Thank you, Mr. Bezan and members of the committee, for this opportunity to present to you on farm input costs. I'm the president of the Canadian Fertilizer Institute. With me is Mr. Clyde Graham, vice-president of the CFI.
Fertilizer is the most important crop input. Canadian farmers spend about $2.7 billion per year to purchase their needed fertilizer inputs. Today, global economic growth in developing countries is driving increased global demand for grains. It is not rising world population so much as it is the rising expectation for a better diet from a new, expanding middle class in developing countries. It takes three pounds of grain to produce a pound of chicken and five pounds for pork. Alternative uses for grains, such as biofuels, have been given a lot of attention recently, but the real driver in the market is the 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 around the world for the current supplies of fertilizer.
Fertilizer is a commodity that is produced, shipped, and used around the world. There are well over 250 companies internationally that produce fertilizer products. Canada's border is open to fertilizer imports. There are no tariffs, duties, or trade barriers. When we asked one of our members what was required to import urea fertilizer from the United States to Canada, the reply was simple: a customs broker and a truck.
Many of our 41 member companies are engaged in importing fertilizer into Canada. Within Canada, there are about a dozen companies that make various kinds of nitrogen fertilizers. There are three major firms that produce potash. We produce half of the phosphate that we use in Canada, and our industry imports the other half, mostly from the U.S.
Fertilizer prices paid by Canadian farmers continue to rise. However, commodity prices for wheat, barley, corn, soybeans, and canola are also at record-high levels. Who would have ever thought of wheat at over $20 per bushel? As I hear more and more concerns from farmers about fertilizer prices, I note the price they are receiving for their grain. How many bushels of wheat does it take to pay for a fertilizer bill today versus in 2002? It's all about economics.
Since the beginning of 2008, we have met with farm groups and producer groups that are concerned about the fertilizer supply and prices. Farmers want to know why fertilizer is the most expensive on record and whether there will be enough this spring. One thing that has made farmers angry is reports that fertilizer prices are higher in western Canada than in neighbouring U.S. states. Those reports are often based on anecdotal evidence, or small samples taken before spring seeding, when supply-demand conditions can, frankly, be chaotic.
On any given day, there will be differences in the price or quotes of various agri-retailers within Canada or on either side of the border. Government studies have shown that over time prices are equivalent. In fact, Agriculture and Agri-Food Canada reported in March 2007 that there has been no significant difference in Canada–U.S. fertilizer prices in more than a decade. I'd like to quote from that report:
The fertilizer market is global in nature and the North American fertilizer market is completely open and integrated. As a result, Canadian fertilizer prices are linked to the U.S. market.
Statistical analysis has confirmed that average fertilizer prices in Canada and the U.S. border area were not statistically different for urea, mono-ammonium phosphate, and muriate of potash over the 1993-2006 period.
One of the things we distributed to members of Parliament was a deck of 10 slides that illustrated a Green Markets dealer report that features wholesale market coverage from 12 regions in North America. This report is updated every week, and it's commercially available. It shows a remarkable consistency in prices around different regions in North America.
Farmers around the world want more fertilizer. The increase in the international demand for fertilizers has been a factor in the rising cost of fertilizer. Global nitrogen fertilizer demand has increased 14%, phosphate demand has grown by 13%, and potash demand by 10% between 2001 and 2006.
There are three major drivers for the surge in world fertilizer demand. First, India, China, and Brazil are leading as the largest contributors to growth. Ninety per cent of the growth in global nutrient demand is from developing countries. Other factors are world cereal production and consumption, which is on the rise, and corn-based ethanol production in the U.S.
I want to close my comments by saying that the world fertilizer industry is responding to strong market prices. The International Fertilizer Industry Association forecasts significant increases in global fertilizer manufacturing capacity between now and 2011: a 22% increase in urea production, an 8% increase in phosphate production, and a 16% increase in potash production. Canadian fertilizer manufacturers are investing some $3.5 billion in Canada on increased fertilizer manufacturing over the next few years.
With that, I'd like to turn it over to Mr. Graham, who is also executive director of the Crop Nutrients Council in Canada. Clyde works with producer groups across the country to build value for Canadian farmers.
Clyde.