New Applications and New Strategies for Fertilizer Companies
The sky-high fertilizer prices that followed Russia's invasion of Ukraine have largely receded to prewar levels, especially in the case of nitrogen fertilizer products. New trade patterns have emerged to even out the disruptions caused by sanctions and countersanctions, and trade volumes have returned to historical levels.
But this doesn't mean that fertilizer companies can rest easy. To the contrary, they must prepare now for various supply- and demand-side challenges that they will face in the coming years. Demand, especially for nitrogen fertilizer, is likely to weaken as a result of intensifying regulatory pressure and the advent of new farming technologies. And greater competition for ammonia-the key feedstock for nitrogen fertilizer-and in particular for low-carbon ammonia, which chemical companies will produce in far larger volumes in coming years, will lead to a new supply structure and to regulatory actions that reshuffle cost differences between gray and green or blue fertilizers.
In short, fertilizer companies face considerable risks to their current business models-risks that will require them to reevaluate and redefine their strategies. But if they take the right approach, they can also benefit from the considerable opportunities that changes in demand and supply will bring. Here's how.
Future Market Disruptions
As was the case with previous disruptions to the fertilizer market, fertilizer prices on average will probably remain somewhat higher than they were in the decade before the war in Ukraine. However, several trends will affect future demand for fertilizers, contributing to a significantly more challenging market for crop nutrition companies. Fertilizer market analysts Argus and CRU are forecasting that the global market for fertilizer will see annual growth of from 1% to 1.5% over the next several years, assuming business as usual.
We consider this forecast optimistic, however, and we expect global demand for fertilizer to decline substantially in the future, for two reasons. The first is the range of regulatory efforts that governments are undertaking to tackle the impact of nitrogen fertilizer on climate change and biodiversity loss. Countries attending the 2022 Montreal Biodiversity COP 15 meeting agreed on a goal of reducing excess nutrients by 50%, and products containing nitrogen are at the center of the effort. This reflects the climate impact of greenhouse gas emissions released during the manufacturing process, most notably nitrogen dioxide emissions that result from the natural urease and nitrification processes that occur in the soil. In addition, the leaching of excess nutrients into bodies of water can cause algae blooms and adversely affect water quality.
