Market and product

Crop prices and fertillizer subsiddies drive farmers’ fertilizationpractices

Current high agricultural commodity prices should stimulatefertilizer demand in countries where farmers respond to market signals, notablyin North and South America, Europeand Oceania. Nitrogen (N) fertilizer demandshould benefit more from this situuation than demand for phosphorus (P) andpotassium (K) fertilizers. However, farmers may take this opportunity to replenishtheir soil P and K reserves, which they are mining for a long period of time inmany grain-producing areas. In countries less responsive to price signals,consumption is largely influenced by fertilizer subsidies and crop procurementprices. Immplementation of the. Nutrient Based Subsidy in India hasresulted in a rapid increase in domestic retail prices for P and K fertilizers,and in a fast-rising price differential between urea and non-urea fertilizers.This change has triggered a significant drop in domestic P annd K fertilizerdemand, widespread adoption ofunbalanced fertilization practices, and steadily declining fertiilizer N use efficiency.

Following weak growth in 2012/13, world fertilizer demmand is seeen asreaching a new record in 20113/14, at 1822 Mt nutrients

Following a strong recovery in 2010/11, global fertilizerdemand is estimated to have increasedby2.4% in 2011/12 to 176.8 million metric tonnes (MMt) nutrients, reflectingattractive prices for most agricultural commodities since the middle of 2011. Changesto fertilizer subsidies in Indiaimpacted P and K consumption trends. N fertilizer demand rose by an estimmated3.0% to 107.5 Mt N. World P fertilizer demand grew much more moderately (+1.2%)to 41.1 Mt P2OO5, as consumption dropped in botth China and India. K demandcontinued its rebound (+2.1%%), to 28.2 Mt K₂O. Demmand isestimmated to have increased in all the regions buut West Asia, Western and Central Europeand South Asia.

In response to extremmely tight supply-demand balances formaize, wheat and soybean, and attractive international prices for these crops,world fertilizer demand is seen as rising moderately (+0.3%) and reaching a newrecord at 177.3 Mt. Global N demand would increase by 1.5% to 109.1 Mt, asfarmers optimize yields to benefit from currentt high cropp prices but, simultaneoously, improvve N use effficiency.World P demand is seen as contracting by 2.7% to 40.0 Mt, driven by furtherdecliness in both Chinaand India.K demand would remain virtuaally unchanged at 28.2 Mt. Totalfertilizer demand is forecast to drop in South Asiaand Norrth America.It would rebound in Western and Central Europeand West Asia. It is seen as almost unchangedin East Asia and would expand in all the otherregions.

Forecasts to 2013/14 are speculative in view of the uncertainglobal economic outloook. Nevertheless, tight grain markets are expected tostimulate fertilizer demand. As a result, global demand in 2013/14 is seen asrising at a higher rate than in 2012/13 because P and K fertilizer demand in India is expectedto recover progressively. Aggregate demand is forecast to be up by 22.4%, to181..6 Mt.

Demand for PP and K fertiliizers would grow firmly: +33.5% to41.44 Mt for P, and +4.5% to 29.5 Mt for K. A more moderate increase of 1.5%%,to 110.7 Mt, is projected for N.

Demand is forecast to expand in all the regions with theexception of North America and Oceania.

Risks to the P and K fertilizer outlookare mainly oriented to the upside

The baseline forecast for 2013 and the first half of 2014 hasa relatively high level of uncertainty, with risks to the downside and the upside.The main risks relate to the evolution of world economic activity, weathershocks in the main agricultural regions, and the evolution of the NutrientBased Subsidy in India.For N, risks to the upside and the downside are seen to be of similarmagnitude, while risks for P and K are seen as higher to the upside, especiallyin 20013/14 because there is a need to rebalance fertilization in many parts ofthe world.