Bright prospects – but a big proviso

Agricultural commodity and fertilizer markets enjoy a symbiotic relationship and in general, what is good for one is good for the other. Fertilizer producers thus take heart as their agricultural commodity counterparts forecast a record harvest in order to stave off another large drawdown of global grain inventories. Despite gloom and turbulence in the global financial and industrial sectors, agricultural commodity and fertilizer fundamentals continue to look healthy. Because world grain inventories remain depleted and prices are therefore high, farmers will need to plant record acreages in 2012. This in turn is expected to sustain the high shipments of nitrogen, phosphate and potassium fertilizers.

According to the latest USDA World Agricultural Supply and Demand Estimate (WASDE), North American agriculture recovered from a wet spring and widespread flooding and enjoyed near-record harvests of wheat, corn and soya. Demand for all products has been buoyant, but the demand for corn for ethanol use in the United States was expected to rise by 100 million bushels, further tightening overall availability. Global corn inventories at the end of the 2011/12 crop year are forecast to fall to just 13% of projected use, the lowest percentage since 1973/74.

Global wheat supplies are expected to be 900,000 tonnes higher as larger beginning stocks more than offset lower expected world production. Farmers worldwide are expected to enjoy record harvests this year. USDA estimates that farmers will harvest 2.72 billion tonnes of the leading 16 crops this year, up from 2.64 billion tonnes in 2010.

High crop prices are the most powerful driver of growing intentions, and these in turn bolster the demand for fertilizers. On the debit side, high crop prices mean escalating food prices – at a time when many parts of the world are suffering from weak overall economic growth – and these high prices risk prompting social unrest as people are less able to afford basic foodstuffs.

Continuing population growth and the trend towards improved diets are helping agricultural commodity and crop nutrient markets avoid the worst of the volatility seen lately in financial markets. However, rather than sit back, relax and enjoy a sustained boom, fertilizer suppliers need to be aware of some longer-term issues that may assume critical importance within a generation and block the drive to sustainability.

The ultimate “game stopper” are finite resources: natural gas and other fossil fuels that can be converted into nitrogen fertilizers are finite, but substitutes can be found among alternative sources of energy. Phosphorus and potassium are also finite resources but as basic elements, they have no substitute. Some commentators have expressed great concern that modern high-intensity, single-crop agriculture is very dependent on finite mined resources, which if used wastefully, could easily cause a chronic problem with a half-century, but if used sensibly and sparingly, could last for several centuries longer. (Jeremy Grantham, quoted in the Financial Times).

Market-oriented systems have consequently been accused of failing to address the slow-burning problems of resource depletion and an inherent inability to adjust to changing long-term conditions. According to Grantham, “The finiteness of natural resources is simply ignored and pricing is based entirely on short-term supply and demand.” As the voice of the international fertilizer industry, IFA is aware that these issues have to be addressed. In its recently published analysis of food prices and fertilizer markets, IFA notes that in may countries, soils have been depleted of essential nutrients and crop yield growth rates are decreasing. In addition, higher consumption of animal protein, fruit and vegetables and the surge in biofuel production “require greater productivity to help preserve fragile eco-systems from conversion to farming” IFA concludes that sustainable intensification, relying on the better use of fertilizers and other nutrient sources, can maintain or improve soil fertility and increase yields while minimising environmental impacts.

IFA also provides a forum for the discussion of the long-term and less immediately obvious issues. At the IFA Annual Conference in Montreal, Lloyd Le Page, CEO of CGIAR (Consortium of International Agricultural Research Centres) made the keynote address on the topic of Averting a future food crisis. He noted that the task for the coming decades is to ensure food security and improved livelihoods without sacrificing the availability of resources or jeopardising fragile eco-systems. He urged a holistic approach that combines best farming practice, diverse cropping strategies, conservation agriculture and efficient crops that make better use of energy, nutrients and water per unit of yield. Above all, there is the need for an approach that ensures a better understanding of the trade-offs between agriculture and natural resources and providing mechanisms for sharing benefits from the preservation or more sustainable use of these natural resources.

Le Page’s remarks suggest that accommodation can be reached with such commentators as Jeremy Grantham, who urges that the rationing and stretching of finite resources by sensible, far-sighted behaviour, we can fill the gap between today, when mankind is living far beyond a sustainable level, and several centuries onwards, when we may have achieved true long-term sustainability. Such sustainability will undoubtedly require improved energy and agricultural technologies. With intelligent planning, this could be reasonably expected.