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What contributes to the cost of fertilizer?

South Africa
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Why is fertilizer so expensive? Here are the 6 main factors that affect the cost of fertilizer — and how we mitigate them.

As our region is a net importer of fertilizer raw materials and finished goods, the local price is largely determined by the international fertilizer price on an import parity basis.
Fertilizer is a significant input cost of crop production, so it is worthwhile to pay attention to the factors that impact cost and how to reduce it.

Fertilizer choice

Effect on price35%

The cost of the production process and the transport, storage, and application cost of various types of fertilizer e.g., chemical compound NPKs, bulk blends and liquids. There are pros and cons between the different forms: overall cost, supply risk, and effectiveness. Sub-optimum selection creates additional and unnecessary costs and risks. Since the selection of product type impacts the structuring of farming operations, a long-term strategic view must be taken on this decision as a change is not always quick to implement.

Supply chain steps

Effect on price15%

There is a long supply chain from the international producer of the fertilizer (raw materials or finished goods) to the farm, with numerous middlemen and handling steps. There’s also significant uncertainty due to seasonality and limited insight into client requirements until late in the process. This results in duplication of cost and an overall inefficient and expensive supply chain, as well as increased supply risk for the farmer.

International market factors

Effect on price10%

The predictable: The effect on demand driven by the northern vs southern hemisphere planting seasons drives annual price cyclicality evident in fertilizer prices – the opportunity is to ensure that fertilizer for SSA is purchased at the low point in the annual price cycle. Changes to world production capacity such as new plants coming online or plants taken out of production can impact supply and thus price.

The unpredictable: There are a host of short-term factors that impact supply and demand balances internationally. This results in short term price cyclicality.

Local market factors

Effect on price15%

As the local planting season nears, instantaneous demand increases and/or local production disruptions result in inadequate supply, often leaving insufficient time to import additional fertilizer volumes to meet the shortfall. During these times, the local market price can disconnect from the international price. This results in a local price premium over the international price, therefore increasing the cost of fertilizer as well as creating a supply risk.

Exchange rate

This has a significant impact on the cost of fertilizer and therefore overall business risk. International fertilizer prices are denominated in US dollars, thus imported fertilizer has a significant component of cost relating to the Rand:Dollar exchange rate.  

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