Photo Credit: Flickr (Adam Cohn)

By: Rachel Kohn

During the food price crisis of 2007-2008, the prices of two main components of fertilizer, ammonia and urea, experienced significant spikes. In their 2013 article in Agricultural Economics on market concentration and pricing behavior in the global fertilizer industry, IFPRI division director Maximo Torero and research fellow Manuel Hernandez observe that the sharp increase in price for these commodities at this time was not proportionate with the increase of other commodities like oil and agricultural prices. By the height of the crisis in mid-2008, for instance, oil prices were 1.5-1.9 times higher than in mid-2007, while ammonia and urea prices were 2-3 times higher.

After a continuous decline in oil prices from over 100 dollars per barrel to less than 45 dollars between mid-2014 to March 2015, oil prices have started to recover during the second quarter of the 2015 and are currently around 60 dollars per barrel. The implications of these rising oil prices and their potential impact on fertilizer prices in the developing world bring new attention to Torero and Hernandez’s inquiry and findings.


Production requires energy resources, the cost of which is partly reflected in the cost of crude oil, so it is logical that as production costs increase output prices increase as well. The question is, how much of a responsive price hike is justifiable? There are usually only a few major producers of fertilizer; the industry is highly concentrated to a small group of firms operating at a global level. Developing countries in sub-Saharan Africa, Latin America, and South Asia either rely heavily on imported fertilizer or are becoming more dependent on foreign suppliers, so they are highly dependent on these large producers.

“It is well established that the low adoption of improved land management practices is one of the main factors behind lagging agricultural productivity in many low-income countries,” write Hernandez and Torero.

“In the search for policies to promote fertilizer adoption, numerous studies have identified several supply-side (as well as demand-side) constraints at the regional and country level that limit the development of input markets and, consequently, fertilizer uptake (see, e.g., Bumb et al., 2011; Gregory and Bumb, 2006; Kelly et al., 2003; Morris et al., 2007). However, not much has been said about developing regions’ high and increasing dependence on imported fertilizer, which is a highly concentrated at the global level.”

Citing figures from the International Fertilizer Development Center for 2009, Hernandez and Torero write that the top five fertilizer-producing countries control between 50–77 percent of the world’s production capacity for major nitrogen, phosphate, and potash fertilizers. Furthermore, the top four firms within each of these countries generally control more than half of each country’s production capacity (with the exception of China).

Why is the production of the components of fertilizer concentrated among a select group of firms, engaged in constant mergers to swallow up smaller players in the market? It is analogous to oil production: the location of the natural resources determines who the producers are. Large firms also enjoy the benefits of economies of scale, a threshold difficult for smaller companies to cross and thus making them less profitable.

Using annual data for a panel of countries along with different measures of concentration and model specifications, Torero and Hernandez find that prices are generally higher in more concentrated markets. They also found that a 10 percent increase in competition could increase fertilizer use by 13 to 19 percent and rural incomes by one to two percent in regions like sub-Saharan Africa. They recommend further examination of the pricing behavior and potential market power exertion of major global producers and their potential effects on developing countries.

To learn more about Hernandez and Torero’s recommendations for increasing competition and monitoring fertilizer pricing behavior as oil prices continue their upward trend, read their full article “Market concentration and pricing behavior in the fertilizer industry: a global approach” here.

Maximo Torero is the Division Director of the Markets, Trade, and Institutions Division at the International Food Policy Research Institute (IFPRI). He is the leader of the Global Research Program on Institutions and Infrastructure for Market Development and Director for Latin America.

Manuel Hernandez is a Research Fellow in the Markets, Trade and Institutions Division at IFPRI.

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