Fertilizer crisis: what happens if the Italian company does not sign a contract to buy Midagri?

The fertilizer procurement process carried out by the Ministry of Agrarian Development and Irrigation (Midagri) is still under review as the purchase from the new supplier has not yet been formalized.

Three weeks ago, on August 10, Minister Andrés Alencastre announced that he would change the supplier of carbamide due to the observations presented by the controller. The new company selected was the Italian Unionsped SRL, but the acquisition agreement has not yet been signed.

Given this, what happens if the Italian company does not sign a sales contract with Midagri?

According to agribusiness economist Marco Vinelli, he points out that if an agreement with Unionsped is not reached, the process will have to be declared invalid.

“In the scenario where the Italian company does not sign a contract for the purchase of urea with MidagriIt follows from this that the competition must be declared invalid, and by declaring it invalid, we will not receive urea from the state,” Vinelli explained.

This may be the third time that the urea procurement process has not been completed, which is necessary in the face of the fertilizer crisis and the start of the 2022-2023 agricultural campaign.

If the government plans to make a new call, it could take more than two months, former minister warns AgricultureMilton von Hesse.

“At this stage of the match, I’m willing to bet that this third tender will still fail, and the new tender will take another 70 or 80 days to run in a competitive and transparent manner,” he told RPP Noticias.

Agricultural economist and GRADE researcher Eduardo Zegarra argues that with this in mind, it no longer makes sense for the government to initiate a new procurement process because urea it will take some time to arrive.

“If it is impossible to sign a contract with an Italian company, this, in fact, means that this third tender will not take place, with which the purchase of urea Government There is no point in starting a new process anymore. Even if the contract is signed now, the carbamide will only arrive in 50-60 days, which is already a bit late,” he told RPP.

So, what should Midagri do if the fertilizer purchase is not finalized?

Von Hesse believed that in order to support the farmers, Midagri should have provided a loan through the Agropera to manufacturers buy from local suppliers or distribute vouchers, which is a simpler and more direct form of subsidy.

For his part, Vinelli believes that the budget of the procurement process should be directed towards paying bonuses to farmers.

“My biggest recommendation is that the money they have for this purpose be turned into a kind of voucher, connectionso it is delivered to farmers more directly and efficiently in a much shorter period than importing urea from an international supplier,” he said.

Zegarra agrees with the idea of ​​a subsidy program allowing farmers to buy urea.

“What the government needs to do now is to move forward with the subsidy program immediately. Urea was also imported this year by the private sector, around 200,000 tons, albeit at a high price. However, they do not have access to this urea. farmers need support to buy urea at least for the reasonable price they had last year of £80 or £90 a bag,” he said.

Imports of urea are in short supply

According to Sunat, urea import registered between January 2021 and August 2022 reduced their deficit from 75% to 46%. However, economist Eduardo Zegarra warns that we still have a significant shortage of fertilizers.

“As of August 31 this year, we continue deficit 180 thousand tons (45% less). Almost all of this deficit is due to a reduction in imports from Russia. New supplier countries have emerged, such as Algeria, Bolivia, Trinidad and Tobago and Indonesia, but the deficit has not yet been covered,” a GRADE economist commented on Twitter.

Zegarra points out that the import price of raw materials also fell between July and August, to around $627 per tonne, down from more than $1,000 in June.

Despite the reduction, the specialist warns that Prices They are still much higher than those recorded between January and June 2021.