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July 27, 2008

South African fertilizer prices double in one year

Fertiliser prices had more than doubled this year, leading to expectations that maize and wheat farmers would face a substantial profit squeeze, South Africa's National Agricultural Marketing Council (NAMC) said yesterday.

The report comes after optimism last summer that higher maize prices would encourage more planting and put a brake on steeper food prices, both here and abroad.

Indications are pointing to a bumper 2007/08 crop as farmers continue to deliver maize to silos, but there are doubts as to whether this will be repeated.

The average local price of fertiliser based on mono-ammonia phosphate (MAP), the type most commonly used in South Africa, was 103 percent higher in the six months to June compared with last year, said the NAMC.

Over the same period, prices received by farmers for white maize had risen by only 15 percent, following a previous price spike. Wheat prices, which started rising after maize prices, have added 58 percent.

The steep rise in input costs for grain farming, which include fuel, is a global phenomenon. Increased demand for grains from China and the US biofuels industry have caused global fertiliser prices to soar.

André Jooste, a senior manager of research at the NAMC, said agriculture profits would again come under pressure this summer, "causing farmers to think hard about how much maize they would plant."

Jooste would not be drawn on whether farmers would plant significantly less, but said that they had done so in other times when the profit outlook had been poor.

But Rod Humphris, the managing director of fertiliser maker Omnia, said that while there would be some margin erosion, there were still opportunities for good farmers to make money.

Neels Ferreira, the chairman of Agri SA's commodity chamber, said average May fertiliser prices were 140 percent higher than a year ago, while fuel prices were up 96 percent and herbicide and insecticide prices had doubled.

He said over the past two weeks maize prices had fallen by at least R450 to R1 700 a ton. "With input prices rising faster than selling prices, it is putting tremendous strain on farmers and is the biggest threat to food security," said Ferreira.

Maize farmers would be likely to struggle to break even over the coming summer season, but this would depend on maize prices and yields, he said.

State-owned Foskor, the dominant local player in the fertiliser supply chain, said the firm was benefiting from an increase in prices, but this was partly offset by the increase in raw material costs.

Alfred Pitse, the chief executive of Foskor, said sulphur, an imported ingredient, had increased from $40 (R300) a ton in March last year to $800. As a by-product of oil extraction, its prices were dependent on exploiting new oil deposits.

Foskor had market share of more than 50 percent for the key fertiliser ingredients, MAP and di-ammonia phosphate (DAP). Its market share was even higher for some ingredients that were higher up the supply chain.

The NAMC said the average international price of DAP was up 135 percent, excluding import costs.

Pitse denied that Foskor was abusing its market position, adding that as it was government controlled it acted responsibly.

The NAMC predicted that the fertiliser and lime to western Free State maize farmers' variable input costs would rise from 25 percent in the 2007/08 season to 36 percent in 2008/09 season.

Indications support a bumper maize crop following the good 2007/08 summer weather. A Reuters poll of 10 traders has forecast an average crop of 11.69 million tons. About 8 million tons is consumed locally.

Business Report

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