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International Fertilizer Industry Analysis

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I. Introduction Driven largely by a growing population and rising incomes around the world, agricultural demand is expected to continue rising in order to ensure abundant quantities of high-quality food, feed, fibre, energy and even industrial products. The foundation of sustainable agriculture is soil fertility , a term that encompasses the soil’s nutrient content, the amount of soil organic matter, the soil structure, its PH balance and the presence of microorganisms(IFA,2012). Most soils lack at least some plant nutrients , and growing crops remove nutrients from the soil. Soil nutrients must be replenished when removed and supplied when deficient. It takes years and sometimes decades for natural processes to restore nutrients in the soil, which means that they no longer suffice to support global agricultural production. Traditional methods for restoring soil fertility, which entail long fallow periods and shifting agriculture into new areas, may contribute to deforestation, given current pressures on land use. Although historically sustainable, these practices no longer suffice to meet the needs of the current and future population levels and density. Organic sources of nutrients provide fewer nutrients than most people think, but they are usually excellent for improving other aspects of soil fertility. Inorganic sources contain only plant-available nutrients and therefore have no direct influence on soil structure or the presence of microorganisms. This is why agronomists generally consider it optimal to use both organic and inorganic sources together, a technique called Integrated Plant Nutrition Management. The main nutrients in most inorganic fertilizers — nitrogen, phosphorus and potassium — come from the land and the air. They exist in nature, but their plant available forms are not abundant enough for the level of agriculture needed to feed and clothe more than 6 billion people. Nitrogen comes from the air. In fact, 78% of the air we breathe is nitrogen, but in a form that plants cannot absorb(IFA,2012). Phosphorus either comes from fossilized sea sediments or igneous rocks. It is mined from beds containing phosphate rock. Potassium is found in salts from evaporated sea water. Old deposits are mined from the earth. In some places, potassium is obtained through solar evaporation of potassium-containing brines. In essence, fertilizer companies convert naturally-occurring N, P and K minerals or composites into nutrient forms that plants can absorb. Often called “secondary nutrients”, sulphur (S), calcium (Ca) and magnesium (Mg) are required in significant amounts, although the quantities are less than N, P and K(IFA,2012). There are also fertilizer products that supply the micronutrients that plants also require, but in much smaller quantities than the three so-called “macronutrients”. The mission of the fertilizer industry is to provide enough plant-available crop nutrients so farmers can satisfy the population’s basic needs (food and clothing) and help meet other demands (fibre, energy and industrial raw materials) more sustainably(IFA,2012). The fertilizer industry strives to produce and transport its products efficiently and responsibly in accordance with the principles of sustainable development. In the spirit of product stewardship, IFA also promotes Fertilizer Best Management Practices in order to increase fertilizer use efficiency. Fertilizer industry is a highly concentrated market with high and increasing levels of trade. The top five countries control more than 50 percent of the world’s production capacity for the main nitrogen, phosphate, and potash fertilizers. There is also a high level of concentration within each main producing country. In addition, several regions exhibit a higher dependence on imported fertilizer, which reflects the importance of trade in the industry. Fertilizer prices in major international markets have also shown an upward trend in recent 2 years.
II – Industry Growth Analysis
Retail Price v. Overhead Cost Management Fertilizer companies convert phosphorus, nitrogen, and potassium into chemicals that may be used to help plants grow. In the US, corn crops use approximately 45% of the total available fertilizer. This is more than the combined 29% that wheat, soybeans, oilseeds, fruit and vegetables use. The remaining 26% is used by other crops and uses such as pesticides(Alexander, 2012). When there is a gap between crop supply and crop demand there is often an opportunity for a farmer to sell more product to meet demand. Profit seeking farmers will buy fertilizer when is it financially prudent to do so. By three main factors influence US fertilizer companies: Crop prices. Crop supply is determined by the weather and the skill of farmers. Crop demand is determined by how much food people want (especially meat, which is crop intensive), and whether gas prices are high enough to justify using Biofuels. The value of the US dollar. International markets account for much of the growth of fertilizer companies. If the dollar gets stronger, US-made fertilizer becomes more expensive and less sought after. Input costs. Potash and phosphate fertilizers are made by mixing minerals in vats of acid. Nitrogen fertilizer is made by turning natural gas into ammonia and often mixing it with urea. When mining, natural gas, and acid are cheap, fertilizer companies make more money.
Importance of Product Innovation/Differentiation Organic fertilizer rich in organic matter and nutrients required for crop growth, not only required for crop nutrients, soil improvement, and also can improve crop quality and increase crop yields, and to promote high and stable yields of crops to maintain soil fertility, increase fertilizer utilization, lower production costs. Full and rational use of organic fertilizer to increase crop yields, soil fertility, improve the quality of agricultural products, to improve the effectiveness of soil nutrients. At present, organic fertilizer dosage of the United States and other Western countries accounted for 50% of the total commercial production of organic fertilizer industry in China beginning to take shape, the large-scale application of the farmland is not yet universal, accounting for less than 10% (IFA,2012). But this is precisely indicates that the organic fertilizer in China has great potential for development and market space. By national policy guidance, as well as fertilizer development trends, the future great potential of organic fertilizer, organic fertilizer application rate is expected to account for about 30% of the total fertilizer consumption in the next 10 years, organic fertilizer production in China will show an upward trend year after year.
Current Industry Trends Following several years of continuous growth, the global economy entered a recession. In 2008, attention focused on soaring food prices and food security. These issues are now partially concealed by the economic crisis, but this does not mean that the problem of undernourishment has been solved. With respect to fertilizers, after 5 years of sustained demand and sometimes limited supply, world fertilizer is likely to have a large potential surplus through 2013, unless demand rises beyond expectations. Demand is forecast to increase by 24 million tonnes compared with 2008. The nitrogen sector will profit from new capacities announced for 2012. The global balance/demand ratio will double, increasing from 5 percent to 9 percent in 2013. Some regions, such as West Asia, Africa and Latin America, will reinforce their export position, but others will remain in deficit (South Asia) or even increase their deficit (North America). Phosphate sector: the global balance/demand ratio will remain stable at around 8 percent, until 2013, but some regions will remain in deficit (Latin America) or even increase their deficit (South Asia and Western and Central Europe). Potash sector: the global balance/demand ratio will increase from 25 percent (at present) to 35 percent in 2013 (Manuel & Maximo, 2011), thanks to the contribution of North America and Eastern Europe and Central Asia (EECA), while some regions will remain in deficit. Otherwise, the fertilizer industry in Asian area are developing fast recently years, China and Indian market share are increase fast.

III. Analysis of Competing Firms Yara is the largest fertilizer company measured by revenues and the leading fertilizer company in Europe, with approximately 23 % of the European market. In total, Yara has a physical presence in 50 and sales to 120 countries. Yara is the global leader in nitrogen fertilizers with capacities of ammonia 5.8 million tonnes of ammonia, 4.8 million tonnes of nitrates and 4.1 million tonnes of NPK(Yara, 2012). Yara has a one-third share of the global ammonia trade. Yara owns two large ammonia production facilities in Trinidad and Qafco fertilizer complex in Qatar. Major developments for Yara in the last year included the acquisition of Kemira GrowHow, the signing of a Heads of Agreement for establishing a joint venture in Libya, a decision to upgrade Yara’s urea facility in the Netherlands, and contracting for the construction of new ammonia and urea capacity in Qatar. The Mosaic Company was formed in 2004 by the business combination of IMC Global Inc. and the crop nutrition business of Cargill, Incorporated. Mosaic is the world’s top producer of phosphates, with an annual effective capacity of about 9.4 million tonnes, larger than the next three largest producers combined. Mosaic’s potash production capabilities are the second-largest in the world, with an annual capacity of approximately 10.4 million tonnes (Mosaic, 2012). Mosaic operates 5 phosphate mines in Florida and 4 potash mines within Saskatchewan, Canada, including the world’s largest potash mine, and a potash mine in New Mexico. Approximately one-third of production is shipped within North America, with the remainder exported around the world to some 45 countries. Agrium, Inc has annual capacities of 6.5 million tonnes of nitrogen, 2.1 million tonnes of potash and 1.3 million tonnes of phosphate(Agrium,2012). Agrium operates mainly in North America. Agrium owns two nitrogen facilities that target international markets, one in Argentina and the other at Kenai, Alaska. Primary markets are South Korea, Mexico and Taiwan. Key potash exports markets include China, Brazil and India. Presently, Agrium is investing in Egypt as part of international diversification. It has also expanded into China through the purchase of a stake in the Chinese fertilizer company Hanfeng Evergreen. Potash Corporation has a 22 % share of the global potash capacity. In response to global demand, projects announced by PotashCorp will raise the annual operational capacity from10.8 million tonnes in 2007 to 17.2 by the end of 2015. PotashCorp have strategic investments in four offshore potash businesses: 28 % of Arab Potash Company Ltd. in Jordan; 10 % of Israel Chemicals Ltd. in Israel; 32 % of Sociedad Química y Minera de Chile S.A. Chile; and 20 % of Sinofert Holdings Limited (Sinofert), China (PotasshCorp,2012). The Kali & Salz Group extracts potash and magnesium crude salts at six mines in Germany, with an annual output amounting to about 8 million tonnes of products. With a potash production share of about 12 %, The Kali & Salz is the fourth-largest producer in the world and the leading provider in Europe. In addition, Kali & Salz is the global leader in potassium sulphate and magnesium.

IV – 5 Forces Competitive Analysis
Competition from Rival Sellers In firm-level analysis it is difficult to distinguish the producers of nitrogen (N), phosphate (P) and potash (K) fertilizers. However, the leading producer is different in all three nutrient markets. Yara is an obvious leader in nitrogen products. Similarly, Mosaic Company is a leader in phosphate and Potash Corporation in potash fertilizers. On the one hand, it might be justifiable to ask whether these firms really are competitors. On the other hand, all these firms are present in more than one nutrient market and form at least a threat to other firms in any particular nutrient market.
Competition from Potential Entrants The fertilizer industry has strong competition. Many fertilizer company is able to hold more market share. There are 8 major challengers, which are Eurochem and Acron in Russia, Stirol in Ukraine, Sinochem in China, IFCCO in India, SABIC in Saudi Arabia, Fosfertil in Brasil, and EFIC in Egypt. The following figure illustrates the market shares of the top 5 firms and the 8 strong challengers in 2006 measured in terms of production.

Figure 1. Market shares of the top 5 firms and the 8 strong challengers in 2006.
Competition from Substitute Products The threat of competition from substitute products is very weak, simply due to the lack of effective, convenient, and efficient substitutes. While there are a few sources could substitute fertilizer, like surge and urine. But it only for small size farm. Otherwise, we need more food to feed increased population. This is only possible through high yielding varieties of food grains and other food materials like Oilseeds, Sugar, Fruits etc. All these things need nutrition through roots - from soil. These nutritions in large quantity can only be fortified to soil through use of Chemical fertilizers.
Supplier Bargaining Power The threat of supplier bargaining power is one which is weak throughout the fertilizer industry because of (1) the item being supplied is a commodity, that is, an item readily available from many supplier at the going market price and (2)good substitute inputs exist and new energe. At global level, unless demand increases beyond expectations, development projects in supply capacities, especially at the end of the projection period for N and K, will lead to large potential surpluses of fertilizer.
Customer Bargaining Power The threat of customer bargaining power is strong throughout the fertilizer industry because of large volume purchases by buyers are important to sellers and buyer switching costs to competing brands. In recent years, global fertilizer consumption has also increased, even more rapidly than production. From 2002 to 2007, the global consumption of nutrients increased at an annual rate of 4.2 percent, totaling 179 million MT of nutrients in 2007. By macronutrient, nitrogen was by far the main nutrient consumed. During 2002–2007, the aggregate consumption of nitrogen 588 million MT was more than double the consumption of phosphate 236 million MT and was almost four times the consumption of potash 156 million MT( Kyosti& Hanna,2009). Furthermore, nitrogen consumption increased by 4.8 percent per year, as opposed to 4 percent in the case of phosphate and 2.1 percent in the case of potash. As the customers demands become more and more, the buyer bargaining power will be increase.
V. Recommendations
1. Product innovation The chemical fertilizer is worse than natural fertilizer, it puts acid in the soil and damage the PH balance of the soil, and it also releases a green house gas called nitrous oxide to harm the environment. So the fertilizer firms should try to provide green fertilizer to lower the harms. For example, use of organic fertilizers could slow release of Nutrients and has a long- term benefits to the soil, also good for the environment. If the chemical fertilizer could lower the harmful and has the same foundation, that is a big contribution for the world. Lower the environmental pollution with fertilizer Fertilizers, whether they are artificial or organic, can cause serious problems if they contaminate freshwater and marine ecosystems. The main environmental problem associated with fertilizer use is contamination of water with nitrates and phosphates. The nitrogen from fertilizers and manures are eventually converted by bacteria in the soil to nitrates. These nitrates can be leached into the groundwater or be washed out of the soil surface into streams and rivers. High nitrate levels in drinking water are considered to be dangerous to human health. For this reason, the fertilizer companies need to lower the harmful elements in fertilizer, and try to protect the whole environment.

Reference
IFA, 2012. The Fertilizer Industry and Sustainable Development. Retrieved from http://www.fertilizer.org/ifa/HomePage/SUSTAINABILITY/Sustainable-develop ment/Sustainability-overview.html
Alexander,G. 2012. Fertilizer companies. Retrieved from http://www.wikinvest.com /industry/Fertilizer_Companies
Manuel, H. & Maximo, T. 2011. Fertilizer market situation. Retrieved from http://www.ifpri.org/sites/default/files/publications/ifpridp01058.pdf
Yara. 2012. Annual report 2011. Retrieved from http://www.yara.com/investor_relations/latest_annual_report/index.aspx
Mosaic. 2012. Industrial production. Retrieved from http://www.mosaicco.com/products/industrial_products.htm
Agrium,2012. Annual Report 2011. Retrieved from http://www.agrium.com/includes/2011_Agrium_Annual_Report.pdf
PotashCrop, 2012. Annual report 2011. Retrieved from http://www.potashcorp.com/news/913/
Kyosti,A. & Hanna,K. 2009. Consumption Patterns and Competition in the World Fertilizer Markets. Retrieved from http://ifama.org/ events/ conferences /2009/cmsdocs/1035_paper.pdf…...

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Industry Analysis

...3 Industry Analysis: The Fundamentals When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact. —Warren Buffett, Chairman, Berkshire Hathaway The reinsurance business has the defect of being too attractive-looking to new entrants for its own good and will therefore always tend to be the opposite of, say, the old business of gathering and rendering dead horses that always tended to contain few and prosperous participants. —Charles T. Munger, Chairman, Wesco Financial Corp. OUTLINE n n n n n INTRODUCTION AND OBJECTIVES FROM ENVIRONMENTAL ANALYSIS TO INDUSTRY ANALYSIS THE DETERMINANTS OF INDUSTRY PROFIT: DEMAND AND COMPETITION ANALYZING INDUSTRY ATTRACTIVENESS Porter’s Five Forces of Competition Framework Competition from Substitutes Threat of Entry Rivalry Between Established Competitors Bargaining Power of Buyers Bargaining Power of Suppliers APPLYING INDUSTRY ANALYSIS Describing Industry Structure Forecasting Industry Profitability Strategies to Alter Industry Structure 66 INTRODUCTION AND OBJECTIVES 67 n n n n DEFINING INDUSTRIES: WHERE TO DRAW THE BOUNDARIES Industries and Markets Defining Markets: Substitution in Demand and Supply FROM INDUSTRY ATTRACTIVENESS TO COMPETITIVE ADVANTAGE: IDENTIFYING KEY SUCCESS FACTORS SUMMARY NOTES INTRODUCTION AND OBJECTIVES In this chapter and the next we explore the external environment......

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