Margins in the Irish fertiliser supply chain appear to have soared this season. This comes as the majority of farmers reported cutting usage due to lack of affordability, according to an Irish Farmers Journal survey in April.

Irish Farmers Journal analysis indicates that the market returns from urea have grown by €72/t (64%), while CAN has increased by over €100/ t (127%) compared to the previous season.

Based on these two products alone, analysis indicates that overall market returns may increase by €60m (147%) from which supply chain margin and costs are covered. Even when a reduction in sales volumes of 20-25%, as estimated by industry sources, is factored in, a significant increase in market returns remains.

The total volume of fertiliser imported into Ireland between October 2021 and April 2022 was in line with the same period in the previous season. Fertiliser imports in the six months to April account for 70% of the total import volume in the previous season.

The analysis is based on CSO data that records the volume and price of fertiliser imported on a monthly basis.

Risk and rising costs

The current fertiliser season presented significant challenges to importers and the wider domestic supply chain, both in terms of price and availability.

Ongoing volatility in global wholesale markets increased both market and financial risk for importers. As a result, it is likely that the sector factored in increased margin to cover the risk of being left with stock in a falling price market.

It is unclear what level of opening stock the supply chain brought forward from last season. However, some industry figures have put this at one-fifth of normal stock levels. CSO import price data does not include supply chain costs and margin including handling, transport, packaging and palletising, all of which increased in the past 12 months.

The three product lines analysed below account for 80% of the product imported over the seven-month period. The data relates to the overall market. Buying patterns differ between individual fertiliser importers as do their contract obligations with merchants.

Urea

The average import price of urea between October and April was €716 /t. The volume of urea imported was up 80% on the previous season. Almost 25% of product was landed in April at the highest price of €938/t. Analysis of CSO and market prices indicate that, on average, an additional €72/t more was returned to the supply chain compared to last year.

Farmers have been paying on average €900/t for urea this spring, which is €184/t above the average import price in the October to April period.

If total imported stock traded at this price, it would amount to a surplus of €45m from which supply chain costs and margin are covered. By comparison, last year farmers paid on average €400/t for urea, which was €113/t over the average import price in the October to April period. Similarly, if all this stock sold at €400/t, it would have amounted to a surplus of €15.2m.

Calcium ammonium nitrate (CAN)

The average import price of CAN between October and April was €520/t. The volume of CAN imported in that period was down 4% on the previous season. Almost 25% of product was landed in April at the highest price of €728/t.

Analysis of CSO and market prices indicate that on average an additional €101/t more was returned to the supply chain compared to last year.

Farmers have been paying on average €700/t for CAN this spring, which is €180/t over the average import price in the October to April period.

If total imported stock traded at this price, it would amount to a surplus of €57.8m from which supply chain costs and margin are covered.

By comparison, last year farmers paid on average €265/t for CAN which was €79/t above the import price in the October to April period.

Similarly, if all this stock sold at €265/t, it would have amounted to a surplus of €26.4m.

Combinations of NPK (such as 27-2.5-5)

The average import price of NPK combinations, such as 27-2.5-5, between October and April was €566 /t.

Almost 9% of product was landed in April at the highest price of €789/t. The volume of NPK combinations imported was up 23% on the same period last year. Almost two-thirds of NPK imports between January and April were from Russia, 86% of which landed in January and February.

There’s no doubt that the fertiliser supply chain in Ireland has operated with increased risk and costs since prices in wholesale international markets started trading upwards last summer. Delivering volumes on par with last year in such a challenging market is testament to strength of Irish importers. The extent to which market returns have grown in the sector may be influenced by strong milk prices and the prospect of increased grain prices. For some sectors, fertiliser remains affordable in terms of farm margin.

In the event that sales volumes are down, the supply chain may be left carrying stock and associated cost into autumn. They also carry the risk of a price fall. However, analysis of CSO data suggests the sector is well covered for the risks of falling prices and carrying stock. Carrying increased stocks into next year may in fact benefit the sector given the risk that energy rationing in the EU may pose to production and availability.

Farmers and the industry will rightly be concerned about availability and price of fertiliser for the coming season, with some suggestions that Government support is required. While a mechanism may be found to solve the issue of availability of supply, it should not come at the cost of increased prices to farmers or prolonged higher prices. Any proposed mechanisms should seek to have maximum effect with minimum market interference. Some form of risk-sharing agreement, which kicks in if prices result in negative margins, may have some merit and a lower risk of distorting the market.

Faced with surging fertiliser and other input prices, some countries have introduced mechanisms to support farmers. Some fertiliser exporting countries introduced export restrictions to manage domestic prices. Others introduced funds to compensate farmers for higher prices while seeking to maintain production levels.

A recent OECD report highlighted the risks of such actions and underlined the need to ensure that those supports are removed in a timely manner to ensure markets function properly again.