Globally, fertilizer prices are witnessing a significant spike, thanks to the rising food demand and supply constraints further compounded by rising input costs. Global food demand has been increasing since last few years driven by driven rising population, rising standard of living in developing nations, and increasing use of food grains such as corn, maize, soybean in production of bio fuels. Rising food demand coupled with supply constraints due to limited availability of arable land, climatic changes, export restrictions by various governments have necessitated increase in agricultural productivity boosting demand for agricultural inputs such high yielding seeds, pesticides and fertilizers
Of the three main fertilizer groups’ nitrogen, potash and phosphate, potash prices have witnessed maximum surge as the supply is concentrated in Canada, Russia and Belarus whereas nitrogen and phosphate supply is more diversified and spread over across the globe.
While demand is rising governments are discouraging exports of fertilizer through bans and higher duties to meet their domestic demand. This has further tightened the demand-supply scenario. On 20 April 2008, China levied custom duty of 135% on export of Urea, which resulted in US$200 per ton increase in Urea prices to US$700 per ton.Fertilizer companies has been one of the best performing group in stock market in last one year while most other sectors have been reeling under pressure from credit crisis and rising raw material prices.
Nevertheless, besides criticism for undue profiteering by cartelization fertilizer prices is largely driven rising food demand on back of:
1. Rising world population, which is expected to increase 1.14% annually to 8.0 bn by 2025 [Source: UN]
2. Better standard of living in emerging economies. E.g. as Chinese become more prosperous they are consuming more meat, 20 kg per capita per year in 1980 to 50 kg per capita per year in 2007, which will result in increased food demand as 6 kg of food grain is required to produce 1 kg of meat. (Source: FAO & Paul Collier, Professor of Economics, Oxford University)
3. Use of food grains for alternative applications such as bio fuel production is expected to increase 388% to 21 mn tons in 2017, compared to 4 mn ton in 2007. (Source: FAO & OECD)
Thus, over medium term fertilizer prices will be able to sustain high levels on back of prevalent cartelization among suppliers, increasing food demand and supply constraints. However, new production plants and efficient utilization of fertilizer will turn the tables and normalize prices by 2011-2012. [Source: FAO]
