois published its projections for farmer net incomes to decrease by 34% due to higher fertilizer prices.

Issues over commodities and energy will surely exacerbate the situation of geopoltical trends. What comes next will be a change in industrial polices.

For example, the case of CF Industries Holdings was about getting CVD rates applied to Russia’s and Trinidad and Tobago’s exports of UAN to fertilizer markets in the USA. The question of whether this favors domestic industries over American farmers and entities remains to be seen for the long-game strategy, irrespective of the final ruling to not impose CVD.

While farmers in the United States express an anti-monopolistic attitude toward tariffs and duties on imports, it doesen’t seem that the strategy is in their favor from the perspective of geopolitical trends and industrial policies going forward. Here are some of the key points:

• To protect domestic fertilizer supplies, countries like China and Russia have imposed export bans and quotas since 2021. This should have been a wake up call to the farming community in the USA. The future of fertilizer markets rest in the hands of countries with adverse geopolitical interests to the United States, of which the outbreak of COVID-19 has revealed would have drastic effects on the global economy.
• If American farmers do not view fertilizer markets as a long-game problematique, then the old ways of buying fertilizer are likely to resume. But at what cost during the next fertilizer crisis? Is the fertilizer crisis even over? The issues of global food security have come to the forefront of G7 discussions in 2022, which means that commodities are going to play a bigger role in how countries formulate their strategies in the future.
• Along with the effects from the Energy Transition, the stable, secure supply of these commodities is going to be a key problem for the United States’ industrial policies going forward. Many other countries would probably follow suit by initiating their own legal disputes against countries whose governments unfairly subsidize exports of key commodities such as fertilizers.

The tariffs imposed on Russia’s and Morocco’s exports of phosphate fertilizers has been a case in point for the entire farming community in the United States. Continue reading about the case here.