The world’s population reached seven billion in October 2011 and is forecast to rise to nine billion by 2040. Feeding a growing number of people is a major challenge for global agriculture, agribusiness and logistics. The need for, and source of a second “green revolution” is becoming clear, but the constraints of land, water resources and infrastructure place serious constraints on the world’s ability to increase food production. The complex interplay between forecast world food consumption and fertilizer demand will be an important factor.
Four staple crops account for half of total fertilizer consumption, and make up 60% of total global crop area – Corn, Wheat, Soyabeans, and Rice. Corn is used as an important ingredient in animal feeds, as well as in bioethanol, a “green” fuel. Wheat and rice are considered staple foods as they are predominantly used for human consumption. Soyabeans are crushed into vegetable oil for frying, and protein meal, another key animal feed ingredient.
Demand for these main crops has risen sharply over the past 30 years, with production only just keeping pace. There are two elements to this: an increase in total food demand, and a change in the proportion of crops being consumed. In absolute terms, as population has boomed, the need for food has increased. At the same time, rising incomes have changed diets dramatically, with a shift away from staple foods such as bread and rice in favour of higher-calorie foods like meat. Meat production is far more grain intensive than direct human consumption of grain, thereby increasing the pressure on limited resources. A move from boiling or steaming to foods fried in vegetable oils (or animal fats) mainly in Asia has also seen a tightening of global oilseeds balance (in particularly soyabeans).
To keep up with this increase, crop output has had to rise sharply, with both planted areas and crop yields seeing increases. The Green Revolution increased farm productivity through seed breeding, and the introduction of chemical fertilizers which overtook the role played by traditional manures. In the past three decades agricultural productivity has improved further, particularly in developed countries, through mechanisation, improved pesticide and herbicides, better agronomic advice and the introduction of precision farming techniques. The arrival of Genetically Modified (GM) crops, particularly in the Americas, has also been beneficial for output overall, although in many regions the adoption of GM is a very politically sensitive issue.
In general, farmers have been able to respond to market signals and prices and have increased production accordingly. However, with population forecast to reach 8 billion midway through the next decade, global agriculture faces serious challenges. This is of great concern since the majority of the most productive arable land is now in use. Significant future expansion would need to happen in regions with poorer soils, or areas lacking in infrastructure such as sub-Saharan Africa, or the inland regions of Brazil.
Where will growth in agricultural output come from? Part of the answer is the adoption by developing regions of the above-mentioned techniques already in use by high income regions. The current yield differentials, for instance, of corn between the US and Mexico show there are opportunities to improve output in many emerging economies through improved techniques, including the efficient use of fertilizers.
The short term outlook is positive for fertilizer demand: At the recent GlobalGrain conference, highly respected analyst Dan Basse from Agresource forecast area of wheat, corn and soyabeans in 2012 up 1.6% from the previous year at an all-time high. However with a rising population, he sees the per capita crop area falling to a record low of just 0.9 ha. Although wheat is amply supplied, the soyabean balance is tightening, and corn faces a severe squeeze. Stock levels, which serve as a buffer against any seasonal crop failures, are at all-time lows since demand has exceeded supply for most of the past decade.
So overall for next season demand for nutrients is well supported by crop plantings. However risks remain, particularly due to macroeconomic uncertainty emanating from the Eurozone. One example of how a “credit crunch two” might affect fertilizers would be a lack of finance for farmers, who then had to scale back their purchases of farm inputs, thus lowering nutrient consumption.
Longer term, rising demand, particularly in Asia will continue to support agriculture and associated markets including fertilizers. Increasing consumption is due to economic growth, changing diets and rising population. Sufficient supplies are needed to feed a growing world population, and growth in agricultural production will be necessary to achieve this. Improved farming practices should help to achieve this. In particular, increased fertilizer use, mainly in developing countries, will play a significant part in raising overall global agricultural production in the long-term. The latest CRU fertilizer consumption growth rates (CAGR) for 2010 -2020 at 2%, 3% and 2% for Phosphate, Urea and Ammonium respectively take account of these assumptions.
Mike Mendelsohn is agricultural economist for CRU’s fertilizers business and a contributor to its reports, including its range of fertilizer Ten Year Outlooks.