Global Fertilizer Market Dynamics

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Global Fertilizer Market Dynamics

• Suresh Kumar, Special Advisor, Clinton Foundation
  
• Oslo, August 31st, 2007

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Fertilizer prices are at historic highs, and
trending upwards
Urea average based on FOB price from Yuzhnyy,
Baltic, Indonesia and Arab Gulf DAP average
based on FOB price from Tampa, North Africa,
Russia and Jordan Source Fertilizer WEEK
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Improving Fertilizer ROI requires working several
levers- on the cost side, Procurement, Shipping,
Transportation

Desired impact
Food security and increased household income for
smallholder farmers
Viable outputs market
Excess crop yield
Optimized usage
Optimized inputs

• Fertilizer availability
• On-time delivery
• Accessible distance for pickup
• Right bag size
• Awareness of benefits
• Right application techniques

• Right crop
• Right soil
• Right weather/irrigation
• Right seed
• Right fertilizer

Fertilizer ROI
-
Farmer investment
Total fertilizer cost
Government subsidy / Available credit

• Subsidy programs
• Financing mechanisms
• Targeted, with sunset plan

Manufacturing Process
Ordering process
Transport

• Improve tender process
• Lead time
• Other
• Increase volumes

• Select low cost fertilizer (but right)
• Source from lowest cost plant
• Reduce raw material cost

• Shipping
• Port to warehouse
• Warehouse to farm gate

Ability/desire to pay
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Fertilizer cost can be reduced by improving
overall procurement process
reduction vs. 2006
Sources of value for 07/08

• Order trucks in advance and actively negotiate
• 5/mt port to warehouse
• 7/mt in-country

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22

• Large ships, few locations, in advance (10/mt)

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• Order generic, mass-produced NPK product
  (40/mt)
• Order in bulk (7/mt)

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1. Various duty charges, taxes, and port fees
based on FOB dollar value of shipment 2.
Trucking includes border fee-Note CIR cost based
on 06/07 winning bids of 445 (NPK to Blantyre)
CIR breakdown based on 05/06 ratio in-country
transportation, handling and warehousing costs
estimated based on interviews
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Affordable, on-time delivery requires earlier
planning and action
Government controls timing
Budget decisions
Other parties control timing
Fertilizer requirements collected from local areas
Production begins
Order reaches in-country warehouses
Tender offered
Order reaches port
Bid awarded/ order placed
Product transported to local retailers
Fertilizer ordering should be de-linked from
annual budget process to ensure on-time delivery
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Fertilizer Cost Build Up 2006/7 Malawi
Major cost buckets
60
12
5
8
15
Current NPK high cost
Various duty charges, taxes, and port fees
based on FOB dollar value of shipment
Trucking includes border fee- Note CIR cost
based on 06/07 winning bids of 445 (NPK to
Blantyre) CIR breakdown based on 05/06 ratio
in-country transportation, handling and
warehousing costs estimated based on interviews
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Fertilizer Cost Build Up 2006/7 Rwanda
Major cost buckets
40
10
8
8
34
Port to country transport cost high, despite
discount
Note CIR cost based on 05/06 downstream costs
estimated based on interviews NPK 250505
accounted for 47 of volume
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Lack of Infrastructure Is Killing Africa
Kilometers of paved roads per million people in
selected countries
Km KmUSA 20,987 Guinea 637France
12,673 Ghana 494Japan 9,102 Nigeria 230Zimbabwe
1,586 Mozambique 141South Africa 1,402 Tanzania 1
14Brazil 1,064 Uganda 94India 1,004 Ethiopia 66
China 803 Congo, DR 59 Source
Encyclopedia Britannica, 2003
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Trucking from port to in-country warehouse
requires early agreements
Truck utilization critical
Trucking companies value agreements made well in
advance
If you book early and allow us to plan, itll
make at least a 10 difference per mt. When
things get busy in Beira, rates can shoot up to
90/mt. Transport Co. A
Youll pay at least 7 more per mt if dont book
in advance Transport Co. B
Planning ahead is quite important, ideally
trucks should be reserved 3-6 months ahead of
time. Transport Co. C
Advanced booking is extremely important. It is
essential to ensuring truck capacity, and being
awarded the most competitive prices. Transport
Co. D
Source Interviews with multiple trucking
companies
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In-country transportation requires a more
systematic approach
B
Main road trucking costs
Prices are negotiated separately and set on a per
trip basis, average of 30/mt
Source Interview with Transport Companies and
Ocir Cafe
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Backhaul opportunities may need to focus on
neighboring countries
1
High potential back-haul opportunities
Source FAO
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Multiple initiatives are required for agriculture
development

• Public-Private Partnerships Must
• -Attack inefficiencies -Involve
  farmers/co-operatives -Resurrect Extension
  Support
• -Address Infrastructure -Establish transparent
  Process and Cost Information