Because fertilizer demand depends on a variety of agro-economic factors it is not stable nor is it amenable to accurate prediction. The choice of forecasting methodologies is thus particularly important, both for successful operation of fertilizer companies and for the formulation of appropriate policies by governments.
To arrange timely supplies of the right fertilizer types in thousands of villages, it is necessary to have an assessment of the likely demand for each fertilizer type at numerous locations at different times in both the short and medium terms. Effective demand forecasting can enable importers to take full advantage of world market price fluctuations. Required storage, transport, staffing, credit, financial and foreign exchange arrangements are dependent on demand. If actual fertilizer demand is less than the fertilizer produced in or imported into a country, heavy financing costs and product losses will be the result. Considering that fertilizer procured but not sold may have to be kept for a year before it finds a buyer and that a storage duration of a year can cause high quantity and quality losses, the importance of demand forecasting can be readily appreciated. If the actual demand is larger than forecast, this leads to shortages, lower agricultural production and, often, political implications.
Demand forecasts have special significance for developing countries which are substantially dependent on fertilizer imports. The forecast can permit a reduction of the time between vessel arrival and fertilizer application. If vessels arrive during or just before the season, it is possible to move fertilizer direct from the port to field stores in the consuming areas. This avoids the costs of extra handling and storage in moving stocks to primary points for onward sale to wholesalers. In countries where the private sector dominates the marketing system this procedure is practised with a high degree of success. Landlocked countries having to use port and transportation facilities of neighbouring countries require a long planning cycle, for which an efficient demand estimate should be the basis.
All plans of fertilizer manufacturing or marketing companies should be derived directly or indirectly from the demand forecast. From a national demand forecast a company's expected sales can be estimated by assessing its market share in each area of the country. The sales forecast tells the production department what to produce, how much and when. For imported fertilizer, the sales forecast is the basis for the procurement schedule. The finance department is able to prepare, based on the sales forecast, a plan of cash inflow and outflow, assess the working capital gap and arrange necessary support from the bank. The marketing department is guided by the forecast in deploying sales staff, arranging storage at appropriate locations, contracting for wagons and trucks and activating a wholesale and retail network to cope with the expected volume of business. With the help of a detailed sales estimate by region and month, it is possible to identify primary storage locations in such a manner as to optimize transport cost, minimise storage duration and avoid wasteful inter-store movements.
