The Fertilizer Market at the Global Level

Transcription

1 The Fertilizer Market at the Global Level Maximo Torero Congress of European Farmers 2014 Brussels, October 6 8

2 Growing Human Pressure Climate change Ecosystem decline Surprise Source: Johan Rockstrom: Let the environment guide our development

3 Growing Population Growing Income Increase Demand for Food Sustainable Agricultural Intensification (SAI)

4 Growing Demand Increased production Increase in yield Increase in area Extension of cropland Reduction of other crops Additional Food Demand Additional Bioenergy Demand Additional industrial Biomass Demand New Demand for food Reduced supply for final consumers Hunger? Substitution effects Reduced supply for intermediate consumers Feed Other sectors (agrifood, cosmetics) Substitution effects Page 4

5 The Fertilizer market LITTLE ATTENTION MAJOR FOCUS OF LITERATURE Global Producers Importers/Wholesalers Retailers Farmers Highly concentrated; Market power exertion? Poor dealer network (late/irregular delivery); lack of adequate infrastructure (high transportation costs); uncertain policy environment/weak regulatory systems; credit constraints; lack of market information. Low/moderate use vs. no use of fertilizers; Why? High prices may not only be the result of several supply and demand side constraints at the regional and local level. Low income regions are highly dependent on imported fertilizer and import (international) prices still represent a large fraction of the final price paid by farmers.

6 Real Monthly Ammonia, Urea and Crude Oil prices Note: Prices deflated by CPI, =100. The prices correspond to Ammonia US Gulf barge and Urea US Gulf prill import from Green Markets, No. 2 yellow corn FOB US Gulf from FAOSTAT Online database, and Oklahoma crude oil FOB spot price from the Energy Information Administration.

7 Distribution of the global production of fertilizers by macronutrient and region since % 40% 30% 20% 10% 0% East and Southeast Asia North America East Europe and Central Asia South Asia West and Central Europe West Asia Latin America (Middle East) Non Sub Saharan Africa Oceania Sub Saharan Africa Nitrogen Phosphate Potash Note: Data on fertilizer nutrient consumption and imports obtained from the FAOSTAT Online database. 7

8 High Dependence of Developing Regions on Imported Fertilizer (as a percentage of consumption) Note: Data on fertilizer nutrient consumption and imports obtained from the FAOSTAT Online database. 8

9 Top 5 countries control more than 50% of the global production capacity Note: Based on capacity of operative plants in according to IFDC Worldwide Fertilizer Capacity Listings by Plant.

10 Fertilizer Market Structure of the Fertilizer Industry Top 5 countries Top 5 Capacity Top 5 Share (% of World in parenthesis) (000 MT) (% of World) Ammonia China (22.8), India (8.9), Russia (8.5), 84, United States (6.5), and Indonesia (3.9) Urea China (33.1), India (13.1), Indonesia (5.4) 95, Russia (4.2), and United States (4.1) DAP/MAP China (23.3), United States (21.2), India (11.4), 22, Russia (6), and Morocco (4) Phosphoric Acid United States (20.9), China (19.3), Morocco (9.6), 28, Russia (6.2), and India (5.3) Potash Canada (37.6), Russia (13.2), Belarus (9.9), 39, Germany (8.2), and China (7.7) NPK China (29.3), India (8.2), Russia (6), 47, France (4), and Turkey (3). Note: MT=metric ton. Based on capacity of operative plants in according to IFDC Worldwide Fertilizer Capacity Listings by Plant.

11 Top 4 FIRMS generally control more than half of EACH Major COUNTRY production capacity Note: Based on capacity of operative plants in according to IFDC Worldwide Fertilizer Capacity Listings by Plant.

12 Empirical model We estimate the following dynamic price model. ln pijt ln pijt 1 ijt c i u ijt mktstructure ijt X ijt ijt where p ijt is the price of urea in country i from region j at year t; mktstructure ijt is a measure of market concentration; X ijt is a vector of controls; c i is a country specific effect and u ijt is an idiosyncratic shock. We use annual data on urea for 38 countries during The panel nature of our data permits us to exploit differences in market structure across countries and time. Estimate model following Arellano & Bond (1991) GMM procedure to account for the potential correlation of c i with some of the X ijt, and the potential endogeneity of market structure and the lag of price.

13 Effect of Market Concentration on Urea Prices Concentration measure Arellano Bond difference GMM Model 1 Model 2 Top 4 ratio on production capacity Measure Measure * Top 4 ratio on number of plants Measure Measure ** 1.155** HHI on production capacity Measure Measure HHI on number of plants Measure * 1.654* Measure ** 0.921** Main producer & share imports/consumption Yes No Among top 4 producers & share No Yes imports/consumption Regional fixed effects Yes Yes Year fixed effects Yes Yes Positive correlation between concentration and prices (when significant). Note: * significant at 10%; ** significant at 5%; *** significant at 1%. Measure 1 corresponds to the weighted average of the measure of market concentration at the country and regional levels; Measure 2 is the measure of market concentration at either the country or regional level, depending on whether most of the urea consumed is from local production or imports.

14 Simulating Effects of Increasing Competition We conduct a basic simulation analysis. First simulate the general impact of increased competition on prices, fertilizer intake, crop production and rural income. (use elasticities derived above and from other related studies) Then perform a cost benefit analysis for selected countries. (Ghana, Kenya, Senegal and Tanzania in SSA; Bangladesh and India in SA) Based on the top 4 concentration ratio results, a10% increase in competition leads to: Conservative scenario: 8.2% decrease in prices. Optimistic scenario: 11.6% decrease in prices.

15 Impact on fertilizer intake, crop production and rural income of a 10 percent decrease in concentration Conservative Scenario Optimistic Scenario Variable Global prices Elasticity of prices to concentration Change in prices 8.2% 11.6% Fertilizer use Average elasticity of fertilizer use to prices Increase in fertilizer use 13.3% 18.8% Crop production Elasticity of production to fertilizer use Increase in crop production 3.3% 4.7% Rural income Share of crop sales to rural income Increase in rural income 1.0% 1.9%

16 Impact on fertilizer intake, crop production and rural income of a 10% decrease in concentration Source: Hernandez and Torero (2011), Gruhn et al. (1995) and Bumb et al. (2011)

17 Net present value of simulated policy in selected countries in sub Saharan Africa and South Asia (time horizon of 40 years) sub-saharan Africa South Asia 5% discount rate % discount rate 1,945 13,660 3% discount rate % discount rate 2,652 18, ,000 1,200 US$ million 0 5,000 10,000 15,000 20,000 25,000 US$ million Ghana Kenya Senegal Tanzania Bangladesh India NPV in 4 countries in SSA: US$1 billion (3% discount rate); US$561 million (5% discount rate). NPV in 2 countries in SA: US$21.4 billion (3% discount rate); US$15.6 billion (5% discount rate).

18 Input Interaction and Potential Yields (Average Across SSA) Long Maturity Period Varieties Medium Maturity Period Varieties yield (t/ha) 3 yield (t/ha) irrigation rate (mm/ha/week) fertilization rate (kg[n]/ha) 0 10 irrigation rate (mm/ha/week) fertilization rate (kg[n]/ha) Short Maturity Period Varieties Very Short Maturity Period Varieties yield (t/ha) 3 yield (t/ha) irrigation rate (mm/ha/week) fertilization rate (kg[n]/ha) 0 10 irrigation rate (mm/ha/week) fertilization rate (kg[n]/ha)

19 Final Comments There are significant benefits of increased competition in the fertilizer industry at the global / regional level Increasing competition in the global fertilizer industry could be given by: Investment through foreign investment, PPP, or multilateral platforms to create new plants in priority regions Coordination between the various competition agencies to avoid trade restrictions and promoting competition in the fertilizer industry It is necessary to promote the sustainable use of fertilizers and that it responds to a soil maps for a sustainable intensification agricultural strategy