Agricultural fertiliser prices set to remain high on back of upsurge in global demand – industry report
High fertiliser prices show no signs of abating in the near term and New Zealand farmers will need to look to improve
efficiencies in fertiliser use to reduce costs and increase productivity in the future, according to a recently-released
industry report.
The Global Focus report – Fertilisers a precious commodity, by leading international food and agribusiness bank
Rabobank, says 2007 has seen world fertiliser prices soar, driven by a dramatic upturn in demand for agricultural
fertiliser in both developing and developed nations.
Price pressures have been compounded by a limited world supply of key fertiliser ingredients –nitrogen, phosphorus and
potassium – with structural constraints on the speed at which the fertiliser industry can increase production.
The report’s author Rabobank senior analyst Ingrid Richardson says the intensified demand for fertiliser is the result
of a combination of factors including increased need for higher agricultural yields due to world population growth and
improving economic prosperity, high agricultural commodity prices and the emergence of the biofuels industry.
“The use of fertilisers globally has expanded significantly over past decades, driven by a combination of growing
population and limited land availability for agriculture. The economic need for increased yields in order to feed a
growing population from limited arable land has driven this increasing fertiliser consumption,” she said.
The majority of growth in fertiliser usage has been concentrated in developing regions. “Growth in nutrient consumption
in agriculture is aligned with the most rapid growth and intensification of agricultural production – which has occurred
in Asia and Latin America,” Ms Richardson said.
In the developed world, the report says, the long-term trends have shown steadier and more gradual growth in fertiliser
consumption. But this picture changed in 2007, with increased demand for fertiliser from the developed and developing
world alike, driven by high commodity prices and the biofuels boom.
“There tends to be a close relationship between high fertiliser prices and high commodity prices as a farmer’s demand
for inputs is driven by desire to increase yields in a high commodity environment,” Ms Richardson said.
“The explosive expansion in grain area in 2007 has resulted in fertiliser demand beyond current fertiliser production
capacity and has ultimately contributed to significant increases in input prices around the world.”
Increases in fertiliser consumption are being driven partly by the biofuels boom. In the US, for example, the report
says, increasing demand for corn for ethanol production resulted in 2007 in farmers planting the largest acreage to corn
since 1944.
“In many cases, farmers replaced their usual rotation crops, such as soybeans, with corn, which requires 32 times more
nitrogen per acre than the equivalent area of soybeans.” Ms Richardson said.
Production limitations
While demand for fertiliser is expected to continue to grow into the foreseeable future, the report says, the industry
is constrained in how quickly it can increase production to boost global supplies.
“While agricultural production can be speedy in responding to increased market demand and price signals, in contrast
fertiliser production often cannot be speedy in its response,” Ms Richardson says.
“The supply of fertiliser is more akin to the mining sector than agriculture. The investment in plant and equipment
required to extract and produce fertiliser is significant. In addition, to scope, plan and build new capacity can take
several years. Consequently, supply capacity cannot be readily adjusted to suit agricultural seasonality.”
While global prices increases are encouraging the expansion of current fertiliser capacity, this will take time to ramp
up.
Feedstock supply
Added to this, there is increasing competition for key fertiliser ingredients (known as feedstocks) – particularly
natural gas – for other uses, such as energy.
“While the supply of fertiliser feedstocks has not yet become scarce, the continuing need for improving land
productivity in agriculture and the global demand for energy will ensure strong demand for these feedstocks well into
the future,” the report says.
“In the longer-term, with ongoing and ever-increasing demand on a finite resource, prices for phosphate and potash
fertilisers could be expected to rise as exploration pushes into more marginal reserves.
“As the world’s population becomes wealthier and the desire for energy increases, natural gas is expected to supply a
larger proportion of the world’s energy requirements. As a result, nitrogen-based fertiliser production will need to
compete with other natural gas end-users. Long-term increases in the prices of natural gas will lead to an increase in
the cost of nitrogen fertiliser production and ultimately lead to higher on-farm fertiliser costs.”
Implications for farm sector
With fertiliser representing an average of 18 per cent of New Zealand farm cash costs, agricultural practices which
improve productivity, but reduce costs are ‘the holy grail’ of farming, Ms Richardson says.
“Thus far, improvements in fertiliser use efficiency have come through farm management techniques,” she said.
“The precision application of fertiliser is becoming increasingly common across all sectors of agriculture as producers
seek to maximise yields through better techniques rather than higher input application rates.”
There is also untapped potential through plant breeding, the report says, to use the abilities of plants themselves to
better absorb and use fertiliser, as well as have greater water-use efficiency.
“While plants that have these traits are complex and costly to develop, they could be incredibly valuable in a world of
limited land, fertiliser and water resources,” Ms Richardson says.
In addition to better managing the application and use of fertiliser, there is scope for investigation into the use of
more ‘traditional’ fertilisers such as animal manures and composted material in conventional agricultural systems.
“Limited or costly fertiliser resources may lead to innovation and the development of agricultural systems that are less
reliant on imported inputs,” Ms Richardson says.
At a global level, the report notes, while there is much focus on investigating alternative energy sources, there has
been comparatively little attention devoted to ensuring the sustainability of agricultural production through access to
fertiliser or investigation into fertiliser alternatives.
Fertiliser facts - from what and where do the major fertilisers come?
• Fertiliser can be divided into three main nutrients: nitrogen, phosphate and potassium.
• Fertilisers derived from these three elements account for 90 per cent of total global fertiliser consumption.
• There is no substitute for these three nutrients and they are essential for plant growth.
• Nitrogen: 97 per cent of the world’s nitrogen fertilisers are derived from synthetically-produced ammonia,
produced from a reaction commonly using natural gas as a feedstock. With natural gas available in a diverse number of
locations, more than 60 countries produce this type of fertiliser.
• Phosphate: almost entirely derived from mined phosphate rock. Three regions extract 77 per cent of the world’s
phosphate rock – Morocco & Western Sahara, China and the United States.
• Potassium: derived from mined potassium salts. Global potassium supply is limited to five countries – Canada,
Russia, German, Belarus and Brazil.
• Intensity of agricultural fertiliser use is determined by a number of factors including crop type, soil type,
farmer income, governmental policy (including environmental regulations and fertiliser subsidies) and water
availability.
Rabobank Australia & New Zealand is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness
banking. Rabobank has more than 100 years’ experience providing customised banking and finance solutions to businesses
involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and is rated one of the world’s
safest bank by Global Finance magazine. Rabobank operates in 42 countries, servicing the needs of more than nine million
clients worldwide through a network of more than 1500 offices and branches. Rabobank Australia & New Zealand is one of Australasia’s leading rural lenders and a significant provider of business and corporate banking
and financial services to the region’s food and agribusiness sector. The bank has 78 branches throughout Australasia.
ENDS