Fertilizer companies sharpened their focus on new fertilizer revenue streams

This is part of ETC Group's report Food Barons 2022: Crisis Profiteering, Digitalization and Shifting Power.

Full report with citations is available here: https://www.etcgroup.org/content/food-barons-2022

Synthetic Fertilizer companies sell inorganic plant nutrients manufactured via chemical processes. While global market figures for fertilizer tend toward the speculative, a reasonable estimate for the market’s value in 2020 is $128 billion – almost three times the size of the market for seeds (US$45 billion) and twice as big as the market for agrochemicals (US$62.4 billion).

The top 10 synthetic fertilizer companies, therefore, would account for about 38% of global synthetic fertilizer sales. But viewed as individual macronutrient production, the level of concentration is even higher. For example:

• The top seven suppliers of Muriate of Potash (MOP), a potassium fertilizer, account for 84% of global supply. Just four countries (Canada, Russia, Belarus, China) produce about 80% of the world’s traded potash.
• China is one of the largest producers of fertilizers in the world, with 31% global share of urea and 42% of Diammonium Phosphate (DAP) capacity.
• Morocco, via state-owned company OCP, is the world’s largest phosphates exporter, controlling 72% of global phosphate reserves. This includes the phosphate rock it mines from occupied Western Sahara.

One reason the level of corporate concentration in the global fertilizer industry is difficult to pin down is that it overlaps with related industries such as mining, shipping and industrial chemical production. The sector has a history of operating within a ″corporate sociology of collusion″ and coordinates production levels to match demand to keep prices high, not unlike OPEC’s manipulation of the petroleum market. Fertilizer producers are central to their local economies and are often intertwined with national governments, which means that geopolitics can play a significant role in trade. The government of Norway, for example, owns more than 40% of Yara (#2); Sinofert (#7) is controlled by Sinochem, which is a Chinese state-owned enterprise; the government of Morocco owns OCP, a major phosphate fertilizer producer and the country’s largest company; and the Eastern European fertilizer manufacturers (PhosAgro, Uralkali and EuroChem) are largely controlled by a cadre of oligarchs.

Fertilizer prices increased in 2020, with concomitant food price inflation in 2021.

Covid-19 lockdowns and supply-chain disruptions decreased China’s phosphate production, the world’s biggest supplier. After months of decline, phosphate prices bounced back in the second half of 2020 owing to an increase in crop prices in Brazil and good growing conditions in India, Australia and North America. Similarly, urea prices increased after mid-2020, reflecting higher costs of natural gas feedstocks. Potash prices declined owing to oversupply and lower demand from China.

2021 took a dramatic turn when prices of some synthetic fertilizers rose to their highest level since the food price crisis of 2008, hurting farmers and causing food prices to skyrocket again. Hurricane Ida hit the hub of US fertilizer production in late August, driving prices up further. High prices for coal led to a rise in the price of urea. In China, the main feedstock of nitrogen production is coal as opposed to natural gas in other regions. To tackle surging raw material costs and to address domestic food security concerns, China curbed its fertilizer exports in October, followed by Russia in November. The biggest buyers of China’s fertilizers – India, Pakistan and other countries in Southeast Asia – felt the crunch. Acute shortages caused long queues, protests, and even deaths in some Indian towns, and the government announced record subsidies to counteract exorbitant input costs.

Fertilizer companies are focusing on new fertilizer segments.

Specifically, organic farming through acquisitions and new technologies, microbe-based products, digital agriculture and alternative methods of ammonia production (for nitrogen fertilizer manufacturing). Acquisitions, mergers and collaborations are accelerating along with some divestments of traditional fertilizer assets. The production and use of synthetic N fertilizers account for 2.4% of global emissions. This comprises nitrous oxide emissions released post-soil application, and carbon dioxide emissions from the production process involving fossil fuel combustion and from transporting these chemicals. After decades of destroying soil health and polluting the atmosphere and waterways, fertilizer manufacturers are now aiming to demonstrate their contributions to ″clean and green″ solutions.

Like companies in other industrial ag sectors, fertilizer companies are cashing in on the climate crisis by going ″green″ – and ″blue″ – focusing on ″sustainable″ ammonia.

Needing to burnish its Environmental, Social and Corporate Governance (ESG) reputation, the energy-guzzling and GHG-belching industry is now scrambling to stay profitable, devising ways to monetize the climate crisis by selling ″blue″ and ″green″ ammonia, especially to the shipping industry. They are also introducing digital platforms that tout more efficient fertilizer-use, manufacturing organic or bio-stimulant fertilizers, and trading in carbon credits.

Yara established a clean ammonia unit in February 2021, and it has already started running green ammonia pilots in Australia (for which it received government funding), Netherlands and Norway. CF Industries announced both green and blue ammonia projects, while Nutrien installed carbon capture facilities to manufacture blue ammonia to sell on the Enhanced Oil Recovery (EOR) market. In EOR, carbon dioxide (CO2) is pressurized and pumped into ″spent″ oil wells to free residual crude oil that was previously unattainable, enabling more GHG release when that oil is burned!

Solving fertilizer wastage – a longstanding concern – is also seen as key to being seen as green. Proponents of precision agriculture claim that digital ag tools can provide field-specific (or even plant-specific) fertilizer-dosage recommendations that will reduce overall waste. The same tools give these companies access to massive amounts of data on profitable and unprofitable farmlands, information about on-farm practices that involve sensors, drones and other mobile applications, as well as evidence of farmers’ compliance (or noncompliance) with technology user agreements.

Big Ag Bets on a Great Green Input Upsell.

As fertilizer usage has come under increasing scrutiny for its environmental impacts, the industry is hunting for ways farmers can reduce input volumes without reducing company profits. Yara, which claims to be the world’s largest nitrogen fertilizer producer, imagines new ways of doing business amid climate-change pressures: ″New models can include outcome-based business models, new pricing models, such as subscriptions or charge per hectare, or establishing low-carbon, organic and organo-mineral offerings which we do not have today.″

Using microbes to deliver nutrients and to protect from plant-pests is increasingly seen as a green alternative/supplement to synthetic fertilizers and agrochemicals. Companies are betting that ″microbial solutions″ can give them an additional and unproblematic revenue stream – one that ticks all the boxes: environment-sustaining, profit-sustaining and climate-smart. Microbe-based inputs (″microbials″ or ″bioinoculants″) are products derived from living organisms that could, their promoters claim, confer increased nutrient-bioavailability or pest-resistance to crops. And they aren’t new: beginning in the nineteenth century, certain rhizobacteria have been added to soils with an aim to boost crops’ nitrogen uptake. And the pest-controlling bacterium Bacillus thuringiensis, or Bt, has been used in agriculture (including organic agriculture systems) for more than a half-century. Now, so-called superweeds – that have acquired resistance to traditional chemical pesticides – are spurring companies to take a second look at microbials. Such technologies could also, claim their promoters, reduce the agriculture sector’s greenhouse gas emissions. Big Data processing-capacity can speed up the identification of potentially-potent microbes, while new technologies – such as synthetic biology and gene-editing – can allow naturally-occurring microbes to be ″genetically remodelled″ to tailor them to work with particular crops and/or soils.

he market for bio-based agricultural inputs is comparatively tiny – just US$1.5 billion for bio-fertilizers in 2020 and US$4 billion for bio-control (pesticide) products, according to agribusiness consultancy IHS Markit – but future prospects are bright, with growth expected to be at least 10% and 12% annually over the next several years.

Start-ups are developing new microbial products that can be added to soils, incorporated into seeds or sprayed on crops in the field. Companies work on their own or in collaboration with the biggest industrial ag players. Bio-fertilizer R&D largely focuses on improved nitrogen fertilizer efficiency and uptake. US-based Kula Bio claims to have developed a nitrogen-fixing microbial that can replace up to 100% of conventional nitrogen fertilizer; the start-up has raised more than US$72 million in venture capital, including from AgFunder. Pivot Bio sells a nitrogen-fixing microbial for corn; Pivot Bio’s funders include Breakthrough Energy Ventures (backed by Bill Gates, Jeff Bezos, Jack Ma, Mukesh Ambani, Mark Zuckerberg, George Soros and other billionaires) as well as grain-trading giants Bunge and Continental Grain.

Mosaic and BioConsortia began collaborating in 2020 to develop nitrogen-fixing microbials; the collaboration also gives Mosaic access to BioConsortia’s pipeline of microbial products that solubilize phosphorus and potassium, which could be marketed alongside traditional fertilizers that Mosaic already sells. Yara is collaborating with Boost Biomes to ″identify microbial products with important commercial roles.″ Bayer has invested in US-based Andes,  which makes a microbial seed treatment for nitrogen fixation, and it has a joint venture with Gingko Bioworks, called Joyn Bio, to develop a microbial that allows crops to grab nitrogen out of the air. Other companies focus on biocontrol. A decade ago, Novozymes, the world’s largest enzymes producer, partnered with Syngenta to develop a microbial fungicide for fruits and vegetables, now on the market as Taegro. Novozymes’ collaboration with Bayer (then Monsanto) began in 2014. Their exclusive partnership, ″AgBio Alliance,″ is now defunct, but Novozymes continues to partner with Bayer and with other agchem and fertilizer giants to help them supplement their traditional offerings. Novozymes is working with FMC to develop a microbial product to fight Asian soybean rust, and UPL now sells Novozymes’ microbials in South America. AgBiome, a microbial developer backed by the Gates Foundation, has partnered with Syngenta and BASF to develop and sell similar microbe-based, biocontrol products.

Read more at https://www.etcgroup.org/sites/www.etcgroup.org/files/files/02_fertilizer.pdf