RIO DE JANEIRO — When the first Russian missiles hit Ukraine, the reverberations were felt 9,500 miles away, on the sprawling Brazilian farms that grow much of the world’s soybeans.
Russia supplies a quarter of Brazil’s fertilizers, and sanctions punishing Moscow for its invasion threatened to hamper exports of the crucial commodity. That posed a threat 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 predict that the country — one of the largest exporters of corn, soybeans, sugar and coffee — had only three months to run out.
Now, two months later, Brazil is replenishing its fertilizer supplies – with help from Russia. Like the Russian gas flowing into Europe through pipelines, hundreds of thousands of tons of Russian fertilizer have arrived in Brazil since the invasion. And more is on the way.
Brazil rushed to buy Russian fertilizer just before the invasion to ensure the shipments would stay inside early in the war. And while the purchase of Russian fertilizer itself is not banned, Brazilian buyers have faced sanctions against Russian banks and logistical hurdles that experts feared would still cut off trade.
But buyers have managed to get around those hurdles, including using a Russian bank that is banned from sanctions and getting assistance 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 of economically isolating Russia 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 previous measures against Russia and Iran. “What they haven’t frozen is the flows into the economy, mainly through the sale of raw materials.”
“Until that gap is closed,” he added, “it will extend Putin’s runway.”
The Russian invasion of Ukraine has created a dilemma for nations and corporations that pit values against economics. Much of the world agrees that Russia should be punished for its invasion of Ukraine, but government officials and business leaders grapple with the economic realities of this.
The biggest example is Russian oil and gas, a much greater economic lifeline for Mr Putin than fertilizers. Countries around the world have continued to buy fuel from Russia while trying to shut down Moscow in other ways.
Russian fertilizer presents a similar dilemma.
Ukraine and Russia are among the world’s largest exporters of wheat, maize and barley, and the war has caused many of those crops to be bottled, raising prices and exacerbating global food shortages.
Russia also accounts for about 15 percent of the world’s fertilizer exports. Blocking those exports would rob Mr Putin of a new revenue stream that could fuel Russia’s war on Ukraine. But United Nations officials and other experts have warned that restrictions on Russian fertilizers would raise prices even more and deplete food supplies.
In view of such a crisis, the United States made an exception in its sanctions at the end of March to explicitly allow the purchase of Russian food and fertilizers. While financial sanctions continue to complicate transactions, US officials have worked to reassure other governments and business leaders — including meetings with government and industry officials in Brazil — that buying Russian fertilizer is not banned.
Europe imposed a one-year cap on certain Russian fertilizer imports, bringing just 2.6 million tons into the continent in a year – less than half of what Europe imported in 2021.
With some of that manure reaching farmers in Brazil, economists predict a slowdown in recent price hikes and improved crop yields, raising the odds that farmers will be able to offset some of the food shortages caused by the Russian invasion.
“It keeps prices in check, and that’s very important,” said Josef Schmidhuber, an economist who has studied the impact of the conflict on food for the Food and Agriculture Organization of the United Nations. “If Brazil were to scale back next year due to a lack of fertilizer, that would certainly be bad news for a global food crisis.”
The largest buyer of Russian fertilizer is Brazil, which imports about a quarter of all its fertilizer from Russia.
Earlier this year, as Russian troops gathered on the Ukrainian border, Brazil’s President Jair Bolsonaro posed for photos with Mr Putin in the Kremlin. At the meeting, a week before the invasion, Bolsonaro said Brazil was “in solidarity with Russia.” During the same trip, he said Brazil would double its purchases of Russian fertilizers.
After the invasion began, Bolsonaro said Brazil would remain neutral and made it clear why. “What happens 10,000 kilometers away in Ukraine reverberates in Brazil,” he said. “We have special business with Russia.”
“For us,” he added, “the issue of fertilizers is sacred.”
Whether that fertilizer supply could reach Brazil, however, seemed doubtful.
Sanctions against Russian banks soon made it more difficult to conduct financial transactions, companies that help facilitate deals shut down for fear of repercussions and many shippers redirected due to high insurance premiums and security concerns. The West also imposed sanctions on the oligarchs who owned two of Russia’s largest fertilizer producers.
Complicating the issue further was that Belarus, Russia’s closest ally and a major producer of a major fertilizer called potash, was hit with its own sanctions in February for forcing a commercial plane to land to arrest a dissident.
Potash, made from potassium salt and often extracted from evaporated seabeds, is crucial to growing soybeans, of which Brazil produces more than any other country. Potassium prices have risen 50 percent since the start of the Russian invasion.
Before the war, Brazilian buyers bought more Russian potash than usual, resulting in the import of 750,000 tons of fertilizer in March, according to government statistics. It was a record for March and an increase of 14 percent from the same month last year.
However, new purchases remained difficult. So Brazil and other countries have found other ways to buy from Russia.
Brazilian buyers have largely switched to using Gazprombank, a major Russian bank that has been exempt from sanctions because it handles many energy transactions for countries that have continued to buy Russian gas.
Brazilian importers also use Citigroup as an intermediary for many transactions, in part because they believe it could help avoid potential pitfalls at the US Treasury Department, according to two bank officials close to the transactions who spoke on condition of anonymity because they were not authorized. to discuss matters. Larger banks such as Citigroup often help facilitate such international transactions.
Once the United States made it clear that Russian fertilizer was not subject to sanctions, it also became easier to find shippers willing to transport the raw material.
In recent weeks, a major Russian fertilizer company has sold more than 165,000 tons of potash to Brazilian buyers, and the shipments are expected to arrive in June, according to an executive involved in the transactions and not authorized to speak publicly. That was already half of the Russian potash that arrived in Brazil in June 2021.
According to Ben Isaacson, a fertilizer analyst for Scotiabank, Russia has also been able to find other willing buyers for its potash in China and Southeast Asia.
“Russia gets their potash out,” he said. “It’s not as tight as we thought.”
Last month, Mr. Bolsonaro met with the head of the World Trade Organization and asked for the agency’s help to isolate the fertilizer industry from further sanctions if the United States and other Western countries tighten their policies as the war continues.
Still, the Brazilian government says the new flow of Russian shipments will provide farmers with enough fertilizer for Brazil’s main crops in the coming months.
But concerns about access to the Russian market have fueled new impetus to make Brazil self-sufficient. Bolsonaro and his allies have pushed to open the Amazon rainforest to the extraction of potassium salt to make potash. A bill was only put on hold after major protests in the Brazilian capital.
For potash “we have no alternatives today,” said Neri Geller, a Brazilian congressman and farmer who supported the bill. “We depend on Belarus and Russia. So if it didn’t come from there, how would we do it?”
