Concerns Grow Over Concentration in U.S. and Global Fertilizer Markets
In recent decades, public attention has focused on the level of market concentration in the processing component of the U.S. agribusiness sector, particularly the highly integrated livestock and poultry processing and retail sectors. However, the protracted high prices for fertilizers that spiked in the immediate wake of the Russian invasion of Ukraine more than two year ago has brought more attention to the level of concentration in the production of key inputs to the agricultural sector, particularly in the production and sale of nitrogen fertilizer, and what impact that degree of concentration has had on the stickiness of those fertilizer prices.
As of 2021, about 19 million metric tons of fertilizer was used in the United States, according to data reported by the International Fertilizer Industry Association. Nitrogen (N) fertilizer accounted for about 63 percent of the total, followed by potash (K) at about 20 percent and phosphorus (P) at about 17 percent.
Use of fertilizer by U.S. farmers, firms, and households has stagnated or even fallen in recent decades. While agriculture accounts for the largest share of fertilizer use, other major users include golf courses and other athletic venues (such as stadiums and practice fields), as well as household use to fertilize lawns and gardens. Per hectare application rates for N, P, and K in the U.S. have all been stable or falling in recent years, according to data collected by the UN’s Food and Agriculture Organization. Between 2006 and 2021, estimated use of these fertilizers by U.S. golf courses fell by 41 percent, 59 percent, and 54 percent respectively. Of course, even though golf course operators apply N (106 kg/ha as compared to 72 kg/ha) and K (72 kg/ha as compared to 27 kg/ha) at higher rates than do crop farmers (P rates are roughly equivalent), the acreage under cultivation in the U.S. at 382 million acres (according to the 2022 Census of Agriculture) dwarfs the area estimated for all U.S. golf courses, at roughly 2 million acres.
Russia invaded its neighbor Ukraine in February 2022. An array of sanctions were placed on Russia and its close ally Belarus by a multinational coalition shortly after the invasion, which resulted in disruption of trade flows in several key agricultural commodities and inputs, including fertilizer. As of 2022, the Russian Federation also ranked as the world’s top exporter of nitrogen fertilizers, the second leading supplier of potassic fertilizers and the third largest exporter of phosphorus fertilizers. As a result, global fertilizer prices rose sharply in the immediate aftermath of the invasion–the U.S. spot price for urea (the most concentrated form of nitrogen fertilizer) rose nearly 60 percent between February 24, 2022 (the day of the invasion) and roughly two months later, in late April of 2022. Fertilizer prices were already elevated as of late 2021 due to the decision by the government of China to ban exports of phosphate fertilizers. Prior to that announcement, China had been the world’s top exporter of that product. Historically, the global prices of all three kinds of fertilizer prices have risen and fallen along similar lines.
Despite global nitrogen fertilizer use having fallen almost 6 percent in 2022 due to the higher prices described above as well as spot shortages of product in some regions, global urea prices did not fall back to earlier (2021) levels on a consistent basis until late in 2023. While we know the major factors that precipitated the 2021-2022 spike in fertilizer prices (Chinese export restrictions, Russian invasion of Ukraine), some analysts have suggested that the industry’s market power helped keep those prices higher for longer than otherwise might have been the case in a more competitive market
The aggregate data supports the notion that market power exists in this space. The four-firm concentration ratio (a standard measure of market power) has increased considerably in the U.S. fertilizer market since the late 1990’s.
• Nitrogen, up from 54 percent to 65 percent between 1997 and 2017
• Phosphate, up from 71 percent to 82 percent over the same period
• A single Canada-based company (Nutrien) controls two-thirds of global potash fertilizer production, as well as around 30 percent of both phosphorus and nitrogen fertilizer production capacity globally
A couple of different approaches have been taken by policymakers to reduce that concentration level. The Biden Administration took a position in July 2021, under an Executive Order (No. 14036) to “promote competition in the American economy. That order specifically referenced market power in agricultural input markets, including fertilizer, and provided for making investments or provide support “that could bolster competition within highly concentrated agricultural markets.
Subsequently, USDA’s Agricultural Marketing Service (AMS) published a Federal Register notice (AMS-22-0027) in March 2022, seeking public assistance in identifying relevant difficulties, including competition concerns, and policy solutions for the fertilizer market. The notice directly cited the President’s July 2021 EO, and took note of wide-ranging concerns from agricultural producers regarding concentrated market power in the fertilizer industries. The FR notice received 1,487 comments.
A new program was announced in September 2022, will provide grants to:
• Increase American fertilizer production capacity
• Increase availability of fertilizer and nutrient alternatives
The program initially made $500 million available in funds from the CCC, later increased to $900 million. The application period closed at the end of 2022, and $3 billion worth of proposals were received. Through October 2023, 33 projects had received funds totaling $121 million.
Taking another approach, Senators Grassley (R, IA), Baldwin (D, WI) and Ernst (R, IA) introduced bill entitled the Fertilizer Research Act on December 12, 2023 (S. 3471).
If enacted, would require USDA to conduct a study on competition and trends in fertilizer markets to determine subsequent impacts on prices. The bill is supported by two major Iowa commodity organizations (Iowa Corn Growers and Iowa Soybean Association).
It will also be worthwhile to monitor how the U.S. Department of Justice and/or the Federal Trade Commission react to the recently announced purchase by Koch Industries—already a major player in the sector--of the Iowa Fertilizer Company in Wever, IA (producing nitrogen fertilizer), if they decide to subject it to antitrust scrutiny.
