Mike Straumietis, the Founder and CEO of Advanced Nutrients, has written and released a series of blogs to educate readers regarding global fertilizer. In this blog post, he gives a primer on the global fertilizer supply chain.
When the fertilizer is converted from raw materials to on-farm use, Mike Straumieties says it is sent to retailers. Growers then buy from these retailers, which is and should be the final part of the supply chain. However, these days, with the spike in fuel prices, trucking rates have also skyrocketed. With more motorists back to driving their vehicles, gasoline demand has increased to levels way beyond before the COVID-19 pandemic.
The global fertilizer industry has also experienced a huge increase in the number of goods shipped at all supply chain stages. There is also heightened demand for products sent directly to end-users. This means that distribution chains still recovering from the pandemic tend to become clogged by heavy demand. The burgeoning demand has also increased shipping rates and the need for workers since more people are required to deliver goods. This has greatly affected the fertilizer market, with the product being exported and imported worldwide.
Extreme weather, manufacturing capacity changes, infrastructure breakdowns, and other logistical issues as other factors that affect the global supply chain and distribution. Mike Straumietis adds that another form of disruption in the supply chain and distribution comes from sanctions from the European Union, which have been given to Belarus and the U.S.
Belarus accounts for approximately a fifth of global potash exports, and these sanctions have slowed and, at times, halted shipments of potash to both the EU and the U.S. These sanctions have also been observed to drive other countries away from purchasing from Belarus, which has led to a rather forced decrease in the global potash supply.
Recently, China was thrown into the mix by applying a ban on phosphate exports because of increased production costs and domestic use. With China accounting for approximately 25 percent of phosphate fertilizer exports worldwide, the ban pressures overall prices even more.
In addition to trade disputes, governments of various countries have also come up with policies that affect global fertilizer prices. An excellent example is when India approved an added $3.8 billion for the increase of fertilizer subsidy for farmers. This caused fertilizer demand in India to increase even more for global buyers.
Experts such as Mike Straumietis expect prices to remain high throughout the first half of this year with all the factors affecting the global fertilizer industry. Whether this compels some farmers to move away from planted acres of corn to commodities that utilize fertilizer at a lower rate, commodities like soybeans or wheat, remains to be seen.
Another important point is that retailers may refuse customers because they cannot deliver fertilizer products promptly. There is a chance that this will increase the need for supply chain and infrastructure improvements.
Furthermore, there have been tax implications with the rising prices of fertilizer.
When business owners maintain their financial records, Mike Straumietis says they have two accounting methods to choose from cash basis accounting or accrual accounting. The difference between these two methods is the timing, specifically when farmers record their sales and purchases.
With the cash basis accounting, revenue is recorded when money is received from customers, and expenses are recorded when it is paid to suppliers and employees. With accrual accounting, revenue is recorded when earned, and expenses are recorded when consumed.
Since most farmers choose the cash method, this should be pushed when discussing fertilizer prices. Moreover, many farmers will buy inputs needed for the next growing year, such as fertilizer, in the last few months of the calendar year to decrease farm income and reduce tax liability in the current year, adds Mike Straumietis.