INDUSTRY INSIGHT

Fertilizer industry rises to the global challenge

GPCA Insight asked Rakesh Kapur, President of the International Fertilizer Association (IFA) and joint MD of India’s IFFCO, his views on the fertilizer industry landscape. He is a keynote speaker at GPCA’s Fertilizer Conference in Oman

What would you say are the main issues facing the crop nutrition sector at present?

Some years ago, no one questioned the role of mineral fertilizers, as food availability was the major concern. However, in recent years, the burden of over-usage and, in some instances, fertilizer application rates lower than the global benchmark have put a focus on the sector to improve the nutrient use efficiency (NUE) of fertilizers.

Also, due to dietary transition and preferences, food systems have shown signs of change. There is increased attention on personalized nutrition for humans and the role of secondary/micro-nutrients in the soil.

The fertilizer sector has to adapt to these new challenges and develop strategies for maintaining soil and crop nutrition, as well as the ecosystem.

Another issue facing the crop nutrition sector is non-availability of mineral fertilizers in some parts of the world. Agricultural regions like Latin America and Africa are struggling with transport infrastructure, distribution networks, uncertain policy environments, weak regulatory systems, credit constraints, lack of timely information and usage of inferior agri-technologies, all of which are critical to enhancing agriculture production across the globe.

The nitrogen nutrient has a major role in crop nutrition and the benefit of its unit price to unit crop price has given significant results of high agriculture production and improved food availability across globe.

The decline in ‘Nitrogen Use Efficiency’ is a challenge but with improvements in technology, a wide range of specialty fertilizers on the nitrogenous side, such as controlled release, slow released, enhanced efficiency fertilizers, etc., are available in the market.

Neem coating of urea in India is also an initiative in this direction. As challenges of climate change and environmental degradation prevail, the regulatory framework will drive innovation for enhanced efficiency in fertilizer usage. Its consumption will increase provided that prices are affordable for wider adoption by farmers.

“The industry is extensively engaging at UN in achieving SDG goals 1-3, which focus on poverty eradication; food security and sustainable agriculture; and healthy lives and well-being for all.”
“The fertilizer sector needs to adapt to these new challenges and develop strategies for maintaining soil and crop nutrition, as well as the ecosystem.”
“The GCC region, with large reserves in the nitrogenous and phosphatic fertilizer segment, is mostly export-oriented with over 90% of mainstream fertilizers sold overseas.”

In what way, if any, are the issues different for GCC producers?

Overall, we are witnessing maturity in the fertilizer market, especially in commodity fertilizers, but there are regional differences. In the mature markets, the challenges of soil degradation, climate change and water scarcity have shifted the focus on to fertilizers with improved NUE and the specialty fertilizers segment.

The GCC region, with large reserves in the nitrogenous and phosphatic fertilizer segment, is mostly export-oriented with over 90% of mainstream fertilizers sold overseas. Asia is the largest importer of GCC fertilizers followed by North and Latin America, respectively.

However, over time, the prolonged period of low oil and gas prices has helped the fertilizer industry. Countries such as the US and India are targeting self-reliance in nitrogenous fertilizers; together these account for almost half of the GCC region’s nitrogenous fertilizer exports.

Also, oversupply of liquefied natural gas (LNG) is helping countries like India, Pakistan and Egypt to increase their domestic production capabilities. As such, new market segments and geographies are required to be explored by the GCC producers to offset the likely demand from GCC countries.

However, favorable policy initiatives, price affordability and improved infrastructure in the regions struggling for fertilizer availability will present good export opportunities to GCC producers.

The share of agriculture in the GDP of the Middle East region is low due to limited availability of arable land and excessive water usage. New emerging indoor farming models such as greenhouse/polyhouse/vertical farming and micro-irrigation techniques are appealing concepts that may give enormous potential for the region to increase its share of agriculture in its GDP.

What is the industry doing to improve the business outlook for nutrient producers, through IFA and other trade bodies?

Industry is currently engaged in a strategic review (IFA 2030) process to evaluate possible scenarios and proactively position itself to meet the future challenges. This process has identified six key insights and implications, and the outcome will be ready by November 2018.

It will be shared during the IFA Strategic Forum being held in Beijing, China. The industry plans to set up a ‘Roundtable on Sustainable Plant Nutrition Solutions’, a multi-stakeholder process, that would allow the industry to engage on an ongoing basis with non-fertilizer industry players who also have a role to play and/or have a keen interest in effective fertilizer management, i.e. farm associations, policymakers, agricultural research centers, NGOs, and other industry sectors, such as other input providers, developers of soil and plant health diagnostics.

An initiative such as this will bring together different stakeholders to facilitate a shared understanding and work towards collaborative solutions among partners with a vested interest. The industry is also increasing its market intelligence on specialty fertilizer segments such as slow and controlled release fertilizers (SCRFs), water-soluble fertilizers (WSFs) and inhibitors.

The farmer has to deal with increased cost across the value chain due to wider product range and service offerings from different input providers. Producer/farmer cooperatives can help better integrate and consolidate inputs and services to small and marginal farmers, especially in countries in Africa and Asia.

“Protectionist measures on agriculture trade items can potentially impact demand for fertilizers and international trade.”

Do you see protective trade policies and tariffs as a growing problem for the industry?

Fertilizer trade is global and has always been subject to some protectionist measures by various countries. One of the most important protectionist measures that can affect the Middle East as a fertilizer exporter is a potential increase in import tariffs in large import markets.

The prevailing tariff and non-tariff barriers for urea in Sub-Saharan Africa results in Nigeria exporting 80% of total urea capacity to Brazil and Argentina, which otherwise is sufficient to satisfy most of the urea demand in Sub-Saharan Africa.

Protectionist measures on agriculture trade items can potentially impact demand for fertilizers and international trade. The current retaliatory tariff of an additional 25% by China on USD 12 billion worth of soybeans from the US, and reduced tariffs from 3% to zero from India, South Korea, Bangladesh, Laos and Sri Lanka, can impact fertilizer demand.

Other countries are joining the retaliation and increasing the custom duties on products from the US. If governments resort to restrictive trade policies, especially in a tit-for-tat process, it could lead to an unmanageable escalation.

The recent EU/Japan trade agreement signed in July 2018 provides hope for endorsement of a global trading system that is under increasing threat from unilateralism and protectionism.

The deal which covers 600 million people and almost a third of the global economy is aimed at eliminating tariffs on nearly all goods and access of European food items to the Japanese market. This will potentially influence both agriculture items as well as fertilizers trade.

What is your medium-term outlook for the fertilizer sector?

Capacity investments have a regional variation. The North American region is expanding mainly in potash and there is slow down on nitrogen segment, while in the West Asian region, the capacity evolution is marginal in ‘N’ and ‘P’ segments.

In Africa and the South Asian region, massive capacities are coming up in the nitrogen segment.

In the medium five-year term, globally capacity will increase in all three main fertilizer segments, but the more rapid growth is in potash (+10% over 2017) rather than for phosphoric acid (+6%) and ammonia (+3%).

Average annual growth rates in fertilizer nutrient demand have progressively fallen from 2.1% (2012) to 1.3% (2018). Looking at the projected demand at a modest 1.3% average annual growth, compared with the 1.6%/year growth in supply, fertilizer markets will remain widely supply-driven while different structural imbalances will exist between the three main nutrient segments.

And finally, with regards the United Nations’ Sustainable Development Goals (SDGs), how is the fertilizer industry helping meet these targets?

The industry is extensively engaging at UN level in discussing the challenges faced in achieving SDG goals 1-3, which focus on poverty eradication; the promotion of food security and sustainable agriculture; and healthy lives and well-being for all.

Besides, active participation is being made by the industry for development of a regulatory framework related to fertilizer use. The industry has developed nutrient stewardship frameworks (4Rs), around the globe, which incorporate the principles of using the right nutrient source, at the right rate, time and place.