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Fertilizer Industry Defends Its Pricing

After weeks of hearing farm groups complain about high input costs, members of the Commons agriculture committee weren’t sympathetic to statements that fertilizer manufacturers face the same supply-and-demand pressure as farmers.

Alberta Conservative Blake Richards told representatives of the Canadian Fertilizer Institute that fertilizer prices are an issue government and opposition MPs have heard lots about from constituents. Farmers say prices for their products haven’t “increased anywhere to the level that input costs have increased over the last number of years and their input costs in many cases have increased exponentially and certainly fertilizer is high on the list amongst those.”

Liberal MP Brian Murphy questioned whether the industry should be investigated under the Competition Act for possible price fixing or supply restrictions.

Clyde Graham, vice-president of the Canadian Fertilizer Institute, said the demand for fertilizers was strong around the world until last year’s economic meltdown. The growing middle class in developing countries want better diets including meat and that pushed up the demand for fertilizers in many markets.

“China and India consume about half of the total global demand for fertilizers,” he said. “Decisions by farmers in China and India will drive global markets for fertilizer into the future.” The prospect for the crop sector remains good despite the recession. “By applying fertilizer, farmers increase their crop yields and make additional profits, which they would not receive had fertilizer not been applied.”

The source of many farmer complaints about high prices relates fertilizer bought by distributors last year at high prices, he said. Farmers have been reluctant to purchase at those prices leaving retailers with large inventories, which backs up product through the supply pipeline. Annually, Canadian farmers spend about $3.2 billion on fertilizer.

Research done by Agriculture Canada has found that over the years there’s been no significant difference between Canadian and American fertilizer prices, he added.

CFI president Roger Larson said his organization has made presentations to farmers across Canada about the fertilizer supply and price situation. Most farmers understand when the facts are presented.

Graham said there is a simple correlation between fertilizer and grain prices.

“When prices of grains are high and there’s good demand for grains, farmers around the world tend to use a lot of fertilizer or they go back to the correct amount of fertilizer in order to try and take advantage of that market uptick. As more farmers demand the fertilizer, the price of fertilizer tends to go up because production can’t react that quickly.

He noted it takes about five years after all approvals are granted to open a new potash mine, and three to five years to open a nitrogen plant. “You can’t bring new fertilizer production in overnight. So therefore if grain farmers decide that the prices are outstanding for their products and they need to maximize their yields, they’re going to put on the recommended rates of fertilizer around the world and then there will be increased demand for fertilizer and the market will respond.”

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