CHAPTER 6. PRICES AND PROFITABILITY OF FERTILIZERS

Prices of mineral fertilizers

Until 1990 the sale or rather the distribution of fertilizers was organized uniformly and the retail prices were lower than the production costs (the ratio of prices to production costs was 0.51, 0.17 and 0.43 for nitrogen, phosphorus and potassium fertilizers respectively). In a transformed economy, the market determines the prices of fertilizers. In the years 1989 to 1993 the prices of nitrogen fertilizers (N) increased 30 times, phosphorus (P₂O₅) 36 times and potassium (K₂O) 44 times. In the years 1993 to 1997 the prices of fertilizers increased at the rate comparable to the rate of inflation. In the years 1998 to 2001 the price trend flattened out (Table 22) and the price increases were below the inflation rate (with the exception of 2001). This means that mineral fertilizers have become relatively cheaper. This can be explained by the surplus of fertilizers from domestic production and the strong competition for the market between the fertilizer plants. Another reason is the substantial, although only partly controlled, import of cheap fertilizers from eastern European countries. The prices of fertilizers are almost the same in all regions as a consequence of the policy of the fertilizer producers.

Table 22. Prices of basic fertilizers in the years 1998-2001

* 100 PLN = 24.6 euros in June 2002
** In relation to the previous year.

During the same period, the prices of agricultural products also increased but until 1994 at a slower pace than the prices of fertilizers. In the years 1994 to 1997, the rate of increase of the prices of wheat was slightly higher than the rate of increase of the fertilizer price. In consequence, the fertilizer/grain price ratio widened at the beginning of the 1990s and narrowed slowly in the second half of this decade. During the years 1998 to 2001 the index of the grain and fertilizer price relationship opened again and the farmer had to sell about 3 kg of wheat grain to buy 1 kg N, about 4 kg of wheat grain to buy 1 kg P₂O₅ and almost 2 kg of grain to buy 1 kg K₂O (Table 23).

Table 23. Price of 1 kg nutrient expressed in kg of winter wheat grain

In view of the fact that the profitability of nitrogen fertilizers is 3 to 4 times higher than that of phosphorus and potassium, it is obvious why the consumption of phosphorus and potassium dropped more dramatically compared with the consumption of nitrogen fertilizers.

The only fertilizer product still subsidized by the State is lime, but the share of the subsidy in the total cost of production and distribution of limestone and dolomitic limestone shows a decreasing trend (Table 24).

Table 24. Subsidization of calcium and magnesium amendments

Source: Boguszewska et al., 2001.

At the end of the central planning period, the subsidy accounted for more than 70 percent of the total cost of liming and in 1993 it still amounted to 66 percent. In 1997 this share was cut down to 44 percent and in 1999/2001 to a mere 25 percent of the total cost of liming. This is a crucial problem for Polish agriculture since high acidity is one of the most limiting factors of soil fertility and crop yields in the country.

Profitability of fertilizer use

The data from the former 49 provinces were used to create models for relating yield and fertilizer consumption. Two models, one simplified and the other a full model were developed. The following crop prices were used to estimate profitability (Table 25).

The prices of plant products given in this table are averages for the whole country. They show large fluctuations between years and regions. With the exception of a few products i.e. sugar beet, rapeseed grain, high quality wheat grain and some special products (tobacco, hemp), demand is too low in comparison with production. In 1998 the prices of most crops decreased dramatically (by 10 to 20 percent compared with 1997) and farmers could hardly cover their costs.

Table 25. Prices of plant products in the years 1998-2001

Source: GUS, 1999-2001.

The average price of 1 kg NPK (N+P₂O₅+K₂O) for the years 1999 to 2001 was 1.41 PLN, and the average price of 1 kg of wheat grain (taken to be equivalent to the value of 1 kg of grain unit) was 0.48 PLN. The profitability of mineral fertilization of grain in Poland is therefore fairly high and can be roughly estimated at 3.1 PLN yield value per 1 PLN spent on fertilizers. The more complete model gave a somewhat lower response than the simplified model but it was still substantial at 2.4 PLN yield value per 1 PLN spent on fertilizers.

Similar calculations have been performed for certain other crops. The simplified model gave an average mineral fertilizer efficiency of 30 tonnes potatoes and 50 tonnes of sugar beet per kg NPK (Table 26).

Table 26. Profitability of mineral fertilization for selected crops

* Average value of crops from Table 25
** Average value of fertilizers from Table 22