Chapter 5
Fertilizer use, economics and distribution

Trends in fertilizer consumption

Between 1955 and 1981 fertilizer consumption grew at a steady rate, from168 400 tonnes N + P₂O₅ + K₂O to more than 1.2 million tonnes - a seven-fold increase. This growth was made possible through vigorous support on the supply side by successive governments that supported agriculture during the apartheid era. The result was a steady expansion of cultivation agriculture - particularly maize - into marginal, semi-arid areas. This period saw also a rapid expansion of fertilizer manufacturing capacity in a protected environment. This involved quantitative import controls, high import tariffs and administered prices with guaranteed pre-negotiated returns on investment. The government supported market sharing arrangements between the major suppliers.

A protracted drought in 1982, followed by sharp increases in interest rates and a mini-recession stopped agricultural expansion. In less than three years, fertilizer consumption fell by thirty percent before finding a new equilibrium as demand driven agriculture began to take shape during the mid-eighties (Figure 11).

The steady growth in nitrogen consumption, albeit at a modest rate of 0.7 percent per annum, was accompanied by a decline in phosphate consumption, while K₂O consumption remained approximately constant (Table 5). During the expansion phase, farmers invested profits in increasing the phosphorus fertility levels of their soils. This became less attractive when interest rates became high and the cost per unit of P₂O₅ relative to N increased. The expansion in the area devoted to field crops, particularly maize, ceased and the area began to fall.

TABLE 5
Trends in fertilizer consumption

The area devoted to maize, wheat and grain sorghum has shrunk by 2.5 million hectares, while that of oilseeds has increased by 400 000 ha, resulting in a net loss of around 2 million hectares. Most of the areas taken out of cereals were allowed to revert to natural grazing.

Fertilizer use by crop

Although horticultural and fruit crops account for only 20 percent of total fertilizer use, their total value of production of R10 000 million is nearly 80 percent that of field crops, excluding sugar cane.

TABLE 6
Trends in planted areas of the major field crops

¹ Totals of maize, wheat and sorghum
² Totals of sunflower and soybeans
Source: Abstract of Agricultural Statistics, Department of Agriculture, 2004.

TABLE 7
Proportions of crops fertilized and average rates of fertilizer use

Source: FSSA, 2004.

Fertilizer use recommendations

The fertilizer requirements of crops have been researched extensively in South Africa. The first systematic field calibration work, with field trials on the response of cereals to applied nutrients, was initiated in the early 1970s by the Department of Agriculture, Cedara (Farina et al., 1992), with maize as the first test crop. This research was later extended to include also soybeans.

TABLE 8
Fertilizer consumption by crop

Source: FSSA, 2004.

At about the same time, the FSSA established a research unit to conduct field calibration work on maize, sunflower, grain sorghum and groundnuts in the Free State, North West and Mpumalanga regions. The FSSA extended its research in the mid 1980s to include rainfed wheat in the Free State and Western Cape, while the ARC-Small Grain Institute (ARC-SGI) conducted its own soil fertility related research at research centres near Bethlehem in Free State and the Rûens region of the Western

Cape. This work culminated in fertilizer guidelines for rainfed wheat grown in the different regions, as well as for irrigated wheat (ARC-SGI, 2001; FSSA Fertilizer Handbook, 2003).

The profitability of the use of fertilizers, particularly on light and medium textured soils with low inherent nutrient fertility and low organic matter contents, was amply demonstrated by this research. An example from Farina’s work, the relationship between soil-K and relative yield, is shown in Figure 12.

The South African Sugar Research Institute (SASRI, previously SASEX) is responsible for soil fertility research on sugar cane, including the economics of fertilizer use. In South Africa, efficient fertilizer practices have contributed greatly to the productivity of sugar cane (Meyer et al., 2004). The history of this research dates back to the 1950s. It has led to detailed and widely accepted whole cycle fertilizer recommendation models for rainfed and irrigated sugar cane. The recommendations are given in Annex 1 of this publication.

The ARC-Specialty Research Institute’s research responsibilities include the establishing of reliable fertilizer recommendations for the most important horticultural crops, citrus and other subtropical fruits and deciduous fruits.

Source: Farina et al., 1992.

Price trends

In a deregulated market environment, fertilizer prices are strongly influenced by international prices, currency exchange rates (R/US$) and freight costs. Farm gate prices of fertilizer evidently include the cost of distribution, intermediate storage and packaging. Recent retail prices (industry averages, third quarter, 2004) are given below:

Fertilizer price trends are illustrated in Figure 13. The net fertilizer price in the figure reflects the weighted ex-factory/ex- importer fertilizer price per tonne of all fertilizer sold, calculated on a quarterly basis.

The sharp increases starting in 2001 and the easing of prices since the first quarter of 2003 reflected changes in the currency exchange rate and world prices.

In the strongly market-orientated agricultural economy, grain prices tend to fluctuate continuously between import and export parity, depending on the real and expected future surpluses or shortages.

Source: FSSA, 2004.

PPI: Producer price index
Source: FSSA, 2003; Abstract of Agricultural Statistics, Department of Agriculture, 2004.

The underlying price dynamics over a relative short period are illustrated by the comparison of fertilizer and grain prices given in Figure 14.

Fertilizer distribution and logistics

The two most common marketing channels in the commercial sector are:

a. Direct from the manufacturer/blender to the farmer. The former employs his own sales representatives and technical support staff (e.g. agronomists). Direct contact is usually established by sales representatives. Soil sampling, fertilizer advice and evaluation of crop performance is a team effort, the quality of which often determines whether a customer is a first time buyer or becomes a long-time client. This model is preferred by most of the national and regional operators.

b. Manufacturer/blender to farmer via an agent or dealer. The former enters into agreements with independent agents, who may also act on behalf of other agro-input suppliers, for example of seeds and agrochemicals. The manufacturer/blender would normally supply technical assistance as and when required.

A manufacturer/blender may employ a mix of the above models, depending on the circumstances.

In an effort to improve the standard of technical advice to farmers, the FSSA together with the Tshwane University of Technology (TUT) have established a Fertilizer Advisory Course (BASOS). Fertilizer advisors in the industry are obliged to complete this course successfully within a specified time limit.

Contractors normally deliver fertilizers to farms by road, either from factories or from intermediate storage depots. Today it is rare for fertilizers to be delivered by rail, to sidings near to the farmers. Deliveries take place throughout the year, with a main peak during the October to November season in the summer grain producing areas. Although most fertilizers are delivered in 50 kg polyethylene bags, bulk deliveries in liquid form are gaining in popularity.

Imported fertilizers are distributed from the main ports by rail and to a lesser extent by road, to inland blending operators or to intermediate storage depots before final delivery to the farm.

Infrastructure

With the closure of some large-scale plants in 1999/2000 and a corresponding increase in imports, rail and harbour facilities came under pressure to handle the additional volumes. Sometimes product could not be moved in time due to capacity constraints of the national service providers. The government has announced a large expansion of capacity in the coming years which, if it comes to fruition, will alleviate the situation.

Credit

Fertilizers are mostly purchased on credit provided by commercial banks, large agri-businesses and cooperatives. Applications for credit for the following season are normally considered only when crop estimates can be made with a reasonable degree of certainty.