If you are a farmer, plantation owner or investor in agriculture, you will know that the agriculture industry relies heavily on fertilizers. However, the price of fertilizers can be rather volatile and unstable. This can seriously affect the cost of running a plantation as well as profit margins.
If you’re in the agriculture industry, it’s important to know what drives and influences the prices of fertilizers, whether they’re NPK, Urea, Ammonia based or others.
Harvest seasons, an increase in plantations, economic activities, currency rates, consumption patterns and more will cause the need for palm oil to increase. When that happens, the demand for fertilizers also increases.
When there’s a high demand for fertilizers, the prices of fertilizers will increase. In the same way, if the supply for fertilizers decreases, and the demand increases, the prices will go up too. In recent years, there has been a spike in demand for fertilizers, especially among emerging economies.
2. Availability of Raw Materials
In the fertilizer industry, the price and availability of raw materials are known as input cost. The main raw materials in the fertilizer industry are from mining. This includes factors such as industry trends, mining costs, weather and other macroeconomic elements. Raw material prices also differ from place to place, due to things like cheaper labour and machinery costs.
Logically speaking, the higher the input costs for fertilizers, the more expensive the fertilizers will be. One good example is natural gas, which is the raw material needed to produce Ammonia. Natural gas is usually found with petrol and its price has been steadily increasing over the past decade due to a decrease in global supply.
3. Transportation Costs
Major fertilizer producers in the world tend to import their raw materials. For example, in the US, Ammonia is imported from Trinidad and Tobago and this accounts for up to 30% of production costs.
There is a global supply chain happening in the world today and therefore, an increase in things like fuel or petrol prices will cause transportation costs to increase, and thereby also increase the cost of producing fertilizers.
4. Higher Revenue Margins
There are seasons when fertilizer producers, especially the larger ones, set higher fertilizer prices as they want to bump up their profits. Higher revenue and lower expenses will add value to a company’s stocks, so there are times that companies need to prop up prices to ensure the survivability of their company too.
What can governments do?
Although global fertilizer prices tend to be unstable, plantation owners don’t need to be overly concerned as governments will still protect agricultural costs. In Malaysia, there are several policies that will help farmers.
This includes a program where smallholders are given fertilizer subsidies, fertilizer aid and government-funded fertilizer producers that produce cheaper fertilizers.
In the long run, however, it is up to planters to plan their costs properly and take into consideration the unstable nature of global fertilizer prices in order for the business to be sustainable.