January marks a significant step forward in the restart of Brazil’s nitrogen fertilizer industry, as Petrobras resumes operations at its fertilizer plants in the Northeast. In Sergipe, the FAFEN unit, which had already restarted ammonia production on December 31, began producing urea on January 3. In Bahia, the Camaçari plant completed maintenance in December and is currently in the commissioning phase, with urea production expected to begin by the end of January.
Together, the two plants will produce ammonia, urea and ARLA 32 (Automotive Liquid Reducing Agent), with initial investments of approximately R$38 million in each facility. The restart of the FAFEN units has already generated around 1,350 direct jobs and 4,050 indirect jobs, reinforcing their relevance for regional development.
Production Capacity and Market Impact
The Sergipe plant, located in Laranjeiras, has the capacity to produce 1,800 tonnes of urea per day, equivalent to about 7% of Brazil’s domestic market. The Bahia unit, in Camaçari, can produce 1,300 tonnes per day, corresponding to roughly 5% of national demand. Operations in Bahia also include the Ammonia and Urea Maritime Terminals at the Port of Aratu, in Candeias.
According to Petrobras, the two FAFEN units, together with Araucária Nitrogenados S.A. (ANSA) in Paraná, will be responsible for supplying around 20% of Brazil’s total urea demand.
“Our expectation is to increase domestic production to 35% in the coming years, including a new plant under construction in Mato Grosso do Sul,” said William França, Petrobras’ Executive Director of Industrial Processes and Products.
Strategic Rationale: Reducing Dependence on Imports
Brazil currently imports nearly all the urea it consumes. Petrobras argues that resuming domestic production is a strategic move to reduce external dependence, strengthen the agribusiness supply chain and enhance food security.
The nitrogen fertilizers produced by the FAFEN units are expected to serve not only agriculture, including urea for crops and for animal feed, but also industries such as textiles, paints, and pulp and paper. ARLA 32 production is also highlighted as a contribution to reducing vehicle emissions and supporting environmental goals.
“This is a strategic action,” França emphasized. “It uses natural gas as the main input, expands allocation alternatives for Petrobras’ gas production and generates value for industry, agriculture and the country.”
The Critical View: Fertilizers as a Costly Detour for Petrobras Shareholders
While the restart of the FAFEN plants has been widely celebrated by regional leaders and industrial policy advocates, market analysts and energy sector specialists warn that Petrobras’ return to fertilizers may revive old problems, particularly for shareholders.
Critics recall that Petrobras previously operated a fertilizer subsidiary, Petrofértil, which failed to make Brazil self-sufficient and generated heavy financial losses, ultimately leading to its shutdown. In their view, the renewed push into fertilizers is driven less by economic rationale and more by geopolitical concerns, especially after Brazil’s exposure to Russian supply disruptions following the Russia–Ukraine war.
For many economists, market analysts and investors, if producing fertilizers in Brazil were economically attractive, the private sector would already be doing it. For them, Petrobras should focus on producing oil and natural gas, rather than subsidizing an industry that has historically only delivered losses
From this perspective, the core issue is competitiveness. Fertilizer production depends heavily on cheap natural gas, something Brazil lacks.
This dynamic highlights a clear divergence of interests: investors prioritize short-term returns and capital discipline, whereas the Brazilian government frames fertilizer production as a strategic tool to reduce Brazil’s structural dependence on imports.
In 2024, Petrobras reached the milestone of one million individual shareholders on the Brazilian stock exchange. Despite being a publicly traded company, its controlling shareholder remains the Brazilian government, making Petrobras a state-owned mixed-economy company. This structure means that strategic decisions also take national security considerations into account, especially after the war in Ukraine exposed Brazil’s vulnerability and heavy dependence on imported fertilizers. Currently, the country imports more than 80% of its fertilizer needs, largely from suppliers such as Russia and Belarus.
Gas Prices, Environmental Licensing and Structural Barriers
Critics highlight that Brazil’s natural gas is offshore and expensive, unlike Russia or Canada, where abundant and cheap gas underpins global fertilizer leadership. Environmental licensing is also commonly cited as a major obstacle, both for shale gas exploration and for potash mining, particularly in the Amazon region.
As a result, domestically produced fertilizers tend to be more expensive than imported ones, unless production is heavily subsidized, this could reduce short-term shareholders profits. That, in turn, raises concerns among investors and is not good news for PETR3 and PETR4.
Will Fertilizers Become Cheaper for Consumers?
Supporters of the restart argue that domestic production could stabilize supply and potentially reduce costs over time. Skeptics disagree, noting that fertilizer prices tend to follow international benchmarks and that any subsidy would distort market signals.
In theory, cheaper fertilizers could lower food prices, but in practice, margins are usually captured along the chain, and consumers rarely see the full benefit.
There is also concern that subsidized fertilizers could undermine efficiency in agribusiness and weaken Brazil’s long-term competitiveness by masking structural inefficiencies.
Industrial Policy vs. Shareholder Value
The debate reflects a broader tension within Petrobras’ strategy. On one side, the company and labor organizations argue that fertilizers fit into a re-verticalization strategy aligned with energy transition, bio-refining and national development goals. On the other, investors fear mission creep.
From the industrial policy standpoint, Petrobras’ Business Plans for 2025–2029 and 2026–2030 explicitly mark a return to fertilizers, reversing the divestment cycle of 2016–2022. Around US$1 billion has been allocated to fertilizers over the next five years, alongside expanded investments in natural gas processing.
Supporters see this as rebuilding strategic capabilities dismantled in the past decade. Critics see a dilution of focus.
Analysts indicate that Petrobras is one of the world’s best offshore oil producers. For them, that’s where capital should go, especially with new frontiers like the Equatorial Margin.
What This Means for Petrobras (PETR3; PETR4) and Its Shareholders
For shareholders, the fertilizer debate introduces uncertainty. In the short term, the restart of FAFEN plants supports regional economies and aligns with government priorities. In the long term, the key question remains whether Petrobras can operate fertilizers profitably without repeating past losses.
The market reaction is likely to balance optimism about industrial recovery with caution over capital discipline. As Brazil seeks to reduce its dependence on imported fertilizers, Petrobras finds itself once again at the center of a strategic dilemma: serve as an instrument of national policy or focus strictly on maximizing shareholder returns.
The answer will shape not only the future of fertilizers in Brazil, but also the investment thesis behind Petrobras shares in the years ahead. However, we cannot overlook the fact that Petrobras is widely recognized as one of Brazil’s most innovative companies, particularly in the energy sector. Its leadership in innovation is largely driven by its pioneering work in ultra-deepwater oil exploration technologies, an area in which the company is regarded as a global benchmark. The development of the pre-salt layer, one of the largest oil discoveries of the century, stands as a concrete example of how technological capability has translated into operational success.
This culture of innovation is further reinforced by the work carried out at Cenpes (Petrobras Research Center), one of the largest R&D hubs in Latin America, responsible for developing technologies that increase efficiency, reduce costs and improve sustainability across the energy value chain.
From this perspective, Petrobras’ technological expertise could also prove decisive in the fertilizer segment. Its ability to optimize industrial processes, manage complex operations and integrate natural gas supply chains suggests that, under the right economic and regulatory conditions, the company may be able to operate fertilizer production successfully. If so, Petrobras would not only remain competitive in global energy markets, but also leverage its innovation capacity to expand into strategic industrial segments, contributing to Brazil’s long-term energy and food security.
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