Good morning.
Fertilizer is a globally traded group of commodity products. Production locations are based on proximity to raw materials such as natural gas and mineral deposits, access to water and rail transportation and to markets. Fertilizer is the most important crop input. Canadian farmers have access to abundant quality fertilizer made in Canada or imported through many of our 43 member companies. Annually, Canadian farmers spend about $3.2 billion on fertilizer.
Today, global economic growth in the developing countries is driving increased global demand for grains. It is not rising world populations so much as it is the rising expectation for a better diet from an expanding middle class. It takes three to seven pounds of grain to produce a pound of chicken, pork, and/or beef. Alternative uses for grains, such as biofuels, have been given a lot of attention recently, but the real driver in the market is demand for better food diets in developing countries. That in turn is increasing demand for fertilizer to produce that grain. The result is competition among farmers globally for the current supplies of farmers. China and India consume about half of the total global demand for fertilizers. Decisions by farmers in China and India will drive global markets for fertilizer into the future.
The CFI slide presentation that we distributed to the committee is an example of the information that our industry has presented to hundreds of farmers, farm leaders, and government officials over the last year to provide information about global fertilizer markets. This past winter CFI and industry representatives spoke to farmers and farm groups from Wolfville, Nova Scotia, to Edmonton, Alberta. An article from the farm magazine Top Crop Manager featuring one of our industry company's business analysts is an incisive look at how the markets work.
We have had some dislocation in the markets over the last year, as you all know. In spite of current difficult general economic conditions, the outlook for agriculture remains among the most positive of all the industries in Canada.
The Canadian fertilizer industry contributes to the competitiveness of crop producers in a number of ways. It ensures that farmers have reliable access to high-quality fertilizer products. It delivers fertilizer on time from the Peace River district to the Annapolis Valley. It provides the latest scientific advice to allow farmers to get the most from every dollar spent on fertilizer. It manages stewardship programs to protect the environment and to protect the public from accidents or criminal misuse. It improves farmer access to the latest fertilizer and supplements technology through the Canadian Fertilizer Products Forum. It educates the public about the critical role that plant nutrients play in feeding the world.
Fertilizer is the foundation of Canadian agriculture. By applying fertilizer, farmers increase their crop yields and make additional profits that they would not receive had fertilizer not been applied. Throughout this winter it has been clear that some difficult decisions were going to have to be made. The economic meltdown last fall has left higher-cost fertilizer in storage across all of North America. Many farmers delayed making fertilizer purchases, hoping for price reductions. That has put pressure on the fertilizer and the transportation pipeline as inventories continue to back up. Fertilizer remains an essential investment each year. There is no substitute for adequate crop nutrition. That is as true this year as it has been in every year in the past.
CFI would like to draw the committee's attention to an April 17 statement issued by the Canola Council of Canada, which was endorsed by groups representing canola farmers:
Some canola growers may be tempted to cut back on fertilizer rates this spring, but they might want to think twice. “With canola prices having backed off of last spring’s highs and fertilizer prices remaining relatively high, growers might be tempted to shave fertilizer rates in order to reduce costs,” says Canola Council of Canada senior agronomy specialist John Mayko, “But canola growers who cut fertilizer rates may end up cutting their profits.”
With higher than average canola prices, the opportunity for good returns is solid; however, growers will need to use generous rates of nitrogen to achieve optimum net returns. Nutrients such as phosphorus and sulphur will also need to be at adequate levels to optimize yields. “Today’s hybrids need adequate nitrogen to optimize the yield potential of the hybrid genetics,” says Mayko. “Although it is important to pencil out the potential profit situation for each farm, consider this: With canola at $9/bu and nitrogen costing approximately sixty cents per pound, for every 10 lbs of nitrogen applied, it will only take a three-quarter bushel gain per acre to recover that cost. Any yield above this gain is profit.”
Canadian farmers are fortunate to have access to not only Canadian fertilizer products but also internationally produced sources of fertilizer. Canada is a free trade nation, and the Canadian fertilizer industry continues to push for more open markets.
For example, in January 2009 the Canadian government made a decision to reduce Libya’s punitive custom tariff of 35%. The Canadian Fertilizer Institute, along with the Government of Alberta, supported this initiative. With the newly amended tariff, the cost of importing urea fertilizer from Libya significantly decreases, providing Canadian farmers with an additional new source of imported fertilizer.
I'd like to note that for farmers, agri-retailers are the best source of information on the fertilizer market, but they need good, timely information from their customers so that they can plan supplies. There is an advantage to both agri-retailers and to farmers to establish a partnership that allows for the effective sourcing and distribution of fertilizer.
I'll skip through a number of the sections because of the time. I would like to highlight a few points, though.
The Canadian fertilizer industry has played a leadership role in developing and promoting the “Right Product @ Right Rate, Right Time, Right Place” nutrient stewardship system. This system is important not only in Canada but around the world in terms of ensuring that there is proper stewardship of fertilizer products and that farmers get the best economic return from their fertilizer dollar.
In terms of the economic impact of fertilizer in Canada, our industry is expected to help lead the economic recovery. The potash industry alone contributes approximately 20% of Saskatchewan’s provincial government revenue. These companies have announced $10 billion in Canadian investment.
In terms of the environment, one of the issues facing our industry, like all industries, is that there are pressures--in many cases justified--for improvements in environmental performance. The federal government needs to remember that the Canadian fertilizer industry faces unique challenges in reducing greenhouse gas emissions.
Environment Canada has stated the following:
The fertilizer sector faces particular challenges related to dependence on natural gas feedstock, considerable international trade competition, limited ability to pass on costs, and high potential for relocation outside of Canada.
In terms of reducing nitrous oxide, or greenhouse gases, our industry has taken a leadership role in developing a nitrous oxide emission reduction protocol to compensate Canadian farmers with GHG offsets for reducing their on-farm nitrous oxide emissions. If farmers meet the criteria outlined in the protocol, which is nearing completion, they should qualify for an offset credit that could lead to a payment of $5 to $10 per acre.
In terms of the safety and security of our products, our industry has also been playing a leadership role. The initiatives that the Fertilizer Safety and Security Council has recently adopted--for Canadians who handle ammonia, one of the major nitrogen fertilizer products--provide uniform safety and security standards for the handling and storage of anhydrous ammonia at agri-retail facilities in Canada.
CFI believes the Canadian government has an obligation to participate in the cost of this upgrade in security measures, as it has in sharing the cost of the implementation of tougher security measures at Canadian seaports. I think the Canadian Association of Agri-Retailers has been before this committee in the past on this point, and we'd just like to emphasize our support.
I'm going to skip to the conclusion.
Our industry generally expects that the strength in agricultural markets will lead to recovering global demand for fertilizers in 2009 in spite of the current global economic uncertainty. Our members are turning that belief into investment decisions, creating skilled high-paying jobs in rural Canada that will ensure a stable supply of fertilizers for the future.
Of course, we're open to your questions.