An Economic Analysis of the External Demand for Egyptian Nitrogenous Fertilizers in the European Market Amidst the Russia-Ukraine Crisis

Nitrogen fertilizers have long been a cornerstone of Egypt's export-led economic growth, providing a steady stream of foreign currency and helping to reduce the country's trade deficit. However, recent data reveals a decline in Egyptian nitrogen fertilizer exports, with shipments falling to 1.39 million tons in 2022 from a peak of 2.02 million tons in 2018. This downturn can be attributed to various global factors, including the Russia-Ukraine conflict.This study investigates the increasing competitiveness of nitrogen fertilizers in global markets. By estimating demand functions using almost ideal demand model for the French, British, and Italian markets over the period 2011-2022, the study yields the following key findings:Nitrogen fertilizers dominate the global fertilizer market in terms of production, agricultural use, and exports, accounting for an average of 88.23%, 79.48%, and 90.42% of the market, respectively, during 2011-2022. Conversely, potash fertilizers dominated imports, accounting for 62.78% on average.Egyptian nitrogen fertilizer exports increased from 1.21 million tons to 1.72 million tons on average during the periods 2011-2016 and 2017-2022, representing 3.04% and 4.68% of global nitrogen fertilizer exports, respectively.European imports of nitrogen fertilizers grew from 8.84 million tons to 9.97 million tons on average during the same periods, accounting for 24.35% and 27.58% of global imports, respectively.The average export price of Egyptian nitrogen fertilizers reached a low of $233.9 per ton in 2016 and a high of $807.6 per ton in 2022, with an overall average of $362.4 per ton.France was the largest importer of Egyptian nitrogen fertilizers, with an average of 393.4 thousand tons (11.6% of total Egyptian exports) during 2018-2022. Italy, the UK, and Greece followed with average imports of 281.8, 156.2, and 152 thousand tons, respectively.The almost ideal demand model for the French market revealed a price elasticity of demand of -31.7%. This implies that a 1% increase in Egypt's export price would lead to a 31.7% decrease in demand for Egyptian nitrogen fertilizers in the French market. Furthermore, the income elasticity of demand suggests that a 1% increase in total real expenditure on nitrogen fertilizers in France would lead to a 1.3% increase in expenditure on fertilizers from Belgium and a 5.12% increase in expenditure on fertilizers from Russia, relative to Egyptian fertilizers, indicating a competitive advantage for these countries in the French market.Similar results were found for the British and Italian markets, with price elasticities of demand of -18.5% and -10.07%, respectively. The income elasticity of demand also showed that competing countries had a comparative advantage in these markets.Key RecommendationsComparative Price Analysis: Conduct a comprehensive analysis of export prices for competing nitrogen fertilizers to enhance Egypt's export competitiveness in the global market.Preserving Competitive Advantage: Implement strategies to safeguard Egypt's competitive advantage for nitrogen fertilizers in key export markets.Export Duty and Domestic Supply: Impose an export duty on all types of nitrogen fertilizer exports. However, companies that meet the Ministry of Agriculture's supply obligations to fully cover the country's domestic demand for nitrogen fertilizers should be exempt from this duty. The revenue generated from this duty should be allocated to support the agricultural sector.Export Duty and Agricultural Support: Impose an export duty on nitrogen fertilizer exports and utilize the proceeds to fund agricultural services and development initiatives.