Fertilizers, food security, financial war and Formula 1 | Sullivan and Worcester

0

This Sunday at the Bahrain International Circuit, the Formula 1 teams will line up for the first grand prix of the 2022 season. those of us who also work in the areas of energy, environment and sanctions, the most interesting change in direction is the removal of the title sponsor of the Haas F1 team Uralkali and the replacement of the Haas driver Nikita Mazepin. The severing of ties with Uralkali and the Mazepins illustrates much more than how a professional racing team reacts to current events. It also illustrates how deep and intertwined financial sanctions are with everyday life and the impact and implications of real-world events on the world’s food supply, the environment, climate-related issues and, of course, of course, the Formula 1 season.

Dmitry Mazepin is a Russian businessman and former majority shareholder, managing director and chairman of Uralchem ​​Integrated Chemicals Company, which according to Reuters sold its majority stake and resigned on March 11, 2022. He is also deputy chairman of the board of directors of Uralkali, PJSC. Uralchem ​​is one of Russia’s largest fertilizer producers and holds an 81.47% stake in Uralkali, a Russian company and one of the world’s leading producers and exporters of potash and ‘fertilizer.[1] Uralkali was the title sponsor of the then named “Uralkali Haas F1” team since the start of the 2021 season, under which Dmitry’s son Nikita also became a driver for the team. Uralkali and Nikita were set to continue as title sponsor and driver, respectively, for the 2022 season until the events of a few weeks ago.

On February 24, 2022, the same day Vladimir Putin launched an illegal invasion of Ukraine, Dmitry Mazepin was one of 36 business representatives who met with Putin to discuss the economic impacts of sanctions on Russia.[2] In the wake of Mr. Mazepin’s meeting with Putin – and the Russian invasion of Ukraine – Haas announced on March 5, 2022 that it would be ending its contracts with Uralkali as title sponsor and Nikita Mazepin as a driver. UK sanctions against Dmitry Mazepin and Nikita Mazepin individually, banning travel and freezing assets, came into effect on March 15, 2022.

The individual penalties against the Mazepins are interesting but unsurprising given Dmitry’s close relationship with Putin. But digging deeper into Uralkali, Uralchem, potash and fertilizers reveals a much more fascinating story about the financial war. Uralchem ​​and Uralkali are large and lucrative Russian businesses that provide a substantial source of revenue for the government – of course, sanctions on the target country’s large revenue streams are Strategy 101. Additionally, Western allies have in the past targeted the potash sector in Belarus with economic sanctions, singling out major Belarusian potash companies in a bid to dry up the Belarusian government’s revenue streams.[3] Potash, a type of fertilizer, is said to provide more than 7% of Belarusian export earnings, and Belarus controls a large part of the world market.[4] By stemming the flow of revenue to Belarus, the hope is that the flow of Belarusian funds to Russia would similarly decrease.

How did the fertilizer industry become such a lucrative source of income? Fertilizers are a key link in the global food supply chain; it increases global yields of food crops by 40-60%.[5] Fertilizers have become a necessary part of maintaining the global food supply and reducing poverty and food insecurity around the world. When fertilizer prices rise, the impact is felt on the global food supply chain and often the brunt is borne by those who already face total food insecurity or are about to do so. Even before recent sanctions on the potash and fertilizer sector, the World Bank was describing the already steeply rising cost of fertilizers and sounding the alarm about the resulting rise in food prices and worsening food insecurity, a situation we glimpsed during the COVID pandemic.[6] With further increased sanctions against fertilizer companies, these fertilizer suppliers will no longer be available options in markets that serve many countries and farmers, leading to higher demand for other sources of fertilizers and likely further price increases on the fertilizers still available.

The impact of fertilizer sanctions on the global food supply chain could have even more repercussions when placed in the context of the region’s overall role in food production. Food prices are expected to increase during the conflict due to the role of Ukraine and Russia in the supply chain, with a large share of the world’s wheat and maize supply coming from Ukraine and the countries of the region providing a significant amount of food exports to a large number of countries. segment of the world’s population.[7] With production halted or, in the case of Russia, exports sanctioned, the number of food insecure people is also expected to increase. This can impact a number of socio-economic categories, from the availability of labor to the achievement of sustainability goals. Given the region’s role in the global food supply chain, the aggravating factors of fertilizer shortages and sanctions are poised to put a strain on global food security, on the heels of rising food prices and limited food availability, particularly in the Middle East, South Asia and North Africa regions.[8]

While fertilizers play an important role in food security, it would be remiss not to point out that fertilizers are also one of the drivers of climate change. As climate change continues to reduce the planet’s ability to sustain and sustain food production for a growing population, more fertilizer is needed to ultimately harvest the large quantities of crops needed. As the World Bank succinctly put it in a report on agricultural pollution and fertilizers, “[o]ver the last 50 to 60 years, the rampant growth in the global use of fertilizers to increase and maintain crop yields has polluted natural and agricultural systems, leading to a series of adverse consequences. . . This, in turn, has adverse consequences for public health, climate, wildlife, and businesses. . . Although its use, in combination with other green revolution technologies, is credited with feeding the world and preventing a more dramatic expansion of agriculture into natural landscapes, current use of fertilizers is considered repulsive the biogeochemical limits of the planet.”[9]

There is no perfect strategy or perfect tool that can achieve geopolitical strategy goals without repercussions. Financial warfare and the use of economic sanctions certainly have many advantages over traditional warfare that should not be overlooked. But, in an increasingly connected world, economic sanctions can have impacts far beyond the intended revenue streams. These impacts are illustrated here as impacts on the global food supply chain and impacts on the ecological health of the planet. On Sunday, as the cars line up for the grand prix, there will be no Uralkali logo racing on the track, and Kevin Magnussen will have replaced Nikita Mazepin as the Haas F1 team’s second driver. The absence of Uralkali and the Mazepins portends a much bigger story than a reaction to current events at the highest level of motorsport. But like every Sunday of the racing season, the lights will go out, the checkered flag will fly, the points will go to the fastest riders and the championships will ultimately go to the best driver and team – Lewis Hamilton and Mercedes, of cours.

[1] https://www.uralchem.com/corporate_management/

[2] https://twitter.com/KremlinRussia_E/status/1496934999295070211?s=20&t=r6ZwFInUigjS4QIXZ-IO8w; https://apnews.com/article/russia-ukraine-putin-sports-business-europe-58fe43d1ec863fcea2bd1a60cd0582ca

[3] https://home.treasury.gov/news/press-releases/jy0512

[4] https://www.bloomberg.com/news/articles/2022-01-20/us-potash-sanctions-may-push-belarus-deeper-into-putin-s-arms

[5] https://thedocs.worldbank.org/en/doc/538281534213493532-0050022018/original/EBA17Fertilizer.pdf

[6] https://blogs.worldbank.org/opendata/soaring-fertilizer-prices-add-inflationary-pressures-and-food-security-concerns

[7] https://www.dw.com/en/russias-invasion-of-ukraine-drives-global-food-insecurity/a-61124764#:~:text=The%20International%20Monetary%20Fund%20(IMF,to %20plants%20crops%2C%20including%20wheat.; https://docs.wfp.org/api/documents/WFP-0000137463/download/?_ga=2.165948029.2127211503.1647536836-334719473.1647536836 ; https://www.globalcitizen.org/en/content/ukraine-russia-conflict-hunger-food-insecurity/

[8] https://www.vox.com/future-perfect/2022/2/27/22950805/russia-ukraine-food-prices-hunger-invasion-war

[9] https://documents1.worldbank.org/curated/en/759191521207948130/pdf/124343-repl-WB-Knowledge-Fertilizer.pdf

Share.

Comments are closed.