Janos Gal

Fertilizer

Today’s soaring fertilizer prices prompt South America’s fruit producers to use less fertilizer and to
analyze soil and plants to make production more efficient. These farmers who pay two-three
times more for fertilizers, but receive less and less money for their products are especially feeling
the squeeze.

Fruchincha, a 3.000 hectares plantation in Chincha, Peru produces grape, avocado and citrus. It
employs 2000 people and exports 50% of its produce to Europe, 30% to the United States, and
20% to Asia and domestic markets.

Its main product for exportation is grapes, and its price between 2006 and 2008 had been U.S$18
per box (8.2 kg). Two years ago, a farmer in Peru would receive approximately 61 Peruvian soles
for every box sold. But because the dollar’s value is down and importers still pay the same price in
foreign currency a farmer today would only get around 50 soles.

Furthermore, Fruchincha’s production costs increased 30% in 2008 due to high fertilizer and
petroleum prices. In addition, the weak U.S. dollar is making exports less profitable for them, and
this is forcing them to cut expenses by using less fertilizers.

Demand for fertilizers grew five percent from 2006 to 2007 and tripled by July 2008. The three
biggest consumers are China and India in Asia, and Brasil in Latin America.

One of the reasons for the sudden jump in demand is increased crop production for biodiesel. The
extra land that is used to produce crops for ethanol needs fertilizers too, that makes them scarce
and expensive.

“There are about 1.5 million hectares of land in Chile used to produce fruit for exportation, but in
Brasil the same amount of land is used solely to produce sugar canes and maize to create
ethanol.” says Francisco Bello, a forestry engineer.

Fertilizers are combinations of nutrients that help plants to develop. The most essential elements
are phosphorus, potassium and nitrogen. Phosphate fertilizers are manufactured mostly in the
United States, Morocco and along the Baltic Sea. According to International Fertilizer
Development Center, the price of diammonium phosphate, the main phosphate fertilizer, rose
from US$252 in January 2007 to US$1203 per ton by July 2008 (U.S. Gulf price).

Potash, the source of potassium is mined. Canada produces 40% of the world’s potash, followed
by Russia and Belarus. The price of muriate of potash rose from US$172 in January 2007 to
US$752 per ton by July 2008 (Vancouver price).

President and Chief Executive Officer of IFDC Amit H. Roy says “Prices of phosphate and potash
fertilizers are rising more steeply than the price of nitrogen-based urea because production
sources are more limited. Most of the world’s phosphate for fertilizer is mined and thus, a non-
renewable resource.”

Nitrogen is 78.1% of the air and it is turned into fertilizer using the Haber-Bosch process. In the
process natural gas is used to convert atmospheric nitrogen to usable forms such as ammonia
and urea. The price of a ton of urea rose from US$272 in January to US$787 by July 2008 (Arab
Gulf price).
Natural gas represents about 22% of global energy use, and demand is growing for its liquified
format. As natural gas is a main ingredient in making ammonia, soaring gas prices can drive the
cost of fertilizers even higher.

“We need to develop other methods of creating energy and fertilizers such as using wind-power,
or other renewable resources, because many of the fertilizers derive from petroleum.” says Arturo
Arzani Anders, production inspector of Fruchincha.

The increase in price has made farmers look for solutions to bring production costs down. One
way to do that is to analyze the soil and plants from the farm. The farmer needs to send a mixture
of the soil from the plantation, a bottle of water that is used to irrigate and a plant to a laboratory.

Without an analysis a grower might add nutrients to the soil that it already contains. It can cause
the plant to overgrow without producing fruit. This can limit the farms output, and at the same time
elevate production costs, because more fertilizers are applied than needed.

It is advised to do two analysis a year to be up to date and also “If there is something wrong with
the plants the past analysis can be checked against the most recent one to find out what the
problem is” says Rosita Espinoza, owner of Agrolab, the biggest private laboratory in Chile.

Additionally, due to the high price of petroleum, transportation costs have risen significantly too. It
takes 42 days to transport Fruchincha’s products to Asia, 30-35 days to Europe and 15 days to
the United States, so the fruits need to be capable to travel the long distances.

Nevertheless, soon they may not need to travel at all, because their production will become
unprofitable, says Anders. “Our importers in the United States and Europe now look to buy fruit
from closer markets, such as Mexico or Africa.”