The International Fertilizer Industry Association (IFA) recently released its medium-term Fertilizer Outlook 2011-2015. The report clearly highlights the interdependence of the fertilizer industry and the agricultural sector.
Fertilizer markets for the main nutrients – nitrogen (N), phosphorus (P) and potassium (K) – have fully recovered from the downturn in 2008/09. This improved environment provides a strong basis for long-term investment in additional capacity in order to respond to rising demand in the agricultural sector. The industry is pursuing its steady programme of long-term investment in new production sites to respond to an anticipated 11 per cent growth in total demand between 2010/11 and 2015/16, as forecast by the Association.
This volatility has important impacts on farming beyond those on commodity prices, as it also influences decisions by farmers to invest in inputs and technologies needed for higher productivity. Moreover, it complicates efforts to expand local production. “The challenge ahead for policy makers is to find solutions that meet the combined need to protect low-income consumers from higher food prices, to maintain incentives for increasing productivity, and to shield farmers from excessive volatility of agricultural commodity prices,” said Luc Maene, IFA’s Director General. Agricultural markets worldwide remain tight, with low inventories and sustained high prices.
Strong crop prices are boosting fertilizer demand for all nutrients. World fertilizer demand has fully recovered from the downturn and current demand is the highest to date, surpassing the levels reached in 2007/08. OECD and FAO project that, in the medium term, agricultural commodity prices will remain strong but volatile.
“In response to strong market fundamentals, world fertilizer demand is forecast to reach 191 million tons of nutrients in 2015/16,” said Patrick Heffer, Director of IFA’s Agriculture Service. South Asia, East Asia and, to a lesser extent, Latin America would contribute to about three-fourths of anticipated growth in demand. The contribution of China to the increase in world N and P fertilizer demand is, however, declining in comparison to the previous decade.
In 2010, the fertilizer industry operated at an average of 81 per cent production capacity, showing improved conditions compared with a rate of 76% in 2009. “Massive investments have been made and will continue being made in the near term to secure the supply of plant nutrients and improve global food security,” according to Michel Prud’homme, Director of IFA’s Production and International Trade Service. Over the next five years, global capacity will further increase with close to 250 capacity-related projects and a large number of expansions at existing sites. IFA estimates that about US$88 billion will be invested by the fertilizer industry between 2010 and 2015. On average, the global potential supply of mainstream fertilizers is seen as growing by 30 per cent by 2015. Three important factors are driving this surge in investment: the willingness of fertilizer companies to increase local transformation of raw materials; pressures from governments to reduce their respective import reliance on fertilizers supply (for instance, in Brazil, China, India, Pakistan and Vietnam); and the industry’s responsibility to prepare for the future and provide adequate plant nutrients to increase productivity sustainably. The report also highlights the emergence of new suppliers and exporters, such as Saudi Arabia in the case of DAP and Algeria in that of urea and ammonia. For the first time in IFA’s forecasts, China’s fertilizer production and consumption is seen as slowing down. This represents a turning point for the Chinese industry, which is more used to overcapacity scenarios. It clearly testifies to the maturity of its market.