Report No. 2675

World Fertilizer Review and FILE COPYFertilizer Requirements ofDeveloping Countries 1979September 1979

Industrial Projects Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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GLOSSARY OF TERMS AND GENERAL INFORMATION

N : Nitrogen, active nutrient element in fertilizers.P : Phosphorus, active nutrient element in fertilizers.P205 : Phosphorus pentoxide, traditional measure of active phosphate

nutrient in fertilizer; 1 unit of P205 contains 0.44 units of P.K : Potassium, active nutrient element in fertilizer.K20 : Potassium oxide, traditional measure of active potassium

nutrient in fertilizer.

Nitrogen Fertilizers : Fertilizer with nitrogen as the active ingredient.Urea : Fertilizer containing 45-46% N.AS : Ammonium sulphate, fertilizer containing-20-21% N.CAN : Calcium ammonium nitrate, fertilizer containing 20-26% N.AN : Ammonium nitrate, fertilizer containing 32-34% N.ASN : Ammonium sulphate nitrate, fertilizer containing 25% N.NH3 : Ammonia, fertilizer or intermediate containing 82% N.

Phosphate Fertilizers : Fertilizers with phosphate as the active ingredient.SSP : Single superphosphate, fertilizer containing 18-21% P205.TSP : -Triple superphosphate, fertilizer containing 46% P205.H3PO4 : Phosphoric acid, phosphate intermediate containing 54% P205.

Potash Fertilizers : Fertilizers with potassium as the active ingredient.KC1 : Potassium chloride or muriate of potassium, the most common

potash fertilizer containing 60-62% K20.K2SO4 : Potassium sulphate, fertilizer containing 50% K20.K2S042M90 : Potassium magnesium sulphate, fertilizer containing 23% K20.

NP Fertilizers : Fertilizers combining nitrogen and phosphate active ingredients.DAP : Diammonium phosphate, 18-46-0 fertilizer containing 18% N and

46% P205.MAP : Monoammonium phosphate, 11-53-0, fertilizer containing 11% N and

53% P205S

NPK Fertilizers: : Fertilizers combining nitrogen, phosphate and potassium activeingredients. Their concentration is usually indicated by a for-mula, e.g. 15-15-15 where the figure gives the % N-P2 05-K20 inthat order.

BPL : Traditional way of expressing the phosphate content of phosphaterock - 1 unit BPL contains 0.458% P205.

C&F : Cost and freight.

CIF : Cost, insurance and freight.FOB : Free on board.

FAS : Free alongside.TPA or TPY : Metric tons per annum or per year.STPY : Short tons per year (2,000 lbs) equals 0.907 metric tons.TPD : Metric tons per day.Years : Fertilizer years or fiscal years run from July 1 in one year to

June 30 in the next calendar year. FY80/84 means the 5-yearperiod from July 1, 1980 to June 30, 1984. 1980-85 means thefive calendar year period from January 1, 1980 to December 31,1984.

MSCF : Thousand standard cubic feet.ROI : Return on investment.

FOR OFFICIAL USE ONLY

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

TABLE OF CONTENTS

PaRe No.

SUMMARY ................................................. i-xii

I. INTRODUCTION ............................................ 1

II. DEVELOPMENTS SINCE 1975 ............................... 3

A. Fertilizer Year 1974/75 ............................. 5B. Fertilizer Year 1975/76 . . . 6C. Fertilizer Year 1976/77 . ...... ........ . 6D. Fertilizer Year 1977/78 . ............................. 6E. Analysis and Consequences of the 1974 Fertilizer

Crisis ............................................ 7

III. CURRENT AND FUTURE FERTILIZER REQUIREMENTS .............. 8

A. Nitrogen ......... ................................... 10

1. World Nitrogen Capacity ..... .................... 102. World Nitrogen Supply ........................... 113. Industrial Nitrogen Consumption/Demand ........... 114. Nitrogen Fertilizer Consumption/Demand .... ....... 125. Long-Term Nitrogen Fertilizer Consumption/Demand. 126. Nitrogen Supply/Demand and Balances .... ......... 13

B. Phosphate ................. . .......................... 14

1. World Phosphate Rock Supply and Demand ........ .. 142. World Phosph4te Capacity . . 153. World PhosphAte Supply . ........... ............. 184. World Phosphate Consumption/Demand ......... 185. Technical Phosphate Consumption/Demand . .186. Phosphate Fertilizer Consumption/Demand 197. Long-Term Phosphate Demand .?8. Phosphate Supply/Demand and Balances . .20

C. Potash ......................... 21

1. World Potash Capacity . .22

2. World Potash Supply .233. World Potash Consumption .234. Long-Term Potash Demand .24

5. Potash Supply/Demand and Balances 25

This report was prepared by Messrs. William F. Sheldrick and Harald Stierof the Fertilizer Unit, Industrial Projects Department.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank author zation.

TABLE OF CONTENTS (Continued) Page No.

IV. FERTILIZER EXPORT PRICES AND PRODUCTION COSTS ........... 26

A. Historical Development . . .. 26B. Short-Term Price Forecasts....... 29

1. Nitrogen Fertilizers. .. 292. Phosphate Rock......... 293. Phosphate Fertilizers . . . .. . 304. Potash Fertilizers . . .. . .......... 30

C. Long-Term Price Projections . ............ 30D. Cost of Producing Fertilizer Materials. 31E. Bank Fertilizer Price Projections. 32F. Energy and Nitrogen Fertilizer Production Costs 33

V. THE FERTILIZER SITUATION IN DEVELOPING COUNTRIES .34

A. The Importance of Developing Countries in the WorldFertilizer Situation .34

B. The General Case for.Expanding Fertilizer Productionin Developing Countries .36

C. Food Production and Fertilizer Use in DevelopingCountries . ............. .. 36

D). Marketing and Fertilizer Distribution in DevelopingCountries ................ ..... 38

E. Future Availability of Fertilizer Raw Materials .... 39

1. Nitrogen .............. 402. Phosphate . .. . 403. Potash ... .. 40

F. Organic Fertilizers . . .......... * 41G. Bio-Fertilizers ................ . , .............. 41H. Assistance from the Oil/Gas Rich Countries ........ 41I. Environmental Considerations.... 42

VI. FERTILIZER INVESTMENT REQUIREMENTS. . . 42

A. Technical Considerations. . ......... 42B. Adaptive Technology ... ......... 43C. World Fertilizer Plant Investment Requirements ...... 44D. Investment Requirements of Developing Countries ..... 46

1. Nitrogen .................. 4-72. Phosphate . .... .. ..... ... . .... 473. Potash ..... . .. .. ........... . 474. Fertilizer Infrastructure ....... .......... 47

TABLE OF CONTENTS (Continued) Page No.

VII. BANK GROUP FERTILIZER OPERATIONS.. .. ...... 48

A. Bank Group Investments in Fertilizer Production 48B. Fertilizer Pricing Systems in Bank-Financed Projects. 53C. The Bank Group Fertilizer Unit .55D. Regional and Country Fertilizer Planning .. 57

VIII. OTHER INTERNATIONAL ASSISTANCE IN FERTILIZERS TODEVELOPING COUNTRIES ... 58

A. Food and Agriculture Organization of the UnitedNations (FAO) .58

B. United Nations Industrial Development Organization(UNIDO) .58

C. Economic and Social Commission for Asia and thePacific (ESCAP) .59

D. Inter-American Development Bank (IDB) .59E. Asian Development Bank (ADB) .59F. OECD Development Assistance Committee (DAC) .60G. International Fertilizer Development Center (IFDC) 62

IX. THE FUTURE ROLE OF THE WORLD BANK GROUP IN FERTILIZERDEVELOPMENT ..... 62

A. Some General Considerations . . 62B. Investment Requirements for Fertilizer Plants in

Developing Countries . .63C. Fertilizer Infrastructure. 63D. Investment Planning .. 64E. World Fertilizer Data Base . .65F. Conclusions .. 66

ANNEXES

1 Country Classification by Economic Classes and Regions3-1 World Ammonia Capacity Development as of March 19783-2 World Nitrogen Fertilizer Supply, Demand and Balances3-3 World Nitrogen Fertilizer Consumption 1967-1977 and Forecasts to 19883-4 World Phosphate Fertilizer Supply, Demand and Balances3-5 World Phosphoric Acid Capacity Development as of March 19783-6 World Phosphate Fertilizer Consumption 1967-1977 and Forecasts to 19883-7 World Potash Capacity Development as of Marzh 19783-8 World Potash Fertilizer Supply, Demand and Balances3-9 World Potash Fertilizer Consumption 1967-1977 and Forecasts to 19883-10 The Use of Box-Jenkin's Method in Forecasting Fertilizer Demand4-1 Investment and Production Costs for Fertilizers4-2 Fertilizer Price Forecasts

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

SUMMARY

Introduction

i. This summary report highlights the discussions and conclusions ofthe study carried out by the World Bank Fertilizer Units i.e., "World Fertil-izer Review and Fertilizer Requirements of Developing Countries, 1979". Thestudy has three major objectives: (i) to review the changes that have takenplace in the world fertilizer supply/demand situation since 1975 and toprovide a reassessment of the Bank Report 830, "Fertilizer Requirements ofDeveloping Countries 1975"; (ii) to discuss the fertilizer prospects for thenext decade; and (iii) to outline the work the Bank Group has done in recentyears and needs to do in the future to help meet the fertilizer requirementsof developing countries and thus help alleviate the world food problem. Thereport is concerned mainly with chemical fertilizer, which is only one ofseveral complementary inputs necessary to improve crop yields and in thatsense its objective is therefore limited. The report does not discuss thecomplex issue of the relationship between fertilizer and agricultural priceswhich varies greatly from country to country. The forecasts of fertilizerconsumption assume crop-value/fertilizer-cost ratios are generally maintainedat levels that provide adequate incentive for the use of fertilizers.

ii. Bank Report 830 was written at a time when the world was experiencingthe worst fertilizer crisis ever; prices had risen to unprecedented heightsand many poor countries were unable to afford or obtain the fertilizers theyneeded. As a result, many agricultural programs received a severe setback.The World Food Conference in November 1974 recommended that the internationalagencies, including the Bank Group, should take action to help overcome thethen current fertilizer shortage. In reviewing the situation at that time,the Bank Group, having already made a significant contribution to the finan-cing of new fertilizer plants, accepted recommendations to continue an activeprogram of lending for fertilizer plants, and adopt a more comprehensiveapproach towards fertilizer production, distribution and use. The severefertilizer shortage which had been widely forecast in 1974 to persist forthe next five years did not in fact materialize to anything like the extentenvisaged and the revised outlook for fertilizers in Bank Report 830 of 1975has proved to be accurate in that it predicted the fairly rapid re-emergenceof an adequate fertilizer supply to meet demand.

Developments Since 1975

iii. Fertilizer prices peaked at the end of 1974 but, at the beginningof 1975, dropped sharply as the demand for high priced fertilizers and rawmaterials declined. Fertilizer export prices (and some raw material exportprices) had risen almost fivefold from the beginning of 1972 to 1975, at whichpoint many farmers in both developed and developing countries could no longerjustify using them. As a result, in the fertilizer year 1974/75, world

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fertilizer consumption declined by about 3%, representing the first fall infertilizer consumption in more than 30 years. Phosphate fertilizer consumptionfell by 6.1%, potash by 4.4% and nitrogen just maintained the level of theprevious year.

iv. In the following two fertilizer years, 1975176 and 1976/77, fer-tilizer export prices continued to fall almost to their pre-crisis levels of1971172, resulting in a much more reasonable crop/fertilizer price relation-ship. At the same time, worldwide fertilizer consumption regained the pre-vious level of 1973/74, although not all regions recovered at the same rate.Consumption in developing countries, which had only shown a 1% growth rate in1974/75 increased by almost 9% in 1975/76, but developed countries did notas a group regain the 1973/74 consumption figures until the end of 1976/77.The centrally planned economies, which had not been so affected by the worldfertilizer crisis, increased their consumption by about 20% in the two yearsfollowing 1973/74. World fertilizer consumption in 1976177 increased by about6.4% and for developing countries alone the increase was about 16%. Thefigures for 1977/78 indicate a world fertilizer consumption increase of 4%over the previous year, although this fall in growth rate is largely explainedby a decrease of fertilizer use in the USA due to a poor agricultural seasonand acreage cutbacks. In the developing countries, total nutrient consumptionfor 1977/78 showed a growth rate of 13% over 1976/77.

v. The fertilizer crisis of the mid-1970's is now well in the past andmore reasonable and stable fertilizer prices have been prevailing for thelast two or three years. Nevertheless, it is important to understand whatbrought about the crisis in order to try to avoid a similar recurrence.Although there was a tight fertilizer supply situation at the beginning of1974, it is now clear that the magnitude of the shortage was more apparentthan real, and the crisis was aggravated by several other factors. Forexample, the pessimistic view at that time, that the world was entering aperiod of severe fertilizer shortages resulted in a great deal of speculativebuying. In 1974/75, many major fertilizer importers, both in developed anddeveloping countries, bought much more fertilizer raw material and finishedfertilizers, even at the very high price levels, than they had done theprevious year. As a result, some developing countries ended the year withsubstantial excess stocks, some of which were unfortunately lost due to thetemporary and inadequate nature of the storage facilities. Much of theconfusion existing in the market at that time was caused by inadequate andunreliable data on the international demand and supply of fertilizer and theWorld Food Conference recommended that the international agencies set up anauthoritative data base. This has been done through the UNIDO/FAO/World BankFertilizer Working Group which, in collaboration with the fertilizer industryand other national and international fertilizer organizations, prepares andpublishes forecasts of world and regional supply, demand and balances. Supplyforecasts are built-up country by country making allowance for plant util-ization and losses during distribution. Demand forecasts using variousmethodologies prepared by the sponsoring agencies and representatives ofindustry are discussed and evaluated on their merits. These forecasts reflectperceived effective demand and not fertilizer requirements as calculated tomeet certain agricultural or other goals. Most of the forecasts presented inthe main report have been prepared by the World Bank Fertilizer Unit incollaboration with the Fertilizer Working Group.

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Current and Future Fertilizer Requirements

vi. Nitrogen is the most important plant nutrient; its requirements areabout equal to those of the other two major nutrients, phosphate and potash,combined and it needs more frequent applications.- Virtually all nitrogenfertilizer is manufactured from ammonia as an intermediate, and about 85% ofthe world's ammonia production is converted into fertilizer with the remaining15% going into other industrial uses. Over the last 20 years, world nitrogenfertilizer consumption has increased at an average rate of 9.6% per annum.Forecasts recently prepared by the Fertilizer Working Group indicate that from1977/78 to 1982/83, demand increase will average about 6% per annum. Duringthe same period, however, the potential supply of nitrogen fertilizers, basedon new capacity being constructed, is forecast to increase at a slightlyhigher rate, leading to an increasing surplus of 4.3 million tons of N orabout 7% of demand by 1981/82, after which the surplus starts to diminish.Much of this potential surplus arises in the USSR, where more than 40 newnitrogen plants are under construction, many of which will be export-oriented.

vii. Although nitrogen fertilizer supply would appear to be more thanadequate until 1983/84, in practice a balanced situation may well occurearlier due to closures of small technically obsolete plants, or plants basedon expensive feedstock such as naphtha. Already in 1978/79, in the face ofan increasing surplus and low prices, some plants in the USA, Europe and Japanhave closed down, and it seems likely that some of the more uneconomic ofthese will remain permanently closed. Much also depends on the ability ofthe USSR to bring its new plants on stream as planned. Obviously any seriousdelay in doing this will reduce any surplus in the early 1980's. However,even allowing for the effect of these other factors, the potential supplysituation is expected to be more than adequate to meet the nitrogen fertilizerneeds for the next few years.

viii. About 97% of all phosphates produced comes from phosphate rock andabout 90% of all phosphates is used as fertilizers. The remaining 10% goesinto the manufacture of a variety of products, mainly detergents and animalphosphate feed. Phosphate rock supply is expected to remain adequate overthe next five years, and, since many of the major rock producers have thecapability of expanding production quickly throughout the 1980's there arenot expected to be other than, at the most, temporary shortages.

ix. One of the major changes taking place in the phosphate industryis the trend towards more concentrated phosphate fertilizers based on phos-phoric acid. At the same time the production of lower grade products suchas single superphosphate and basic slag is declining. It is forecast thatnearly all new phosphate fertilizer demand will be met by phosphoric acidbased fertilizers, and as most new acid plants seem likely to be built nearphosphate mines, many of them in developing countries, there will be somemajor changes in phosphate fertilizer production and trading patterns in thenext few years. With the exception of the USA which has its own rock reservesand is a large exporter of both rock and phosphate fertilizer, most otherdeveloped countries, which are not resource-based, are finding it increasingly

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difficult to manufacture phosphate fertilizers in competition with new largephosphate plants in developing countries situated near the mine and specific-ally designed to use cheap low-grade rock.

x. Phosphate fertilizer consumption has increased on average by about6.2% per annum over the last 20 years. During the fall in fertilizer consump-tion in 1974/75, phosphate was hit hardest with a drop of more than 6%. Thisdecline occurred primarily in developed countries where phosphate use levelswere already very high. Phosphate consumption recovered over the next threeyears; it is now almost back at its former growth rate, and is expected toincrease by an average of about 5.5% per annum until 1982/83. Both world andregional balances indicate that a peak phosphate supply surplus was reachedin 1977/78, and that this surplus will gradually diminish to give way to abalanced situation by about 1982/83. It cannot be excluded, however, thatsome supply shortages could occur within the next five years. The principalreason is that many of the new plants which are planned to come on stream inthe next two or three years are in developing countries and may be delayed.Secondly, the gradual decline in rock quality available in the export marketas the high grade rocks are being depleted may reduce the capacity of existingplants. Also, compared with nitrogen, there are not so many new phosphatefertilizer projects in the pipeline after about 1980, and the situation isfurther complicated by the fact that new phosphoric acid capacity has often togo hand in hand with new rock supply capacity. The phosphate situation musttherefore be monitored carefully over the next two or three years to avoid ashortfall.

xi. About 96% of world potash consumption is for fertilizers and theremaining 4% goes to various industrial uses. Up to the 1960's, potash pro-duction was concentrated in Europe and the USA, but the USSR and Canada havenow become the major producers, and most new expansions will take place inthese two countries which have the greater part of the world's known reserves.World potash consumption has increased at an average annual rate of about 6%over the last 20 years, and is expected to grow at about 5% over the next 5years. Forecasts of potash fertilizer supply and demand in the world indicatea rather balanced market until 1982/83, up to which time present firm plans toexpand potash capacity will be able to meet forecast demand. However, abouthalf of the new planned potash capacity is in the USSR and, if projects (onwhich up-to-date information is limited) in that country are delayed, a tightpotash supply could develop in the next few years. In view of this poten-tially tight situation in the early 1980's, it would seem necessary forproducers to go ahead with new plans for expansion.

Fertilizer Export Prices and Production Costs

xii. The international fertilizer business is well known for its cyclicalnature, and an analysis of historical fertilizer export prices and supply/demand data, indicates that the frequency of major price peaking is aboutevery eight or nine years, with the two most recent peak price years being1965 and 1974. In the past, all fertilizer materials have tended to show thesame general cyclical price patterns although to varying degrees. It appearsthat after each period of high prices and tight supply, there is a surge in

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adding new capacity, usually leading to about 5 to 10% excess supply. Interms of the export market which, to a large degree, depends on marginalproduction as its source, the proportion of excess supply becomes very muchgreater, at least temporarily, 20% and more. If the historical pattern wereto continue, we would have another price peak about 1983-84. For potashand phosphate, which both show a gradually declining surplus, a tight situa-tion might well develop by 1983-84. However, for nitrogen there would appearto be ample supplies through this period, unless the present market situationleads to a permanent closing of a greater proportion of the less economicplants than currently announced.

xiii. After the price peak of 1974, all fertilizer and raw material pricesfell sharply, and for the last two years they have remained reasonably stableand at relatively low levels with adequate supply to meet demand. Early 1979in face of low export prices, about 4 million tons of US ammonia capacity wasclosed down and increased naphtha prices have caused closure of plants inEurope and Japan. As a result of this and also because of the significantincrease in energy prices during 1979, nitrogen fertilizer prices have in-creased. Prices are expected to level out again however as new export basedplants are commissioned and as higher prices entice US capacity back onstream. Phosphate rock export prices are dominated by the USA and Morocco. Inreal terms, they are well above their pre-crisis level and are projected toremain fairly steady for the next few years. Phosphate fertilizer prices onthe other hand have been depressed during the last two years in a surplussupply situation, but this surplus is slowly being reduced and prices arealready hardening. This increase is expected to continue through the early1980's with perhaps a sharp price rise toward the end of this period unlessnew capacity becomes available. Potash prices, which historically have beenrelatively stable compared with other fertilizer materials, are expected toincrease gradually over the next few years in the face of the tighteningsupply situation.

xiv. Projections of long-term fertilizer prices cannot only be relatedto market considerations but must also be based on prices or price expecta-tions that provide an acceptable return on investment over the life of afertilizer project. In order to help make realistic projections of fertil-izer prices, the Bank has calculated the cost of producing the principalnitrogen, phosphate and potash fertilizers for a range of operating condi-tions and site locations for plants that would come on stream in 1982. Inview of the real cost increases in plant investment, feedstock and energycosts which have occurred recently, fertilizer prices will have to rise verysignificantly above their current levels if new investments are to give anacceptable return. Current fertilizer prices are relatively low and theprojected long-term equilibrium prices are, in real terms, generally ofthe same order as, or only slightly greater than, the average historicalprices over the past 10-15 years. To a larger extent the increased costsof both investment and energy have been offset by the benefits arising fromimproved technology and large scale operation. Although energy costs are

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important components of nitrogenous fertilizer production costs, the increasein oil prices in the early 1970s was not primarily responsible for the large

increase in fertilizer prices that took place subsequently. The increase in

energy costs is likely to have an important but not overriding effect on ureaproduction costs in the future and in many cases the effect of investment-

related costs will be as important.

The Fertilizer Situation in Developing Countries

xv. Between 1965/66 and 1982/83 the share of world consumption by

developing countries will have almost doubled, from 16 to 28 million tons for

all plant nutrients. Over the same period, their share of world fertilizer

production will have grown three-fold, from 7 to 21 million tons. Developingcountries as a group are moving quickly towards self-sufficiency in nitrogenand phosphate fertilizers, although with limited potash reserves in their

territories they will depend on imports for this material. After the fer-

tilizer crisis in the mid-1970s, many developing countries and particularlythose with large domestic fertilizer markets stepped up their efforts to build

their own new fertilizer production capacity to avoid dependence on an uncer-tain international fertilizer market and also as a critical element in assur-ing their longer term food security.

xvi. During the last two decades, food production has become increasinglydependent on fertilizer use, and it has been estimated that about 50% of all

increased food production in developing countries will be achieved through

increased fertilizer use along with other associated agricultural inputs.Undoubtedly, higher fertilizer use is the most important way for developing

countries to become self-sufficient in food production. Many of these coun-

tries are importing food grains in increasing quantities, and the InternationalFood Policy Research Institute (IFPRI) projects that by 1990, annual import

needs of grain in developing countries will be between 120 and 145 milliontons. Based on these figures, it is estimated that developing countries will

have to increase their fertilizer use by at least 25% over that alreadyprojected in order to become self-sufficient in food.

xvii. As was pointed out in Report 830, some of the major constraints to

the increased use of fertilizers and hence food production in many developingcountries occur in the marketing and distribution system. These can includeinadequate transport and storage and also lack of credit, extension work

directed to fertilizer use, and effective food and fertilizer pricing policies.As the first Bank fertilizer projects in the 1960's and 1970's were mainlyimport substitutive, no major additions to fertilizer marketing and distribu-

tion were normally required, but this situation is changing as both fertilizer

consumption and supply in developing countries has increased significantly.Unless a major effort is made to remove constraints in distribution and mar-

keting, along with the timely increase in supply, the possibilities forincreasing food production in many developing countries will be severelylimited. Clearly, unless such infrastructural facilities are provided along

with new fertilizer production units, the benefits from investments in the

latter may not be fully realized.

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xviii. It seems unlikely that the availability of raw materials will be aconstraint to fertilizer supply in the foreseeable future. The feedstocksfor nitrogenous fertilizers are widely distributed in developing countries.Natural gas will remain the preferred feedstock, but as the price of gas, oiland naphtha increases, more consideration will need to be given to coal asa raw material. There are sufficient phosphate and potash reserves to lastfor several hundred years but the cost of recovery is expected to increasesteadily as the higher quality and the more accessible reserves are depleted.About 10% of all nitrogen fertilizer is from organic waste and FAO has esti-mated there is potential to increase this to about 25%. There are howevercompeting uses for this waste material such as fuel and also the low concen-tration and difficulties of collecting and processing will prevent thispotential from being fully achieved.

xix. The biological fixation of nitrogen offers a very cheap and promisingsupplementary source of nitrogen for crops, and many countries are alreadyobtaining contributions of plant nutrients from the fixation of nitrogen usinglegumes and green manuring or Azolla culture. The Bank has in fact includedlegume based nitrogen fixation technology in some 20 projects in a wide rangeof countries with encouraging results. Considerable research work is alsobeing carried out on fostering nitrogen fixing capabilities in non-leguminousplants which constitutes a much greater proportion of the world food crops,but this work is long-term and unlikely to make any impact on the world fer-tilizer situation within the next 10-15 years.

xx. Although considerable publicity has been given to the possibilityof the oil/gas rich countries helping developing countries meet their fer-tilizer requirements, little progress has so far been achieved in doing this.The principal reason is that although many OPEC countries are now flaring gas,the cost of collecting and sweetening this gas is not insignificant. Alsothe very high cost of infrastructure and difficulties of building and operat-ing fertilizer plants in remote locations often outweigh the benefits ofrelatively cheap feedstock. In the longer-term, it seems likely that therelative advantage of producing fertilizers in energy rich countries willincrease, and particularly as they develop their industrial infrastructure andmanagement skills, an increasing number of fertilizer plants will be built inthese countries.

Fertilizer Investment Requirements

xxi. It seems unlikely that there will be any major developments infertilizer technology over the next decade or so, that will significantlyaffect fertilizer investment costs. Although attention has been focused onthe catalytic or enzymatic fixation of nitrogen and considerable research workis being carried out, authorities on this subject do not expect a major break-through within the next 20 years. Nor is it likely that there will be anyserious alternative to the use of large high technology fertilizer plants tosupply the world's needs, and although adaptive technology may have applica-tions in specific locations, its contribution to the overall world supplysituation will remain small. Based on the long-term fertilizer forecasts andthe investment costs calculated for this review, estimates have been made of

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the total investments and new capacity that will be required to come on streamin the two five year periods between 1983 and 1993 both to meet new demand,and also replace worn-out plants.

xxii. The results indicate that between 1983 and 1988 the world willrequire, per annum, on average about 30 new fertilizer complexes with atotal investment cost of about US$6-7 billion. For the period 1988-1993, therequirements will be about 25% higher. Taking into account the likely changesin world production and trading patterns throughout these periods, it isfurther estimated that between 1983-1988 as part of total world requirementsthe developing market economies will need about 13 new fertilizer complexesper annum, on average, with a total investment cost of about US$2.5 - US$3.0billion. Here again, the requirements for the following five years will beabout 25% more. In addition to the cost of the production units, considerableinvestment will have to be provided for the distribution, storage and trans-portation of this fertilizer and also for secondary production units. Itis difficult to estimate these requirements precisely but it is likely to beof the order of US$1 billion per annum over the 1983-93 period.

Bank Group Fertilizer Operations

xxiii. To help developing countries satisfy their fertilizer needs, theWorld Bank Group has provided significant financial and technical help overthe past decade. Since 1968 about 27 major fertilizer projects in 13 coun-tries have been financed by the Bank Group with loans of US$1.9 billion outof a total project cost of about US$6 billion. Besides financing, an equallyimportant aspect of Bank help has been the assistance given to developingcountries during the preparation, appraisal and implementation of the projects.To support the loans, a great deal of investigational work is required onmarkets, financial, technical, managerial and economic aspects of the projects.In addition, the Bank frequently helps governments in identifying the needfor, and assists in the implementation, of policy and institutional improve-ments necessary to promote the efficient use of fertilizers. Co-financing hascontinued to be an important element in Bank Group financed fertilizer pro-jects, and the Bank has collaborated with many other lenders, some of whichhave depended on the Bank for appraisal and coordination of the lendingactivities.

xxiv. The main activities of the Bank Group were initially concentratedin those countries where the need for fertilizers was greatest and whichcould economically justify the development of domestic fertilizer production,but the Bank has also financed a few export-oriented projects in countrieswith a clear economic advantage in the field due to the presence of domesticraw materials and other resources. The Bank has helped finance projects forall three nutrients: nitrogen, phosphate and potash. In other cases, projectsto debottleneck existing plants and increase capacity utilization have beenfinanced. As a result of the comprehensive approach to fertilizer projectsand although many of the projects are large and complex, the overall perform-ance of Bank projects so far completed has been generally good, and most of

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the plants have operated at relatively high utilization rates and shown satis-factory performance. This, in part, is due to provisions in Bank projects forobtaining technical help during the critical periods of implementation andstart-up with adequate arrangements for training programs for management andoperators.

xxv. The Bank experience has clearly demonstrated the ability of manydeveloping countries, with appropriate management and technical assistance, tooperate the large, high technology plants efficiently. The economic returnsof the Bank Group projects so far completed are satisfactory and, on average,close to appraisal estimates, despite increases in the costs of some projectscompleted during the years of particularly high worldwide inflation followingthe 1973-74 oil price hikes. Although the primary object of the Bank's workhas been to provide fertilizers at economic costs, there have been many otherbenefits from these projects which must be taken into account in assessing thevalue of the Bank's contribution to developing countries. Large fertilizerplants have often initiated improved port, transportation facilities andrelated engineering and agricultural industries. The implementation of theseprojects has also led to the development of local skills in design, engineer-ing and equipment manufacture, and it has also given management experience inconstruction and operation of large industrial projects.

xxvi. The Bank has given considerable help to member governments who haveasked for advice on the development of their countries' fertilizer sectorsand, in many cases, this has been included as a part of Bank preappraisaland economic missions. In addition to helping to provide fertilizer produc-tion facilities, assistance has been given on other aspects of the industryparticularly in pricing, marketing and financial management. The Bank hasconsistently opposed direct or indirect subsidization of its fertilizerproduction projects in order to prevent uneconomic investments, and to promoteefficient operations. A recent review of the fertilizer pricing systems incountries with Bank financed fertilizer plants seems to confirm that theBank, on the whole, has succeeded in achieving this. The review shows thatin almost every case, the fertilizer pricing policy adopted meets two basicobjectives of (a) making fertilizers available to the farmers at stable andattractive prices and, at the same time, (b) giving the producers a reason-able return on their investments to encourage increased production andefficient operations.

xxvii. On the other hand, although in principle the Bank is opposed to allsubsidy arrangements due to the potential inefficiencies involved and theburden on the budget, it recognizes that subsidization of farmers' prices offertilizers cannot be eliminated without a careful analysis of the relation-ships with crop - and other input - prices and with the overall agriculturalsector price and subsidy policies and their effect on the purchasing powerof a large segment of a country's population. While the Bank has generallyinsisted that the farmers' subsidy at least be made explicit in the pricingsystem, and while it has sought general assurances on the country's intentionsto phase out subsidies in principle, it has also normally helped the borrowersto carry out studies on the costs and benefits of fertilizer use to farmers,

in the context of an overall review of agriculture market interventions.

xxviii. The Bank Group Fertilizer Unit was established in 1974 with themajor objective of coordinating Bank Group assistance in the form of bothfinance and advisory services for improved supply and use of fertilizers indeveloping countries. The Unit offers an advisory service to all departmentsin the Bank Group as well as to other international agencies and developingcountries. On behalf of the Bank, the Unit plays an active role in theUNIDO/FAO/World Bank Fertilizer Working Group which, in collaboration withthe world fertilizer industry, is responsible for maintaining an authoritativedata base on world supply/demand balances. These forecasts are used by theFAO Fertilizer Commission, the UNIDO Consultations on Fertilizers and otherinternational meetings where fertilizer use and food production are considered.The main purpose of this Working Group is to provide reliable data for invest-ment planning and thereby to help prevent, or at least dampen, the cyclicalimbalances in fertilizer supply and demand.

xxix. To improve methods of investment planning, the Bank, in line withrecommendations made in Bank Report 830 in 1975, has developed a fertilizerinvestment planning model. The basic objective of the model is to optimizethe selection of plant sites, feedstock, product mix and transportationpatterns. Several major regional and country studies have been carried out incollaboration with member governments to develop optimal fertilizer investmentprograms. This type of work will become increasingly useful in planning Banklending programs for the fertilizer sector.

Other International Assistance in Fertilizers to Developing Countries

xxx. Many other international agencies have also been active in helpingdeveloping countries meet their fertilizer needs. Both the United NationsFood and Agriculture Organization (FAO) and the United Nations IndustrialDevelopment Organization (UNIDO) have fertilizer programs. FAO's assistanceincludes country and regional studies to help developing countries establishfertilizer use policies, and it has also included many field projects andtraining programs. FAO also operates the International Fertilizer SupplyScheme (IFS) which was established in 1974 to help those countries mostseverely affected by the fertilizer crisis in times of shortage. By the endof 1978, more than US$120 million had been pledged to the IFS and nearly halfa million tons of fertilizer had been delivered to 52 countries. UNIDO'sactivities have centered on providing technical assistance and also on advis-ing developing countries through its Fertilizer Consultation Meetings. UNIDOhas provided specialists to advise on the debottlenecking and maintenance offertilizer plants, and has also organized many training courses on fertilizertopics.

xxxi. In addition to their support through multinational agencies, membersof the OECD Development Assistance Committee (DAC) provide considerable bila-teral fertilizer aid. From 1974-77, DAC members financed US$970 million forfertilizer supplies and about US$380 million for new fertilizer plants. Other

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entities which also provide substantial help either by technical assistanceand/or financing fertilizer projects include the Inter-American DevelopmentBank (IDB), the Asian Development Bank (ADB), the Economic and Social Com-mission for Asia and the Pacific (ESCAP) and the International FertilizerDevelopment Center (IFDC). The Bank works closely with all these agenciesand entities either by co-financing fertilizer projects or by collaboratingon other fertilizer programs.

The Future Role of the World Bank Group in Fertilizer Development

xxxii. The principal conclusions on the role of the World Bank in fertilizerdevelopment which emerge from this review are as follows:

1. The World Bank Group is playing an important part inhelping developing countries meet their fertilizerrequirements and should continue to do so. Based onprevious Bank Group assistance and assuming this iscontinued in about the same proportion to the needsof developing countries as in the past, the Bank Groupwould need to lend some US$1.3 billion for plants comingon stream between 1983-88 and about US$1.5 billion forthe subsequent five years 1988-93. The Bank Group'splanned involvement in fertilizer projects for the fiveyear fiscal period FY80/84 is about US$1 billion. Thisfigure reflects the somewhat lower investment activityfor fertilizer plants in developing countries during thenext few years due to the near term slight oversupplysituation in nitrogen and phosphate fertilizers. Banklending for fertilizer projects would, of course, haveto be determined on an individual country basis and inthe light of the countries' overall priorities.

2. The World Bank Group should also help developing coun-tries finance fertilizer infrastructure. Over the nextten years or so, investments for transport, storage andsecondary production of fertilizers in developing coun-tries is expected to be about US$10 billion, largely,however, for local currency expenditures. So far, theBank has made limited progress in identifying andappraising worthwhile projects in this area and tobe more succesful in the future, it will be necessaryto acquire additional marketing expertise and tomake arrangements for coordinating this multi-sectoractivity within the Bank. The prime oblective of Bankassistance for fertilizer infrastructure will be toimprove the marketing and distribution systems and, whereappropriate, to help provide key items of transportationand storage. The Bank Group should also continue to helpgovernments of developing countries in other fertilizersector planning including production, imports, storage,distribution, pricing policies, credit, extension work,etc.

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3. To ensure that prudent investments are made in fertil-izer production and infrastructural facilities to meetthe fertilizer needs of developing countries, the BankGroup should continue its work on country and regional

fertilizer sector investment planning which would alsohelp to promote regional production and trade agreements.

4. The World Bank Group should, through the UNIDO/FAO/World Bank Fertilizer Working Group, continue tocooperate with other international agencies, national

agencies and industries, to establish, maintain anddisseminate worldwide information on fertilizer supplyand demand as well as other important fertilizerinformation.

September 1979

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

I. INTRODUCTION

1.01 The main purpose of this study is to review the world fe-.ilizersituation, particuarly with regard to the fertilizer requirements of develop-ing countries and to examine and assess the role that the Bank has played andwill need to play in the future to help these countries meet their fertilizerneeds. This report reviews the international fertilizer situation over thelast three years (1975-78), considers the near-term future outlook for ferti-lizers and provides a reassessment of the conclusions of Bank Report 830,Fertilizer Requirements of Developing Countries of July 1975. The work thatthe Bank has done in recent years and will need to do in future years to helpincrease both the production and use of fertilizers is discussed. The regionalclassification used in this report is that of the FAO and adopted by theUNIDO/FAO/World Bank Fertilizer Working Group. A country listing is providedin Annex 1.

1.02 The report is concerned mainly with chemical fertilizer. This isonly one of several complementary inputs, all of which, in varying degrees,contribute to raise crop yields and help increase food and agriculturalproduction. For the limited purpose of this report, however, it had to beassumed that the other inputs would generally become available to the farmerprogressively together with fertilizer as part of a total package of complemen-tary inputs. The report does not discuss the effects of changes in fertilizerproduction costs and prices on food and agricultural production costs andprices. These cannot be seen in isolation, but must be considered within thecontext of a government's agriculture policy in general and its pricing andsubsidy policies in particular, which is obviously not the purpose of thisreport. It is appreciated that there needs to be a certain crop/fertilizervalue/cost ratio to provide the farmer with the right incentive to use fer-tilizer. Therefore, it is implicitly assumed in this report that any changein fertilizer prices would be followed by an adjustment in crop prices ortaken care of through subsidies or otherwise, in order to maintain the cropvalue/ fertilizer cost ratio at the required incentive level.

1.03 In the fertilizer year 1973/74, the international fertilizer situa-tion suffered a major upset with apparent shortages of materials and priceswhich reached very high, unprecedented levels. In November 1974, the WorldFood Conference, held in Rome, discussed the problem and recommended that theinternational agencies, including the World Bank Group, should take action tohelp overcome the fertilizer shortage. Fertilizer prices and shortages hadincreased throughout 1973 and finally peaked in the last few months of 1974,with prices reaching several times their pre-crisis level. Many developingcountries could not obtain all the fertilizers they required or could notafford them. Although an International Fertilizer Supply Scheme (IFS) wasestablished in July 1974 to help the most severely affected countries, supportfor the scheme fell far short of need and many of the poorest countries sufferedmajor setbacks in their fertilizer programs during the period 1973-1975. Inthe first half of 1975, the availability and prices of fertilizer eased, duemainly to a fall in demand caused by the resistance to high prices.

1.04 There had undoubtedly been a serious regression in fertilizer demandin some areas of the world and evidence that agricultural programs in manycountries had been adversely affected. For example, some farmers due eitherto lack of fertilizer or high prices were turning from high-yielding hybridcereals which respond well to high rates of fertilizer application, to lower-yielding native varieties. In some countries, it was evident that additionalconstraints to the use of fertilizer had occurred in the marketing and distri-bution system.

1.05 Although it had also become clear that the major difficultiesexperienced during this period would undoubtedly affect the fertilizer scenefor many years to come, it had become apparent by 1976 that the supply pros-pects in both the short and medium term were very much better than had beenfeared. Whereas a year or so earlier, it had been projected that in 1980/81there would be a serious shortage of fertilizers, a major commitment to newcapacity was now expected to at least balance supply with demand, althoughthis was due in part to the regression in demand which had occurred in1974/75, the effect of which is still being felt.

1.06 The market upsets of 1974/75 had also emphasized again the cyclicalnature of the fertilizer industry and the harmful effect that this can have,particularly for developing countries. It was also clear in this particularcase that the situation had been exacerbated by the lack of reliable informa-tion on which to assess the current fertilizer situation and one of the mostimportant resolutions of the World Food Conference was that the internationalagencies and other informed organizations should collaborate to provide anauthoritative source of fertilizer information which would help to plan newcapacity more accurately and thus minimize cyclical imbalances.

1.07 The crisis in 1974/75 had also demonstrated to many developingcountries their vulnerability to uncertain fertilizer imports which couldhave serious and long-term implications on their future food productionprograms. Many developing countries were now considering the establishmentof new fertilizer capacity in their territories, even if it entailed somepossible premium to ensure a regular source of fertilizer. It was antici-pated that about half of the new capacity expected to come on stream in theworld by the end of this decade would be located in developing countries,compared with about 15% of the total world capacity operating in these coun-tries in 1975. The Bank Group has made a major contribution to help develop-ing countries realize their own fertilizer production and, in 1974 and 1975alone, had loaned more than US$750 million for projects with a total invest-ment of more than US$2 billion. At that time, it was estimated that about15% of the additional fertilizer capacity that would come on stream by 1980would be Bank-financed, and it was recommended (Report 830) that the Bankshould continue its active lending program for fertilizer plants with avolume of US$1 billion over the period 1975-1980.

1.08 It was further recommended that the Bank should adopt a morecomprehensive approach towards fertilizer production, distribution and use.Whilst continuing the financing of primary fertilizer production facilitiesto help meet demand requirements after 1980 and trying to maximize productionof existing fertilizer capacity, the Bank was to place increasing emphasis onsecondary production operations and the fertilizer distribution system; theBank should also continue to examine possibilities for regional fertilizercollaboration among developing countries.

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1.09 The Bank was also to monitor new technical improvements whichcould have important implications on new fertilizer investment requirementsand work closely with the Consultative Group for International AgriculturalResearch and the new International Fertilizer Development Center to ensurethat research findings and new developments, where appropriate, are incor-porated into Bank projects. In particular, developments in new nitrogenfertilizers by biological fixation, or improved technology to produce ammoniafrom hydrocarbon fuels and from hydrogen produced from electrolysis should bemonitored. Organic fertilizers in forms that can be more easily processed anddistributed were also to be considered.

1.10 Finally, it was emphasized that, although only one of many inputelements for food production, fertilizer is probably the most important, par-ticularly in terms of cost for the individual farmer and in terms of foreignexchange for the nation. The prime aim of the Bank's help to developing coun-tries was to continue to be the efficient production and use of fertilizers.

II. DEVELOPMENTS SINCE 1975

2.01 Bank Report No. 830 "Fertilizer Requirements of Developing Coun-tries - Revised Outlook in 1975" was prepared during a period of major changein the international fertilizer industry. During several years of relativestability from about 1968 to the beginning of 1972, real fertilizer priceshad remained steady or fluctuated only slightly. In 1972, most fertilizerprices started to rise gradually, reflecting a narrowing of the supply/demandbalance, and, in 1974, prices increased rapidly, in some cases to severaltimes their early 1973 levels. These changes are clearly shown on the graphon the following page.

2.02 At the beginning of 1975, fertilizer prices started to drop sharplyas the demand for high priced fertilizers fell and stocks of fertilizermaterials both in exporting and importing countries throughout the worldincreased. When Report No. 830 was finalized in July 1975, export priceswere still falling rapidly and the overall fertilizer situation was stillvery confused.

2.03 Fertilizer export prices continued to fall steadily until the firsthalf of 1976, but have remained fairly constant thereafter. For most majorfertilizer materials, prices in constant dollar terms have now fallen backto the average prices that prevailed in the 1968-1972 period, with the excep-tion of phosphate rock prices which have remained higher.

2.04 Even in retrospect, it is difficult to explain fully the reasonsfor the drastic price changes and apparent shortage of fertilizer whichoccurred in the mid-1970's. The fertilizer industry is, of course, wellknown for its cyclical behavior, but the amplitude of the price increasewas much greater than any that had previously occurred. It is important,however, to understand what happened during this period in order to try toavoid reoccurrences. The changes in fertilizer consumption which have takenplace since the fertilizer crisis are shown in the table below and discussedthereafter.

EXPORT PRICE TRENDS FOR SELECTED FERTILIZER MATERIALS(US $ PER TON OF PRODUCT)

CURRENT PRICES

500- 500

400 400

TRIPLE SUPEPH0SPHA TE -TSP (f o.b U S Gulf)AMMONIUM SULPHATE - AS (f.o b. W Europe)

. _ _ _DIAMMONIUM PHOSPHATE - DAP (f,o b U S Gulf) Urea

300 . POTASSIUM CHLORIDE KCI (f o b Vancouver) 3_ _ _____00UREA (bagged, f o b W Europe) 3, 3

_, _ _ _ PHOSPHATE ROCK 72% TPL (f.a.s. Casablanca) :1-- - -- - - PHOSPHORIC ACID (f.o b U S. Gulf) , /

AMMONIA (f.o b W Furope)I Phosphoric

'Acid

200- 2L iDAP0- }

AS~~~~~~~~~~~~~~~~~~~~~~~:100-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0

-~~~~~~~~~~~..... .......:- .. Potassium

... .. .... .. .. Phosphate Rock -

O - II I I I I I I I IT ' I I - I ' I I O1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

World Fertilizer Consumption 1974-1978 a/(Million Tons Nutrients)

1973/74 1974/75 1975/76 1976/77 1977/78

Developed Market Economies: N 17.85 17.07 19.22 19.99 19.70P205 14.05 11.77 12.22 13.36 13.24K 0 11.48 10.11 10.52 11.54 11.522

Total Nutrients 43.38 38.95 41.96 44.89 44.46

Developing Market Economies: N 6.78 6.77 7.67 8.77 9.68p205 3.37 3.40 3.73 4.48 5.10K 0 1.89 1.97 1.81 2.13 2.61

Total Nutrients 12.02 12.14 13.21 15.38 17.39

Centrally Planned Economies: N 14.07 14.73 16.34 16.29 18.33p 205 6.74 7.51 8.17 8.65 8.95K 0 7.36 7.74 9.21 9.40 9.162

Total Nutrients 28.17 29.98 33.72 34.34 36.44

World: N 38.68 38.57 43.23 45.05 47.71P 205 24.16 22.68 24.12 26.49 27.29K 0 20.73 19.82 21.54 23.07 23.292

Total Nutrients 83.57 81.07 88.89 94.61 98.29

a/ Country classification by Economic Classes and Regions are given inAnnex 1.

A. Fertilizer Year 1974/75

2.05 After the significant increase in world fertilizer consumptionthat occurred in both 1972/73 and 1973/74, consumption in the following year(1974/75) declined by about 2.5 million nutrient tons, or 3%, representing thefirst fall in fertilizer use in the world in more than 30 years. Since con-sumption in 1974/75 in the developing and centrally planned economies stillincreased, though at a slower rate than in the past, this decline occurredpredominantly in the developed market economies. Overall, phosphate consump-tion fell by 6.1% and potash by 4.4%, and only nitrogen was able to retainmore or less the level of the previous year. Many countries, and in parti-cular Indonesia, the Philippines, India and Brazil, all of whom are majorimporters of fertilizers finished the year with very large fertilizer stocks.Europe and Japan had large stocks of phosphate rock.

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B. Fertilizer Year 1975/76

2.06 Fertilizer export and raw material prices, both of which had

affected domestic prices, fell throughout 1975 and in the early months of

1976, thus ensuring a more reasonable crop/fertilizer price relationship.With lower prices and ample stocks, consumption recovered from the decline

of the previous year and rose to about 88.9 million tons of nutrients. This

was about 6.4% or about 5 million tons over the previous peak level of 1973/74and 9.6% over 1974/75, indicating that world fertilizer demand was approach-

ing the average growth rate of 6.8% that had prevailed during the ten years

prior to the crisis. In particular, consumption in developing countries

increased and exceeded 13.0 million tons, which was about 10% over 1973/74

and about 9% over 1974/75. The centrally planned economies which had not

been so affected by the world fertilizer crisis, increased their consumption

further in 1975/76 to 20% over 1973/74 levels. Developed countries, however,

did not regain their previous consumption levels, remaining about 3% below

that in the peak year 1973/74, although consumption rose by about 8% in

1975/76.

C. Fertilizer Year 1976/77

2.07 The improvement in the world fertilizer situation continued again

in 1976/77 with a total nutrient consumption of 94.6 million tons, an in-

crease of 6 million tons or 6.6% over the previous year. Nitrogen consump-

tion, estimated at 45.1 million tons, showed an increase of 4.4%. Phosphate

at 26.5 million tons increased by 10% and more than a third of this was in

countries where phosphate had fallen most drastically in 1974/75 although in

certain regions it had not yet recovered its 1973/74 level. Potash, estimated

at 23 million tons rose by 7.1%. For the second year in succession, consump-

tion of fertilizers was partly met by a further depletion of the stock build-

up that took place in 1974/75.

D. Fertilizer Year 1977/78

2.08 The FAO estimates for 1977/78 fertilizer consumption show an overall

increase in fertilizer usage of just under 4% compared with the previous year

at a total nutrient consumption of 98.3 million tons. This is about 1% lower

than the forecast demand, due mainly to the poor USA crop year and acreage

cut-backs which led to a decrease in total nutrient consumption there of about

6%. Also, the FAO estimates show a lower than expected growth of fertilizer

consumption in the USSR. For the developing countries, the total nutrient

consumption for 1977/78 was very much as forecast with a growth rate of

13%.

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E. Analysis and Consequences of the 1974 Fertilizer Crisis

2.09 Although the crisis in 1974/75 would at first sight appear to havebeen simply the problem of inadequate supply relative to demand, the severityof the market upset and consequences indicate that the situation was aggra-vated by other factors. Not all countries suffered to the same extent; forexample, most countries in the centrally planned economies were free fromunreasonable price increases during this period. In the USA,which is self-sufficient in fertilizer raw materials and products, there was a more limiteddisturbance of the market and prices. The main effect of high prices of rawmaterials and fertilizer products was felt in those countries who depend onimports either for raw materials or products, for example Europe and Japanin the case of phosphates and potash and developing countries in the case ofboth finished fertilizers and raw materials.

2.10 Analysis of capacity, production and consumption data over severalprice cycles of the fertilizer industry does not indicate a tighter supply/demand situation in 1974/75 than has existed at previous peak price periods.However, in previous cases whereas prices had increased by 50-100%, in 1974/75prices increased up to 500% more than what they had been two or three yearsearlier.

2.11 Another interesting observation on the events in 1974/75 at a timewhen fertilizer prices had reached their peak levels was that many developingcountries were purchasing fertilizers in much larger quantities than they haddone in previous years. This is well illustrated by the case of three largedeveloping countries in Asia who are also major fertilizer importers. Thetable below shows total fertilizer nutrient imports in 1972-1976 and indicatesthat in 1974/75 all three countries bought much larger than normal quantities.In the case of Indonesia and the Philippines, imports were restricted in1975/76 to reduce stocks but India due to renegotiated contracts which spiltover into 1975/76 and also because of a policy to retain large strategicstocks to give better negotiation strength with fertilizer exporters, had highimports of fertilizers in 1975/76 also.

Imports of Fertilizers by Three Selected Countries(Million Tons Nutrients)

1972/73 1973/74 1974/75 1975/76

India 1.22 1.26 1.61 1.54Indonesia 0.37 0.42 0.99 0.25Philippines 0.10 0.15 0.37 0.15

Total 1.69 1.83 2.97 1.94

Over-purchasing of fertilizer materials in 1974/75 was not limited to develop-ing countries and, for example, both Europe and Japan purchased about 30% morephosphate rock than they had in 1973/74 and subsequently finished the yearwith very large stocks.

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2.12 Although on a world basis in terms of demand there probably was a

shortage of fertilizers in 1974 (as demand was exaggerated in that year due

to apprehensive buying), it now seems that the situation was not so serious

as believed at the time. Usually, of course, any shortage of fertilizer

supply on a world basis shows up in a magnified fashion in the export market

which probably represents about 25% of all fertilizers traded. Fertilizer

export prices are therefore very sensitive to changes in the world supply/

demand balances.

2.13 One contributing factor which certainly aggravated the situation

was the general and possibly ill-formed belief in 1973 and 1974 that the

world was heading for a catastrophic shortage of fertilizers by 1980, and

there is little doubt, as has been freely admitted since by senior people in

developing countries who had the responsibility for buying fertilizers that

the "panic" buying which occurred during that period was catalyzed by this

belief. This is not surprising when one well-known analyst forecast" that

there would never be enough fertilizer again," and most of the reports by the

international agencies were pessimistic about the short and medium term

fertilizer outlook. The situation was undoubtedly made worse by the fact that

many suppliers during a period of escalating prices reneged on existing

contracts.

2.14 Undoubtedly, one benefit of the discussions at the World Food

Conference was the recognition of the need to have authoritative and reliable

information on fertilizers such as supply, consumption, investment and produc-

tion costs, freight costs and prices, which could be disseminated widely

throughout the world. Such data play an important part in advising developing

countries in particular of the true state of the market and, in the longer

term, assists planners of new capacity to make better decisions that minimize

the cyclical imbalances of supply/demand.

III. CURRENT AND FUTURE FERTILIZER REQUIREMENTS

3.01 The three main elements for plant growth are nitrogen, phosphorus

and potassium, and all of these play a different but equally important part

as plant nutrients. It is generally accepted that if the other appropriate

agricultural inputs such as water, good farming practices, etc., are avail-

able, about half of all new increased crop production will come from increased

use of fertilizers. The ability of the world to feed a growing population

will, to a large extent, depend upon the availability of these nutrients.

The fertilizer Unit has carried out detailed, generally country-by-country,

surveys on each of these three major nutrients within the last year. These

reports are available within the Bank, and a summary of the current situation

and future outlook is given below.

3.02 The supply/demand forecasts used in this report have been accepted

by the UNIDO/FAO/World Bank Fertilizer Working Group as representing the

Group's present view of the prospective fertilizer situation. Forecast supply

is based on existing and announced new fertilizer production capacity. From

past experience, allowance has been made, country-by-country, for the unex-

pected break-down, lack of spare parts and other reasons for below optimum

capacity utilization. More details on the calculation of fertilizer supplyis given in the footnotes to Annexes 3-2, 3-4 and 3-8. Allowing for thesefactors and for losses, the maximum potential supply capability has beencalculated, assuming no market constraints. This potential supply has beencompared to forecast demand to give the supply/demand balances. Of course,where there are large forecast surplus balances, these may not materialize inactual surplus production since producers will prefer to cut back productionand even to close their plants, and ex post production will differ fromconsumption only by relatively minor stock changes. The forecast supplypotentials are reasonably firm only within the lead-time of 3-5 years from afinal investment decision to plant commissioning, i.e. until about 1983. Theperiod thereafter will still be affected by investment decisions yet to betaken.

3.03 Demand forecasts using various methodologies, prepared by thesponsoring agencies and representatives for the fertilizer industry arediscussed country-by-country and evaluated on their merits during the meetingsof the UNIDO/FAO/World Bank Fertilizer Working Group. The methods used in theforecasts vary, from detailed analysis - with or without formal econometricmodels - based on a country's agriculture development plan taking into accountall likely constraints, to judgements based on trend extrapolations. Afterevaluation of available forecasts, the Group agrees on a common estimate. Itis the demand forecasts harmonized in this way by the group which provide thebase case estimates for this report. Although it is a mixed basket of esti-mates with different methodologies used, certain assumptions can be general-ized. The forecasts reflect perceived effective demand and not fertilizerrequirements as calculated to meet certain agricultural production or othergoals. This expected demand takes into account the absorptive capacity of bothfarmers and countries. The absorptive capacity of farmers may be constrainedby either their awarenes of the benefits of using fertilizers or their abilityto buy fertilizer because of their availability or price. Assuming adequateworld supplies, the absorptive capacity of a country may be constrained byavailability of foreign exchange and its ability to pursue a domestic agri-cultural policy which creates a favorable economic climate for fertilizer use.Although these considerations cannot be quantified, they are implicit in theforecasts. The implicit price assumptions are that they reflect an adequateworld supply and that price increases generally are compensated for by in-creased crop prices (or through subsidies) to keep the value/cost ratio atincentive levels. In other words, it is implicitly assumed that the elasticityof demand for fertilizers with respect to its price is negligible. Thisassumption appears reasonable in the long term and at the macro level, thelarger the aggregate the better, and is thus satisfactory for regional andworld demand estimates. On an aggregate level, it may be assumed that demandfor food is rather inelastic with respect to its price since the populationsneed to be fed. Therefore a fertilizer price increase resulting in reducedapplications would reduce food supplies and bid up food prices high enough tobring the value/cost ratio back to incentive levels. It is beyond the scopeof this report to deal explicitly with the policies required to achieve theseadjustments.

A. Nitrogen

3.04 Nitrogen plays an important part in the production of protein andthe metabolism and growth of plants, and generally nitrogen application ratesto meet plant requirements are about twice the other two major nutrients.Although nitrogen is available in the atmosphere in vast quantities, mostorganisms can only assimilate nitrogen in a suitably combined form. Up tothe 1920's, the main source of nitrogen fertilizer was waste organic materialand Chilean nitrate. The development of the synthetic ammonia process in the1920's revolutionized the nitrogen fertilizer industry, and today almost allnitrogen fertilizers are produced from ammonia. The principal forms ofnitrogen fertilizers are urea, ammonium nitrate and ammonium sulphate. Asnearly all ammonia is produced from hydrocarbons, the production of ammoniais very much related to energy costs and hydrocarbon feedstock sources.

1. World Nitrogen Capacity

3.05 The world nitrogen needs have increasingly been met through syn-thetic ammonia production which, in 1974/75, accounted for 98% of chemicalnitrogen fertilizer requirements as shown below:

Breakdown of World Nitrogen Supply

Million Tons N Percent1960/61 1974/75 1960/61 1974/75

Total Nitrogen Supply 14.17 52.83 100.0 100.0

Synthetic Ammonia 12.92 52.77 91.2 98.0Other, of which: 1.25 1.06 8.8 2.0

Coke Oven N (0.79) (0.78) (5.6) (1.5)Calcium Cyanamid (0.31) (0.18) (2.2) (0.3)Sodium Nitrate (0.15) (0.10) (1.0) (0.2)

3.06 The percentage of total world nitrogen supply produced as syntheticaurmonia is expected to increase even further in the future. The FertilizerUnit maintains a comprehensive list of world ammonia plants and announcedfirm intentions for the construction of new capacity or closure of existingcapacity. This is reviewed every year in the UNIDO/FAO/World Bank FertilizerWorking Group where fertilizer industry participates and provides first-handinformation on the development of the world nitrogen industry. Given atime-lag of three to four years between final decision and plant commissioning,no firm forecast can be made of ammonia capacity beyond 1982/83. The regionaldevelopment of ammonia capacity expected to 1982/83 is given in Annex 3-1 andsummarized below:

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World Ammonia Capacity(Million Tons N)

Developed Developing CentrallyWorld Market Market Planned

Year Total Economies Economies Economies

1973/74 64.6 32.8 7.7 24.11974/75 69.2 34.0 8.5 26.71975/76 72.0 34.4 9.2 28.41976/77 79.8 37.9 11.2 30.71977/78 84.8 38.4 12.8 33.61978/79 94.5 40.4 15.4 38.71979/80 100.9 40.8 18.8 41.31980/81 103.9 40.9 19.9 43.01981/82 111.6 41.3 23.4 46.91982/83 115.7 41.5 26.4 47.8

3.07 It has been calculated that ammonia production capacity will in-crease from 65 million tons of N in 1973/74 to 116 million of N in 1982/83,by which time all the currently recorded firm projects are expected to be onstream. During this period, world ammonia capacity will increase, on average,by just under 7% per annum. Growth will be greatest in the Developing MarketEconomies with an average annual growth rate of 15% per annum and lowest inthe Developed Market Economies with 2.5%. In the Centrally Planned Economies,the average growth rate will be about 8% per annum. No capacity projectionshave been made beyond 1982/83, but the capacity in this year is an indicationof the minimum capacity that would also be available in the period 1984/85.

2. World Nitrogen Supply

3.08 Ammonia plant capacities are normally defined as the daily designcapacity multiplied by 330 operating days. Optimum operating conditions arenot likely to prevail at all times, and allowance must be made for unexpectedbreakdown, lack of spare parts or other likely reasons for below optimumcapacity utilization. All these factors have to be taken account of incalculating the potential supply from available production facilities, on acountry by country basis. The world nitrogen fertilizer supply potential isgiven in Annex 3-2 and is summarized in para 3.12.

3. Industrial Nitrogen Consumption/Demand

3.09 It is estimated that currently about 15% of world nitrogen usageis for different industrial purposes other than fertilizers. There are nopublished comprehensive statistics on industrial uses of nitrogen, and it istherefore difficult to assess this sector of the nitrogen market. In thefertilizer industry, however, efforts have been made to develop data on in-dustrial nitrogen, and such information is made available to the FertilizerUnit by industry and has been taken into account in assessing the nitrogen

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supply available for fertilizer use. Over the ten year period 1963/64 -1973/74, consumption of industrial nitrogen is estimated to have increasedat a rate of 10.7% per annum from 3.1 million tons to 8.6 million tons. In1974/75, industrial uses of nitrogen dropped back to 7.8 million tons as aresult of the world economic recession. About 20% of industrial nitrogen isused for explosives, about 45% for plastics and synthetic fibers, about 5%for animal feedstuffs and the remaining 30% for a variety of purposes, mainlyin chemicals production. A country-by-country projection for industrialnitrogen indicates that the average growth rate from 1974/75 - 1984/85 willbe about 6% per annum.

4. Nitrogen Fertilizer Consumption/Demand

3.10 World nitrogen fertilizer consumption increased at an average of9.6% per annum over the 20 year period 1956/57 - 1976/77 from 7 to 45 milliontons of N. The forecasts for demand up to 1982/83 have been prepared by theUNIDO/FAO/World Bank Fertilizer Working Group in June 1978, and are calculatedfrom a country-by-country estimate. Based on these figures, the growth rateduring the next five years to 1982/83 is expected to be about 6% per annum.

5. Long-Term Nitrogen Fertilizer Consumption/Demand

3.11 The Fertilizer Unit has extended the Working Group projections up tothe year 1989/90, and has also made extrapolations of past consumption datausing the Box-Jenkins method. This is probably the best and most flexiblestatistical method presently available for trend extrapolations and a briefdescription of it is given in Annex 3-10. The table below summarizes the twoBank projections and compares them to the forecasts of some other organizations.Projections region by region with annual growth rates are given in Annex 3-3.

Forecast World Nitrogen Fertilizer Demand(Million Tons of N)

GrowthRates

Forecasting 1979/80 1984/85 1989/90 1976-1990

Organization Year Method %

British Sulphur Corp. 1977 Country Review a/ 56.1 73.0 91.2 5.6UNIDO 1978 Stat. Extrap. b/ 54.2 71.9 105.5 6.7World Bank/Box-Jenkins 1977 Stat. Extrap. c/ 58.2 82.3 113.8 7.3World Bank 1978 Country Review d/ 54.2 71.9 93.4 5.7(Best Estimate)

a/ Source: Study prepared for World Bank in January 1977.b/ Source: Second Worldwide Study of the Fertilizer Industry 1975-2000,

September 11, 1978. The forecasts are those of the UNIDO/FAO/WorldBank Fertilizer Working Group until 1987/88. 1989/90 figures aboveare interpolations from the UNIDO study.

c/ Extrapolation of 1951-1976 data by the Box-Jenkins method.d/ Projections prepared in cooperation with the UNIDO/FAO/World Bank

Fertilizer Working Group. The 1989/90 figure is an extrapolationmade by the Fertilizer Unit.

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3.12 The two statistical projections of past trends show the two highestestimates throughout the period. The British Sulphur Corporation estimateis the most conservative with the Bank "best estimate" resulting from thecountry review somewhere in between. Both the Bank's best estimate and theBritish Sulphur Corporation forecast assume that the nitrogen fertilizermarkets are maturing in many countries during the period under review. Thisresults in a slow-down in the growth rates. The statistical projectionsmay not adequately take this into account.

3.13 In order to arrive at total nitrogen requirements, allowance hasto be made for further process losses, distribution and storage losses andcertain statistical discrepancies. Taking into account also the industrialnitrogen demand, the supply/demand balances for nitrogen fertilizers havebeen calculated as indicated in the following paragraph.

6. Nitrogen Supply/Demand and Balances

3.14 Detailed nitrogen supply/demand balances for the regions are givenin Annex 3-2 and for the world in the table below:

World Nitrogen Fertilizer Supply, Demand and Balances(Million Tons of N)

Actual at76/77 77 /78 78/79 79/80 80/81 81/82 82/83 83/84 84/85

Potential Supply 45.9 47.8 52.7 56.5 60.7 65.0 67.7 71.6 73.0Demand 45.1 47.7 51.1 54.2 57.4 60.7 64.1 67.9 71.9Balance 0.8 0.1 1.6 2.3 3.3 4.3 3.6 3.7 1.1

a/ Actual production and consumption in 1976/77 and 1977/78.

3.15 It can be seen that potential worldwide surpluses for nitrogenare increasing in size up to about 1981 after which they start to decreaseuntil a balanced situation is reached in the mid-1980s. This is all on thebasis of presently firm plans for capacity expansion. It seems likely,however, that some plans may be delayed in this situation and also the volun-tary shut-downs which are taking place in Western Europe, Japan and the USAmay help to bring forward a balanced situation more quickly than indicated.On the other band, it is known that there are also several million tons of Nin ammonia capacity in the 'project pipeline', i.e. projects which are beingconsidered but not at the present judged as firm enough to be included inour forecasts. It seems likely therefore that there will be nitrogen sur-pluses to 1982/83 at least which will restrain price increases in the next fewyears.

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3.16 Plants based on naphtha will find it difficult to compete unlesstheir location gives them a transport cost or other advantage, and smallplants using reciprocating compressors, particularly in the USA, may alsobe phased out as they gradually lose their advantage of low-cost gas con-tracts. It is expected that the surplus situation, to a large extent, willbe limited by the closure of these plants and that during this period,ammonia prices will follow the variable components of production cost ofthese plants.

3.17 The period over which the surplus will continue depends to a largeextent on developments in Eastern Europe, including the USSR. Eastern Europewill develop into the world's major nitrogen export region, and in particular,the USSR has contracted about 40 new modern plants which are all eitheralready on stream or under construction. Obviously, the rate at which theseplants are able to be brought on stream will significantly affect the surplussituation in the early 1980's.

3.18 In 1975, the Bank projected that the nitrogen fertilizer capacitysurplus would increase to about 1.7 million tons by 1979/80, and this forecastproved to be reasonably correct. The large surpluses now forecast until about1982/83 indicate a more depressed situation for the world nitrogen industrythan has existed during the last few years.

B. Phosphate

3.19 Phosphorus is one of the most important elements for plant growthand is needed for cell division, in the transformation of starch to sugar,in seed germination and in fact in every phase of a plant's vital processes.Phosphorus is specifically required to synthesize the nucleo-proteins andother biochemicals used in respiration. About 97% of all phosphate producedfor different purposes in the world is from phosphate rock. Only about 1million tons of the 38 million tons of phosphate (P 205) produced in the worldis from the non-rock sources, mainly as basic slag, and as this is decreasing,for practical purposes, we need only consider phosphate rock as the rawmaterial for the phosphate fertilizer industry. Nearly 90% of all phosphateproduced is used as fertilizers.

1. World Phosphate Rock Sup-ply and Demand

3.20 Phosphate rock supply is not expected to become a problem over thenext few years nor is it likely to become short in the period thereafter.Although the table below indicates a well balanced situation for phosphaterock supply/demand, this is mainly because producers have adapted expansionplans in the light of large surpluses which have been forecast previously.Many producers have the potential to expand production quickly should futuredemand justify it.

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World PhosRhate Rock Supply. Demand and Balances(Million Tons of Rock)

Actualf/76/77 77/78 78/79 79/80 80/81 81/82 82/83 83/84 84/85

Potential Supply 107 116 129 139 148 155 168 174 182Demand 102 115 125 133 140 149 158 165 171Balance 5 1 4 6 8 6 10 9 11

a/ Actual production and consumption in 1976/77 and 1977/78.

Source: Fertilizer Unit estimates for its World Phosphate Survey. Demand isbased on UNIDO/FAO/World Bank Fertilizer Working Group estimates forphosphate fertilizer demand plus Fertilizer Unit's estimates forindustrial uses and losses.

2. World Phosphate Capacity

3.21 In the last twenty years or so, the proportionate contribution tophosphate fertilizer supply by different products has changed significantly.There has been a steady decline in the relative share of simple low concentrateproducts like basic slag and single superphosphate with a corresponding growthfor phosphoric acid based concentrated products. In the future, it is likelythat most new phosphate production will be phosphoric acid based, and non-acidbased phosphate materials will show only a relatively small increase. Thetable shows the importance that phosphoric acid has had on incremental P 205supply over the past two decades and this is expected to be even more markedin the future.

Structural Change in World Fertilizer P205 Supply

Million Tons Percent1955/56 1976/77 1955/56 1976/77

Single Superphosphate 5.30 6.70 66 25Basic Slag 1.05 0.80 13 3Nitrophosphate a/ 0.25 1.20 3 5Fused Phosphate 0.20 b/ 0.40 3 2TSP a/ 0.25 1.40 3 5

Total Non-Acid 7.05 10.50 88 40Phosphoric Acid 0.95 16.00 12 60

8.00 26.50 c/ 100 100

a/ The figures for nitrophosphate and TSP are net of the phosphoric acidcontribution to total P 205 in these products.

b/ Rough estimate.c/ This total is different from the FAO production statistics due to the

exclusion of some ground rock and organics included in the FAO data.

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3.22 The Fertilizer Unit maintains a plant list of firmly committed newphosphoric acid capacity which, taking into account a lead time of about threeyears, covers the period up to about 1981/82, and has also monitored theincrease of incremental capacity since 1973/74. Between 1973/74 and 1982/83when all firm projects are expected to be on stream, phosphoric acid capacitywill have increased from about 18 million tons to about 34 million tons ofP 0 . Both the rapid increase in phosphoric acid capacity and the structuralcnange in the location of plants can be seen in the tables below:

World Phosphoric Acid Capacity a/(Million Tons P205)

Developed Developing CentrallyWorld Market Market Planned

Year Total Economies Economies Economies

1973/74 18.1 12.5 2.4 3.21974/75 21.5 14.7 2.9 3.91975/76 24.1 15.6 3.6 4.91976/77 26.2 16.9 4.3 5.01977/78 26.7 17.1 4.5 5.11978/79 28.0 17.2 5.0 5.81979/80 29.0 17.4 5.4 6.21980/81 33.0 17.7 8.0 7.31981/82 33.8 17.6 8.5 7.71982/83 33.9 17.6 8.6 7.7

a/ Includes phosphoric acid for both fertilizer and industrial uses.

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World Incremental Phosphoric Acid Capacity

Firm ProjectsActual 1974-77 After 1977

'000 Tons P2O5 % '000 Tons P205 %

Developed Market Economies 4,375 54 780 10

North America 2,508 (31) 131 (2)West Europe 1,111 (14) 559 (7)Oceania 10 - - -Other Developed 746 (9) 90 (1)

Developing Market Economies 1,939 23 4,310 56

Africa 824 (10) 960 (12)Latin America 222 (3) 1,090 (14)Near East 271 (3) 1,710 (22)Far East 622 (7) 550 (7)

Centrally Planned Economies 1,856 23 2,614 34

East Europe 1,823 (22) 2,505 (33)Socialist Asia 33 (1) 109 (1)

World Total 8,170 100 7,704 100

3.23 The two tables above show the changes that have taken place inthe location of phosphoric acid capacity since 1974. There have also beensignificant changes in the trading patterns of phosphate fertilizers since1975. After 1975, phosphate fertilizer prices fell sharply in a situationof increasing excess capacity and weakening demand. On the other hand, therelative fall in phosphate rock export prices was not so great, so that fromabout 1976 onwards the non-resource based phosphate fertilizer producers whowere mainly in Europe and Japan, were squeezed between high phosphate rockprices and low phosphate fertilizer prices, leaving little or no margin tocover processing costs. In the home markets, price and import controls andother measures in combination with transportation advantages generally gavesome relief to these producers so that the rock-cost/fertilizer-price squeezewas hardest in the very competitive export markets. Since Western Europe hastraditionally accounted for 40-50% of world phosphate fertilizer exports,this was a very hard blow to the European industry in particular.

3.24 In this situation, the fertilizer producers who had their own rockmines were particularly favored. They could price rock into their processingfacilities at cost which made it possible for them to undercut the fertilizerproducers who had to import the rock at a much higher international price.They were also able to use a lower grade rock which would not otherwise find

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a ready international market. These rocks, which can be processed in large-scale specially designed plants, could be transferred at prices much lowerthan the international prices. This changed situation in relative rock/fer-tilizer prices has meant th.c the majority of phosphoric acid plants plannedto come on stream after 1977 are located in countries which have their ownresource of phosphate rock feedstock.

3. World Phosphate Supply

3.25 The forecast supply of phosphoric acid for fertilizers can bedivided into two parts: the supply from plants operating in 1973/74 on theone hand and, on the other hand, supply from plants that started productionsince then or that are firmly planned to enter into operation during theforecast period.

3.26 Due to the supply shortages and highly profitable prices in 1973/74,it seems reasonable to assume that the fertilizer output from plants in opera-tion that year represented their most effective utilization. In certaincases, however, adjustments had to be made to the 1973/74 output to give arealistic picture of the effective capacity. For the plants on stream after1973/74, certain factors were applied to the nameplate capacities to give thepotential supply of P 205. From this supply, demand for industrial purposeshas been deducted to give the net supply potential of P 0 in phosphoricacid for fertilizers. Finally, the supply of other P 205 as been added togive the total supply of P 20 for fertilizers. In Annex 3-4, the phosphatefertilizer supply is broken down by region and compared to demand, and theworld supply situation is summarized in para. 3.28.

4. World Phosphate Consumption/Demand

3.27 Total world phosphate consumption has increased at an average rateof about 6% over the last 20 years. About 87% of phosphate is used forfertilizer and the remaining 13% goes into other industrial uses, mainlydetergents, animal feed phosphates, insecticides, etc. Throughout the 1960'sand early 1970's, the use of industrial phosphates or "technical phosphates"as they are more commonly known, has grown at only a slightly higher ratethan phosphate fertilizers. Also in the future, these growth rates areexpected to remain similar, so no major changes in the relative proportion ofphosphate use between fertilizer and technical phosphates are expected.

5. Technical Phosphate Consumption/Demand

3.28 The world phosphate chemicals industry is not homogenous, and thereare no comprehensive statistics available on the products of the industry.Technical phosphates are used for a diverse range of chemicals and appear ininnumerable products in most of which, phosphates constitute only a smallportion, so it is extremely difficult to get a complete picture of theindustry and its phosphate usage. Until a few years ago, most technicalphosphates wre produced from elemental phosphorus,but there is an increasingtrend to produce technical phosphates from wet process phosphoric acid, and

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it is estimated that within the last ten years, the relative use of furnaceacid and wet acid for technical purposes has changed from about 10:1 to justover 1:1.

World Consumption/Demand for Technical Phosphates(Million Tons P 205)

1976/77 1984/85

Sodium Tripolyphosphate 2.0 2.3Animal Feed Phosphates 1.2 2.7Others 1.1 1.6

Total 4.3 6.6

The use of sodium tripolyphosphate is expected to increase at only about2% per annum due to the environmental restrictions that have been placed onthis material as a detergent. The use of animal feed phosphates is expectedto increase rapidly in the next few years, mainly due to the emphasis placedby the USSR on developing animal feed materials. The overall growth rate fortechnical phosphates is expected to be about 6% per annum until 1984/85.

6. Phosphate Fertilizer Consumption/Demand

3.29 Phosphate fertilizer is used mainly in the industrialized countriesof Europe (including the USSR), North America and Oceania which, together,account for 83% of consumption. The growth rate for phosphate fertilizershas averaged 6.2% over the last 20 years, although in many developed coun-tries, particularly in Western Europe, phosphate fertilizer consumption hasstagnated, showing no significant growth trend over the last five years.Slow future growth rates are projected for Western Europe, the USA and Japanalthough, in absolute terms, this may amount to fairly large quantities, asthere is already a high base usage. For the USSR and East European countries,a growth rate in P 20 demand is expected of about 7% per annum for the nextfive years, and absolute growth of P 20 use will be highest in this region.After this period, a slow down in grow5h rate is expected. For the develop-ing market economies as a group, phosphate fertilizer demand is forecast toincrease at about 9% per annum for the next five years compared to over 13%for the last ten years. Worldwide phosphate demand is expected to increaseat a rate of about 5.5 - 6.0% in the next five years. Demand projections,region by region, prepared by the UNIDO/FAO/World Bank Fertilizer WorkingGroup are given in Annex 3-5.

7. Long-Term Phosphate Demand

3.30 The Fertilizer Unit has extrapolated the Working Group projectionsto 1990 and has also made projections of past consumption data with theBox-Jenkins method. These are compared below with the UNIDO projections,the only other available:

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Forecast World Phosphate Fertilizer Demand(Million Tons of P205)

GrowthRates

Forecasting 1979/80 1984/85 1989/90 1976-1990

Organization Year Method %

UNIDO 1978 Stat. Extrap. a/ 31.5 40.5 48.9 5.2World Bank/Box-Jenkins 1977 Stat. Extrap. b/ 29.2 37.4 47.7 5.0World Bank 1978 Country Review c/ 31.5 40.5 48.6 5.1(Best estimate)

a/ Source: Second Worldwide Study of the Fertilizer Industry 1975-2000,September 11, 1978. The forecasts are those of the UNIDO/FAO/World BankFertilizer Working Group until 1987/88. 1989/90 figures above areinterpolations from the UNIDO study.

b/ Extrapolation of 1951-1976 data by the Box-Jenkins method.c/ Projections prepared in cooperation with the UNIDO/FAO/World Bank

Fertilizer Working Group. The 1989/90 figure is an extrapolationmade by the Fertilizer Unit.

8. Phosphate Supply/Demand and Balances

3.31 Detailed regional phosphate fertilizer supply and demand balancesprepared by the UNIDO/FAONWorld Bank Fertilizer Working Group are given inAnnex 3-4. The world balance is summarized below:

World Phosphate Fertilizer Supply, Demand and Balances(Million Tons P205)

Actual a!76/77 77/78 78/79 79/80 80/81 81/82 82/83 83/84 84/85

Potential Supply 26.0 27.6 33.1 34.3 36.3 38.4 39.4 39.9 40.1Demand 26.5 27.3 29.5 31.5 33.3 35.4 37.5 39.0 40.5Balance (0.5)1,1 0.3 3.6 2.8 3.0 3.0 1.9 0.9 (0.4)

a/ Actual estimated production and consumption in 1976/77 and 1977/78.b/ Drawn from stocks.

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The world and regional supply and demand balances indicate that the peak ofsurplus phosphate capacity might have been reached in 1977 due to the coinci-dence of stagnant demand and the start-up of considerable capacity, notably inthe USA, Morocco and South Africa. There is enough capacity to meet demandinto the 1980's but the surplus will gradually diminish and, in a strengthen-ing market, prices are likely to increase. Although there is obviously timeto build additional plants in the early 1980's to avoid any shortfall, thereis no room for complacency. As discussed earlier, an important change takingplace in the phosphate industry is the trend towards more phosphoric acidbased fertilizers with more rock producing countries either continuing orcommencing to become more vertically integrated to produce and export pro-cessed phosphates, particularly phosphoric acid. Delays in the commissioningof some of these plants could well bring forward a balanced situation earlierthan currently projected.

3.32 Although at first sight the future outlook for phosphates mayindicate a greater degree of over-supply than for nitrogen, several factorsmust be taken into account which qualify this comparison. Compared with thenitrogen situation, there are certainly not so many projects in the pipelineto guarantee an adequate supply situation after about 1982. After thisperiod, about 5-6 new phosphoric acid plants, yet to be planned, will berequired every year to meet forecast demand. Apart from the USA and possiblythe USSR, it seems likely that most of these plants will need to be builtin developing countries with supplies of phosphates rock, although in somespecial cases plants might also be built where there is cheap sulphuric acid.With their limited capital, management and technical resources, it may bedifficult for these countries to keep up with demand. Also, it is possiblethat the building of new phosphate capacity in the USA may be inhibited byenvironmental considerations. Another important consideration is that thequality of phosphate rock being used for phosphoric acid manufacture isdeclining gradually as the best reserves are depleted or as producers off-load lower grade rock on the export market. This is now having a perceptibleeffect in reducing the capacity of existing phosphoric acid plants. It isalso possible, as indicated by plant closures in Japan, that many plants indeveloped countries may base their business on imported phosphatic inter-mediates rather than operate their plants in an increasingly unfavorablesituation. It is therefore important that the supply/demand situation overthe next two or three years be carefully monitored to ensure that it does notunexpectedly become out of balance.

C. Potash

3.33 Potassium or "potash" as it is commonly referred to, is an importantfertilizer material essential to both animal and plant growth. It controlsthe assimilation of other nutrients in the respiration process and the syn-thesis of plant components, such as enzymes, starches and vitamins. As theneed to produce food increases, potash becomes an increasingly importantmaterial, particularly as the presence of potash exerts a synergistic effecton the uptake of the other two main nutrients. Economic recovery of potashis almost entirely limited to the underground mining of potassium saltsfrom sedimentary deposits or the recovery of these salts from brines.

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1. World Potash Capacity

3.34 Information on world potash capacity is given in Annex 3-7 and a

list of major country producers is summarized below:

World Potash Capacity in 1976

MillionTons K 20 Percent

USSR 8.75 29

Canada 7.54 25

Germany, Dem. Rep. 3.15 10

Germany, Fed. Rep. 2.92 10

USA 2.75 9

France 2.20 7

Others 3.00 10

World Total 30.31 100

Although in the early 1960's, potash production facilities were concentrated

in Europe and the USA, more recently, capacity of the traditional suppliers

in this area has stagnated and new suppliers, notably the USSR and Canada,have accounted for most of the incremental output. As a result of this

development, the share in potash capacity of traditional producers in Europe

and the USA has fallen from 85% in 1962 to about 40% in 1976 and it is likelythat their share will decline further. France and the Federal Republic of

Germany have reached their capacity ceilings although the Democratic Republic

of Germany, Spain, Italy and the UK will increase capacity. No net increases

are expected in the USA. Elsewhere, a new potash operation is expected to

commence in Jordan in 1982.

3.35 The new capacity increase, however, will come in Canada and above

all in the USSR. The announced capacity increases for the period 1976-1985

for the major countries are shown below:

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New Incremental World Potash Capacity 1976-1985

MillionTons K 20 Percent

USSR 6.25 60Canada 0.99 15United Kingdom 0.55 '

German Dem. Rep. 0.60 5

Jordan 0.40 4Israel 0.15 3

Spain 0.30 2Others 0.60 6

World Total 9.84 a/ 100

a/ These are gross additions from which mine closures in the Congo(0.3), the USA (0.17) and France (0.20) have to be deducted to

give the net increment.

2. World Potash Supply

3.36 From 1969/70 to 1974/75 world potash production increased, on aver-age, by about 5.9% per annum and reached a total of 23.7 million tons. In1975/76 following the fertilizer crisis and price hikes of the previous two

years, world output fell slightly to 23.5 million tons. However, in 1976/77production rose by about 7.6% to 25.2 million tons. In estimating the futurepotash supply potential, allowance has to be made for the fact that it is

only under optimum conditions that potash mines and refineries reach their

nominal capacities and these conditions are unlikely to prevail for all unitsat the same time. The historical performance of plants has been analyzed and

from this, projections have been made for the future supply of potash. Thisis given region by region in Annex 3-8.

3. World Potash Consumption

3.37 About 96% of world potash consumption is for fertilizer and theremaining 4% or so is used in various industrial applications. World con-sumption of potash fertilizers has increased at an average annual growth rate

of about 6% over the last 20 years. Potash fertilizer, like phosphate, is

used mainly in the industrialized countries of Europe and the USSR, NorthAmerica, Oceania and Japan which together use 18.9 out of the 23.1 million

tons consumed in 1976/-77. Although there is a great need for potash in

developing countries particularly as the use of other fertilizer nutrientsincreases, the world potash consumption is forecast to grow at slightlyslower rates in the future than the past. Forecasts have been made countryby country by the UNIDO/FAO/World Bank Fertilizer Working Group in June 1978.

These are given in Annex 3-9 and show past potash fertilizer consumption by

region and forecasts up to 1984/85.

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3.38 Although the developing countries show much higher growth rates forpotash consumption than the developed countries, in terms of absolute quanti-ties their demands are still only about 15% of the world total requirementby 1986. There are several reasons why the growth of potash consumption indeveloping countries has been small in the past and why demand is also likelyto grow only slowly in the future. The principal one is that potash depositsoccur almost entirely in developed countries, and hence potash is a relativelyexpensive fertilizer in developing countries. Also, potash is mainly used asan ingredient in compound fertilizers and as the use of these materials isnot yet well established in many developing countries, this factor has alsolimited potash use. Normally, the immediate benefits of using potash are notso quickly evident as when nitrogen is used, so that poor farmers with limitedincomes are inclined to concentrate their fertilizer use on nitrogen and, to alesser extent, phosphate.

4. Long-Term Potash Demand

3.39 In addition to the UNIDO/FAO/World Bank Fertilizer Working Groupforecasts described above for the medium-term potash demand, the FertilizerUnit has made some long-term potash projections which are compared with othersource projections in the table below. One of the Fertilizer Unit's projec-tions is based on extrapolation of the data in Annex 3-9. The other projec-tions are based on the extrapolation of potash consumption using the Box-Jenkins method.

Forecast World Potash Fertilizer Demand(Million Tons of K2 0)

GrowthRates

Forecasting 1979/80 1984/85 1989/90 1976-1990

Organization Year Method %

British Sulphur Corp. 1977 Country Review a/ 26.6 33.9 40.3 4.6Canpotex 1978 Country Review b/ 26.2 31.3 36.2 3.8UNIDO 1978 Stat. Extrap. c/ 26.7 34.2 43.1 5.1World Bank/Box Jenkins 1977 Stat. Extrap. d/ 27.2 35.3 45.2 5.4World Bank 1978 Country Review e/ 26.7 34.2 43.8 5.2

(Best estimate)

a/ Source: Study prepared for Jordan Potash Project in November 1977.b/ Source: Interpolations from projections prepared for UNIDO/FAO/World

Bank Fertilizer Working Group Meeting 1978. The 1989/90 figure is anextrapolation made by the Fertilizer Unit.

c/ Source: Draft Worldwide Study of the Fertilizer Industry 1975-2000,September 11, 1978. The forecasts are those of the UNIDO/FAO/WorldBank Fertilizer Working Group until 1987/88. 1989/90 figures above areinterpolations from the UNIDO study.

d/ Extrapolation of 1951-1976 data by the Box-Jenkins method.e/ Projections prepared in cooperation with the UNIDO/FAO/World Bank

Fertilizer Working Group. The 1989/90 figure is an extrapolationmade by the Fertilizer Unit.

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3.40 As might be expected, the two statistical projections of past trendsshow the highest two estimates throughout the period. Both British SulphurCorporation, the UNIDO/FAO/World Bank and the Canpotex estimates all assumethat the potash fertilizer markets are maturing during the period underreview. On that basis, the highest of the statistical extrapolations, theBox-Jenkins projections can be used as the upper limit of future potashconsumption growth and provide us with our "high estimate". The lowestavailable forecast, the Canpotex figures, provide us with our "low estimate".Our best estimate is taken as the UNIDO/FAO/World Bank Group forecast asextrapolated by the Fertilizer Unit.

5. Potash Supply/Demand and Balances

3.41 Estimates of world potash fertilizer supply, demand and balancesby region are given in Annex 3-8. These estimates have been prepared by theFertilizer Unit updating forecasts made in cooperation with the UNIDO/FAO/World Bank Fertilizer Working Group. The world balance is summarized below:

World Potash Fertilizer Supply, Demand and Balances(Million Tons of K20)

Actual a/76/77 77/78 78/79 79/80 80/81 81/82 82/83 83/84 84/85

Potential Supply 23.2 23.7 27.2 28.3 29.3 30.2 31.2 32.0 33.1Demand 23.1 23.3 25.4 26.7 28.0 29.3 30.8 32.4 34.2Balance 0.1 0.4 1.8 1.6 1.3 0.9 0.4 (0.4) (1.1)

a/ Actual production and consumption in 1976/77 and 1977/78.

3.42 The picture presented is a rather balanced market until 1982 withthe 1977/78 surplus reduced to only nominal quantities. However, excessstocks will continue to keep pressure on the market until they have beenmarked down to incremental levels. Present firm plans to expand potashcapacity will only be adequate to meet forecast demand until about 1982.Some caution, however, is required in using these projections. The USSRalone is forecast to supply about 50% of the additional world potash require-ments up to 1982. This means an additional supply of about I million tons ofpotassium chloride (600,000 tons K 0 every year from the USSR). The scantyinformation available on this coun?ry and its well-known transportation anddistribution infrastructural problems, require that the developments in theUSSR be followed closely to avoid unexpected shortfalls in its potash produc-tion targets. In view of the balanced situation in the early 1980's and thelead time required for new projects (4-5 years), producers should not only goahead with their announced expansion plans, but decisions should be taken soon

- 26 -

for further investments to avoid shortages developing in the 1980's. Since

the forecast potash supply capabilities until 1984/85 already include con-

siderable USSR expansion, and since other countries cannot be expected to

add more than relatively marginal capacities over and above what is already

included in the forecasts, it seems that the major responsibility is with

Canada and in particular with Saskatchewan, to ensure that adequate supplies

become available as needed.

3.43 Fortunately, if the development of supply and demand is closely

followed, a shortfall against the projection in the trend of USSR potash

production, if discovered in time, could still be compensated for by the

relative flexibility in the Canadian mining capacity, where many mines could

be expanded within two years or so in a similar manner, to the expansions

recently announced by the publicly owned Potash Corporation of Saskatchewan.

IV. FERTILIZER EXPORT PRICES AND PRODUCTION COSTS

4.01 This section deals with historical price development and the short

and long-term price forecasts. It also examines the future cost of producing

fertilizer materials.

A. Historical Development

4.02 Export prices for selected fertilizer materials, in constant dollars,

which are shown on the graph on the following page also indicate the cyclical

nature of the international fertilizer business with peaks in export prices

occurring in 1965 and 1973. All fertilizer materials followed the same general

cyclical pattern although to varying degrees. The correlation between urea

price variations, nitrogen capacity utilization and nitrogen demand in rela-

tion to capacity is shown in the graph on page 28. It is not clear why the

apparent capacity utilization was higher during the 1964/65 price hikes than

during 1973/74 when, presumably, all plants worked at maximum capacity, but

"panic" or "apprehensive" buying and perhaps some constraints in the supply

distribution system that occurred during 1973/75 accentuated the price hikes.

4.03 Some interesting points emerge from the graph on page 28. First

of all, the supply situation as a percentage of nominal or design capacity

at which peak prices occur is between 75-80%. Peak prices have also occurred

when consumption as percentage of capacity reached 70-75%. Allowing for about

5% normally assumned for fertilizer losses in transport and distribution, these

figures agree fairly well. Another interesting point is that the time between

past peaks and projected new peaks is about eight years. It would also appear

that after each peak period of prices and tight capacity, there is a surge in

building which several years later results in an additional increase in excess

capacity of about 5-10% of world total. As export material normally represents

about 25% of world total, and excess capacity is normally directed to this

market, an overall increase of 5% in terms of world capacity could mean an

increase of about 20% in export material available.

EXPORT PRICE TRENDS FOR SELECTED FERTILIZER MATERIALS(US $ PER TON OF PRODUCT)

CONSTANT 1978 $ PRICES

700- 700

600- 600

. .TRIPLE SUPERPHOSPHATE - TSP (f.o b. U S. Gulf)AMMONIUM SULPHATE - AS (f.o.b. W. Europe)

- - - - DIAMMONIUM PHOSPHATE- DAP (f.o.b U.S. Gulf) !500- _ .......... POTASSIUM CHLORIDE KCI (f.o.b. Vancouver) 500

UR EA (bagged, f.o.b. W. Europe) \_ . _ . _ PHOSPHATE ROCK 72% TPL (f.a.s. Casablanca)

PHOSPHORIC ACID (f.o.b U.S. Gulf)AMMONIA (f.o.b. W. Europe) i

400- 400

t' XI \ ~Phosphoric

300- '_________________300

200 200

100- 100

. °° . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . ... RockPotassium- . - = Pota

1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

': 1 f r. J - 1- 1 -2 --1-'K r 1 f-It-i - 1-

I I |:: 1.,WORLD NITROGEN PRODUCTION AND SE AS % OF CAPACITY

III . I ~~~~~~~~'L.CMPRE TO~ UREA~ PRICES; *

300 .. 4 K HI

I!TOD , ' | I - 1 .- 1^ 10 c npi/ n as X o Ec_it cit

200 62 63 64 65 66 6ice 0 7 2 7 4 7 7 7 7 9 8 2 8 8

Year S~~~~~~

4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 7I

4' 1976 otis \I I ~~~~~~~~~~~~~ 'IPr 4t

I I ~~~~~~~~~~~~~~~. I I ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ i'It

100 ----7 ---llbi[41 75 ocaac t

Mli *l :I .~~~~~~~~~~~~~~~~~PrceI v, !Rne

1 .!., I I.;481,

61 62 63 64 65 66 67 68 69 70- 71 72 73 74 75 76 77 78 73 80 81 82 83 8Years

- 29 -

B. Short-Term Price Forecasts

4.04 Short-term price forecasts in this context are regarded as 0-5years and cover the period where it is possible to make reasonable projec-tions of the supply/demand balance based on a knowledge of new plant capacity.Within this period, therefore, short-term price projections are, to a largeextent, a matter of judgement based on market considerations.

1. Nitrogen Fertilizers

4.05 The supply/demand situation is shown in para 3.12, and this indicatesthat there should be an ample nitrogen fertilizer capacity during this period.Excess capacity will be reduced by closure of the less economic plants andthere could be temporary tightening of the market as this happens. Already inthe face of low prices, 4 million tons of ammonia capacity has closed inthe USA and increased naphtha prices have caused closure of plants in Europeand Japan. This has allowed prices of ammonia and urea to rise during 1979and the extent to which this continues will depend on the rate at which newexport-based plants are commissioned and US capacity is enticed back onstream. An interesting aspect of the nitrogen situation is the fact that theammonia surplus is expected to be significantly larger than the surplus offinished nitrogen fertilizers. One main reason for this is the large supplyof ammonia that is expected to come on stream particularly in the USSR butalso in places like Mexico, Trinidad and the Near East within the next fewyears. A significant part of this is due for export and supplies of cheapammonia have already reached the USA both from Mexico and the USSR in 1978 and1979. Ammonia prices therefore are expected to remain relatively weaker thanfinished nitrogen fertilizer prices. The differential may be reduced, however,at the end of 1979 when the USA is scheduled to start importing 1 million tpyurea under the "Occidental" trade agreement with the USSR, in addition to itscontracted ammonia exports. Occidental Petroleum Company of the USA has a20 year fertilizer trade agreement which began in 1978 whereby the USSR willtrade ammonia, urea and potash to the USA in exchange for superphosphoricacid.

2. Phosphate Rock

4.06 The projected supply/demand balance for phosphate rock is shown inpara. 3.20. Potential supply appears to be more than adequate to meet demandwithin the next 5 years. Generally, and certainly for the two main producersand exporters, USA and Morocco, current phosphate rock production costs arewell below export prices. One reason why these relatively high rock exportprices can exist at a time of excess capacity, is the oligopolistic dominationof the phosphate rock market by these two countries. Within the last year orso, further attempts to raise prices have not been successful, and in termsof constant dollars, prices have slowly fallen. It is projected that realprices will remain relatively steady for the next 5 years picking up slightlytowards the end of this period.

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3. Phosphate Fertilizers

4.07 The supply/demand situation to 1984/85 is shown in para 3.28. Atthe present time, supply potential is about 10% more than consumption and, asa consequence, phosphate fertilizer prices are rather depressed. As demandincreases, without a corresponding increase in supply however, the surplusis expected to diminish and a balanced situation should be reached about1982/83. As the surplus balance of phosphate fertilizers decreases, thereis likely to be a steady increase in prices, and there is already clearevidence that this trend has started. As discussed earlier in para. 3.29,there is cause for some concern about the availability of new capacity after1982/83, which could lead to a sharp rise to higher prices at that time.

4. Potash Fertilizers

4.08 Historically, potash prices have never fluctuated to the sameextent as other fertilizer materials, and it is expected that future potashprices will retain their relative stability but with a gradual increase inreal prices. The supply/demand balance for potash given in para 3.38 indi-cates a rather balanced market with a gradual tightening over the next fewyears. The ability to expand Canadian production, if required, in a rela-tively short period is likely to prevent any serious shortfall or price hikearising in the next few years.

C. Long-Term Price Projections

4.09 In the future, as in the past, there will continue to be pricecycles caused by temporary upsets of the market. These are almost impossibleto forecast accurately, and projections will necessarily have to be for theaverage price trend. The short-term projections (i.e. within the lead-timenecessary from decision to start-up of a plant which is often 4-5 years) canbe made on the basis of expected supply and demand balances. In the long-term, however, decision on capacity increases not yet taken will influencethe supply/demand situation. It is therefore normally impossible to relateprice to the supply/demand situation beyond the 4-5 year horizon. In thelong-term, in order to induce new investments to increase potential capacitiespari passu with demand, prices or price expectations need to be at incentivelevels providing an acceptable return on such investments. It could be arguedthat long-term fertilizer prices (cyclical variations apart) will approximatethe realization price (production cost plus profit) required to induce newinvestments at any time. As long as the price or price expectancy is belowthis incentive level, there will be few investments, resulting in increasingdemand catching up with a stagnant supply, pushing up prices high enough toinduce the investments required to clear the market. If this reasoning isaccepted, then the average long-term price should be the production cost plusan adequate return on investment of a plant for which investment is madetoday. The estimated realization price on this basis is discussed below.

- 31 -

D. Cost of Producing Fertilizer Materials

4.10 The two main factors in determining fertilizer cost, the cost of rawmaterials and investment costs may vary significantly for different site loca-tions and it is important to take this into account when projecting fertilizercosts and prices. Sometimes raw materials may be cheaply available but thisadvantage can be offset by higher investment cost and lower operating ratesif plants have to be built in remote locations and operated under difficultconditions.

4.11 In order to appreciate more fully the factors which influence fer-tilizer costs and to ensure more realistic projections of fertilizer prices,the costs of producing the principal nitrogenous, phosphate and potash fer-tilizers have been calculated for a range of operating conditions and sitelocations. Details are given in Annex 4-1, and the table below gives thecalculated range of fertilizer prices that would need to be realized in orderto give an acceptable return on investment for plants contracted in 1977 andcompares them with peak prices in 1974 and current prices.

Realization Prices for New Fertilizer Projects(1977 US$/Ton)

Average Ex-Factory Price Peak fob Price Average fob Averageto Give Acceptable ROI in 1974 Price 1978 Historical

a/ fob price

Phosphate Rock 25 - 30 67 - 75 28 - 33 33 - 36Phosphoric Acid 270 - 300 460 - 480 177 - 214 246 - 295Triple Superphosphate 125 - 145 330 - 350 84 - 117 121 - 145Diammonium Phosphate 180 - 200 420 - 450 120 - 130 162 - 186Urea (bagged) 150 - 175 380 - 400 115 - 135 163 - 180Potash 70 - 75 75 - 85 47 - 60 68 - 69

a/ Range indicates without and with price for 1973/74.

The detailed calculations show that the capital charge 1/ is usually the mostimportant production cost component and can often, particularly when combinedwith low operating rates, outweigh the benefits of cheap feedstock. Althoughthe costs shown are il a simplistic form, mainly to demonstrate easily therelative cost componel.ts for the various scenarios, considerable other supple-mentary work has been carried out within the Industrial Projects Departmentusing more detailed financial analysis based on internal rates of return andcapital recovery factors. The differences between the realization pricesusing different methods was relatively small, and confirmed that the capitalcharge method represented a simple but adequate method of assessing andcomparing the various scenarios. On this basis, in this review, it has beenassumed that generally a 15% capital charge would represent a satisfactory

1/ Depreciation, interest and return on investment.

- 32 -

return on investment for most locations. However, in analyzing this costdata, it was also appreciated that energy-rich countries with surplus fundsmight well be prepared to accept a lower rate of return than perhaps acommercial company in the USA or Europe.

4.12 The investment costs, in this particular exercise are, based on asurvey of appraisals made for World Bank fertilizer projects as well as ondiscussions with engineering contractors and reference to the work of otherinternational agencies. Allowance has been made for providing the necessaryinfrastructure appropriate to the site location, and also the additionalexpenditure that would be associated with difficult locations. It is appa-rent that fertilizer investment costs have risen significantly in recentyears although it is difficult to measure the indices because of the diffi-culties of establishing a common engineering and financial basis for compari-son. However, a recent meeting of experts 1/ on this subject concluded that,on average, since 1970, real fertilizer investment costs have risen by about5 1/2% per annum. Most of this increase probably occurred in the second halfof this period for fertilizer plants which have only just or have yet to comeon stream, so that the effect of these increased investment costs is not yetfully reflected in current fertilizer prices. The figures indicate, there-fore, in the long-term and particilarly for phosphate and nitrogen fertili-zers, prices will have to rise significantly above their current levels inorder to attract investments in new capacity. However, current fertilizerprices are relatively low and in real terms the projected long term equili-brium prices are generally of the same order or only slightly greater than theaverage historical prices over the past 10-15 years. To a large extent theincreased cost of both investment and energy have been offset by the benefitsarising from improved technology and large scale operation.

E. Bank fertilizer Price Projections

4.13 The analysis above supports the fertilizer price projections pre-pared by the Bank Commodities and Export Projections Division in collabora-tion witn the Bank Fertilizer Unit. Price forecasts made in 1979 and shownin 1978 constant dollars are given in Annex 4-2. These have been summarizedbelow and presented in 1977 constant dollars to facilitate comparison to thetable on page 31. These forecasts were made prior to the major increases thatoccurred in energy and sulphur prices in 1979 and further allowance willtherefore have to be made for this when using the forecasts.

1/ UNIDO, Consultation Meeting of Experts on Fertilizer InvestmentCosts, Vienna, April 1978.

- 33 -

Fertilizers Price Forecasts(1977 US$ ton FOB)

1978 1980 Long-Term Equilibrium Price

Phosphate Rock 25 28 34Triple Superphosphate 85 102 143Diammonium Phosphate 121 139 200Urea (bagged) 126 123 156Potash 49 56 72

F. Energy and Nitrogen Fertilizer Production Costs

4.14 For nitrogen fertilizer production in particular, compared withphosphate and potash fertilizers, energy is a very important component offertilizer production costs in terms of both hydrocarbon feedstock and fuel.The relationship between increasing energy costs and nitrogen fertilizerprices, however, is difficult to quantify. The oil "crisis" of 1973 had animmediate effect in many, but not all cases, of higher direct nitrogen fer-tilizer production costs, particularly in the case of plants based on importedoil or naphtha, and even more substantially through the indirect effect ofan upward surge in plant equipment costs existing for a significant periodfollowing the oil price increases. Even this observation, however, must bequalified because (i) many nitrogen plants in the USA and Europe were, andto some degree are still operating under low priced long term gas contracts;(ii) new plants (particularly in the developing countries) have been builtbased on "associated" or limited dry gas for which the opportunity cost isrelatively low; and (iii) improved technology, such as the new large centri-fugal compressor based plants have significantly reduced the energy usage inammonia production. One can only tentatively estimate the average increasein urea costs that occurred immediately following the oil crisis, but these,even taking the most disadvantageous source and type of feedstock, wereunlikely to have exceeded US$50 per ton of urea. Thus the subsequent greatincrease in urea prices in 1974/75, as explained previously, was not primarilydue to oil price increase induced production costs.

4.15 The Bank projections of long-term equilibrium prices of fertilizergiven in Annex 4-2 have been calculated on the basis that both energy andinvestment costs would rise in line with normal inflation. During 1979,however, not only have energy costs risen significantly in real terms, butthere has been a significant disparity in these increased costs for differentforms of energy. Should this disparity continue, it could have seriousimplications on the supply/demand situation and also on nitrogen fertilizerprices. The feedstock for ammonia is mainly natural gas but about 10% of theworld's capacity is based on naphtha and about 5% on heavy oil. For mostplants using natural gas, in the short-term the increase in gas prices has notbeen so high as the major increases that have occurred in crude oil. Much ofthe gas used for ammonia production is based on long-term contracts and someof it is associated gas which may have no other immediate or alternative use.On the other hand, naphtha and heavy oil prices have responded quickly anddirectly to increasing petroleum prices and demand. Very roughly, it isestimated that on average over the last twelve months, gas prices have in-

- 34 -

creased by one-third, heavy oil by about one-half and naphtha prices havedoubled. This could have a major effect on ammonia production costs asindicated below:

Production Costs for Ammonia Based on 1,000 tpd Plant (Developed Country)(1978 US$/Metric Ton)

Natural NH Heavy NH3 NH3Gas Production Oil Production Naphtha Production

$/Mscft Cost $/Ton Cost $/Ton Cost

Mid-1978 1.5 86 90 125 130 150Mid-1979 2.0 105 140 175 240 245

If naphtha prices remain at their current high level, more of the capacitybased on naphtha will be forced to close down and will need to be replaced byplant using a more economic feedstock. Should this happen to any largeextent, a more balanced situation will be reached earlier than indicated fromour nitrogen fertilizer supply/demand forecasts, and prices would also risemore rapidly than forecast. However, to the degree that new plants will useassociated gas whose internal price is set by the host country based on a widerange of criteria, energy prices for nitrogen fertilizer production, althoughincreasing in real terms, may lag behind energy prices for oil. Fertilizerdistribution costs on the other hand will more closely follow the increase inoil prices. As can be seen from the costings in Annex 4-1, investment costscan often outweigh the importance of energy costs in determining final pro-duction costs. However, if energy costs in the future increase more quicklythan investment costs as seems likely, this situation will change and theeconomics of building plants where there is relatively cheap natural gas willbecome more favorable even though investment costs are very high.

V. THE FERTILIZER SITUAT1ON IN DEVELOPING COUNTRIES

A. The Importance of Developing Countries in the World Fertilizer Situation

5.01 Between 1965/66 and 1982/83 the shares of world consumption held bydeveloping countries will have almost doubled for all plant nutrients. Overthe same period, their share of world nitrogen and phosphate fertilizerproduction will have grown even more, although potash production will remainvery small.

- 35 -

Developing Countries Share of World FertilizerConsumption and Production (x)

1965/66 1975/76 1982/83Cons. Prod. Cons. Prod. Cons. Prod.

Nitrogen

Market Economies 13.9 5.8 19.5 12.5 23.7 18.9Centrally Planned 9.8 4.8 11.1 8.9 11.6 9.0

All Developing 23.7 10.6 30.6 21.4 35.3 27.9

Phosphate

Market Economies 8.4 4.5 16.9 10.8 20.2 19.1Centrally Planned 3.9 3.7 6.2 6.0 7.1 6.0

All Developing 12.3 8.2 23.1 16.8 27.3 25.1

Potash

Market Economies 5.7 0.3 9.2 1.1 12.3 0.5Centrally Planned 1.7 1.2 2.2 1.3 2.6 1.4

All Developing 7.4 1.5 11.4 2.4 14.9 1.9

All Nutrients

Market Economies 10.0 3.9 16.3 9.1 20.0 14.9Centrally Planned 5.9 3.4 7.6 6.2 8.2 6.5

All Developing 15.9 7.3 23.9 15.3 28.2 21.4

5.02 The group as a whole is now, to a large degree, moving towardsself-sufficiency in nitrogen and phosphate finished fertilizers, althoughits limited potash reserves leave it dependent on imports for this material.There are, however, substantial regional differences. For nitrogen, theexpansion of production in relation to domestic consumption has been strongestin the Far East and the Near East. Several countries in the Near East areemerging as major ammonia exporters based on their natural gas resources. Inthe Far East, increasing self-sufficiency in important markets such as Indiaand Pakistan is the principal explanation of present tendencies. In addition,individual countries have become important net exporters, namely Indonesia andKorea. A similar analysis for phosphates concerns mainly Africa and the NearEast where the phosphate rock deposits of a number of countries, in particularMorocco and Tunisia, are providing the basis for exports of locally-producedphosphoric acid and finished materials.

- 36 -

Production Supply Capability as Percentage of Domestic Consumption1965/66-1980/81 by Regions in Developing Market Economies

1965/66 1970/71 1975/76 1980/81

Nitrogen: Far East 41 55 72 89

Near East 45 46 73 105

Latin America 71 57 61 59

Africa - 30 32 43

Phosphates: Far East 37 50 53 68

Near East 56 57 83 131

Latin America 42 39 53 55

Africa 198 157 117 316

B. The General Case for Expanding Fertilizer Production in

Developing Countries

5.03 There is no doubt that the mid-1970s represented a turning point

for many developing countries regarding their fertilizer production and

import policies. Their experience in both world grain and fertilizer markets

and of the agricultural opportunities revealed by the high yielding varieties

and other farming technologies have emphasized the need to consider expanding

their own fertilizer production (particularly in nitrogen) as a critical

element in policies to assure their food security against short-term market

disturbances and possibly long-term trends in the supply/demand balance.

5.04 Many large consuming developing countries are no longer willing to

depend on the vagaries of imports to a major extent, and the effect that this

can have on both agricultural development programs and foreign exchange

requirements. They realize there is always a risk that in times of financial

pressure, expenditures on fertilizer imports will be reduced - a chance which

cannot-be taken with a fertilizer plant which is already in place. Also, the

existence of a fertilizer plant in a developing country is known to stimulate

fertilizer demand. The long-term balance between domestic fertilizer produc-

tion and imported materials must be struck with some regard to comparative

advantage, in which resource endowment and size of market are important and

low opportunity cost natural resource is available - as, for example, phos-

phate rock in Morocco, Jordan, Togo and Senegal, etc., and natural gas in the

Middle East, Mexico, Trinidad, Venezuela, Indonesia and Nigeria, etc. At the

other extreme, there are many countries with no appropriate natural resources

and a small domestic market, so that at best a local mixing plant using

imported raw materials is justified. This situation would apply to many small

countries in Africa and South America.

C. Food Production and Fertilizer Use in Developing Countries

5.05 During the last two decades, food production in developing countries

has become increasingly dependent on fertilizer use. Although only a small

proportion of total food production at this time can be attributed to fer-

tilizer use, a considerable proportion of the production increases are being

- 37 -

brought about by fertilizers along with other agricultural inputs. Fertilizeruse in the developing countries has accounted for approximately 30% of thetotal increases in food production and more than 50% of the yield increasesin cereal production over the past two decades. 1/ Undoubtedly the increaseduse of fertilizer is the most important way to increase crop production andhelp developing countries become self-sufficient in food production. Unfor-tunately, on present trends, both the current and projected consumption offertilizer will be far from adequate to meet this requirement, and there isconsiderable agreement that it will become increasingly difficult for develop-ing countries to meet their food needs from domestic production unless eitherthe expansion of domestic demand is checked to barely exceed the growth ofpopulation, or policies and facilities are devised to accelerate the use ofagricultural inputs, principally fertilizers.

5.06 In order to attempt to quantify the relationships between grainproduction and fertilizer use, reference has been made to the USDA GOL model(grain oil, seeds, livestock) of Rojka and colleagues (1976). This compre-hensive econometric program model has 4 alternative sets of projections oftotal grain demand and supply, and the underlying macroeconomic assumptionsbehind these alternatives can be related to the base, low and high growthscenarios of the World Bank Development Report 1978. From these, fiveseparate sets of projections of the total grain demand and supply situationfacing developing countries in 1985 can be compared, leading to an assessmentof the fertilizer consumption projections of the UNIDO/FAO/World Bank Ferti-lizer Working Group. 2/

5.07 Based on these projections, world consumption of plant nutrientsshould reach 146.8 million tons in 1984/85, of which 30.8 million tons isin developing market economies. These projections have been shown to beconsistent with the Base Case economic scenario for the world, set out inthe World Bank's "World Development Report 1978" and also the Alternative Iscenario of the USDA model. Both of these Scenarios essentially assume thatworld economic growth stays on its present course and, as seems likely, giventhe macroeconomic constraints, that economic policies within developingcountries are not changed significantly in favor of the poorer groups. TheBase Case could imply a grain deficit for developing market economies runningat 50-60 million tons in 1984/85 as against 18 million tons in 1970 and 35million tons in 1975. The deficit for 1984/85 is based on the assumptionthat per capita food consumption will remain at its current level. If thisdeficit is to be eliminated by 1984/85, it would be necessary to boostfertilizer usage to about 38 million tons in that year, along with associatedinputs, an extremely difficult task. Projections by the International FoodPolicy Research Institute (IFPRI) for 1990 indicate import needs of grain indeveloping countries of 120-145 million tpy. To become self-sufficient by

1/ James P. Grant, President, Overseas Development Council, ISMA Meeting,December 1977.

2/ Fertilizer Production and Use in Developing Countries - Linkages toAgriculture and the Manufacturing Sector, Fertilizer Unit, December 1978.

- 38 -

1990, developing countries would have to increase their fertilizer use by atleast 25% over that already projected.

5.08 Although fertilizer consumption in developing countries has in-creased significantly both absolutely and relatively to the rest of the world(para 5.01), it is unlikely that the overall fertilizer deficit and hence foodproduction will improve to a satisfactory level unless there is a major attackon the constraints that prevent fertilizer use. A recent U.S. Academy ofSciences study has noted that it will be increasingly difficult for the USAand other developed countries to play as dominant a role in world food suppliesas it has done in the last decade without causing sharply rising grain pricesin the developed countries. This is due mainly to the very high cost ofincremental inputs in developed countries to ensure increased yields becauseof the increased use of marginal land and the fact that much of the existingcultivated land is already approaching optimum use.

5.09 The profit that the farmer can expect from fertilizer applicationto his crops, of course, is a key factor in determining fertilizer use. Inorder to improve the incentive to the farmer, the developing countries usuallysubsidize the fertilizer prices to the farmers and, in 1975, 45 developingcountries reported having such programs to the FAQ. This issue is discussedlater in more detail in para 7.17 with particular reference to Bank Groupprojects.

5.10 The failure of many developing countries to increase their effec-tive demand for fertilizers is often due to constraints that occur after theproduction operations and there is an urgent and increasing need to removethese constraints if food targets are to be realized. The term "fertilizerinfrastructure" is commonly used to express the facilities required after theproduction operation to ensure that fertilizer reaches the farmer. The"hardware" of fertilizer infrastructure can include trucks, rail facilities,storage and where fertilizer is imported or transported by sea, it may ofteninclude ships and port facilities. In many cases secondary production facil-ities such as bulk blending units or granulation plants will be required. The"software" of infrastructure includes extension work and farmer education onthe benefits of using fertilizer, credit facilities, adequate margins todealers and retailers, and an effective fertilizer pricing policy offeringincentives to both producer and farmer.

D. Marketing and Fertilizer Distribution in Developing Countries

5.11 Report 830 discussed the constraints that often occur in the distri-bution and marketing of fertilizers, and recommended that the Bank shouldplace increasing emphasis on helping developing countries establish storagefacilities, distribution services and other related infrastructure for fer-tilizer use. In order to examine in more detail some of the problems thatwill have to be resolved if fertilizer use is not to be constrained by themarketing and distribution system, the Bank has been studying model systemswhich could be applicable in developing countries. These models cover a rangeof different sizes and conditions of operation. They are based on the needsof typical farming communities in developing countries and have taken into

- 39 -

account farm sizes, cropping patterns and levels of fertilizer use. In sevencases studied, covering different throughput rates and types of operation, itwas found that the average investment to distribute and market fertilizerranged from US$180-260 per ton of annual throughput, and the operating costof doing this was, on average about US$50/ton. These figures are of the sameorder as the cost of investment and production for the fertilizer raw mate-rials, and confirm the commonly held view that for every dollar spent onprimary fertilizer production, it is necessary to spend almost one dollar onsupporting infrastructure.

5.12 However, the past programs of the major lending institutions showthat, whereas considerable loans have been made for the construction ofprimary production facilities, a relatively small amount has been loaned fordistribution requirements. For example, it is estimated that compared withtotal investments for fertilizer production, the World Bank has loaned lessthan 10% for what can be directly attributable to fertilizer infrastructuresuch as stores, transport, secondary production units, etc. A significantpart of this (US$68 million) was for a fertilizer distribution systemin Indonesia.

5.13 One reason for this relatively small involvement is that the privatesector, particularly in areas where free enterprise prevails, is often willingand able to invest in these facilities with local currency. Also, as many ofthe early Bank fertilizer projects were substitutive for fertilizer imports,distribution infrastructure usually existed. However, in many countries andparticularly those where incentives are not sufficient or available to encour-age the marketing and distribution of fertilizers, there is now a growingevidence that this will become an increasing constraint and, unless a majoreffort is made to overcome it, all of the benefits expected from the invest-ments in primary production may not be realized.

5.14 As pointed out earlier, if developing countries are to increasetheir food production in order to become self-sufficient, fertilizer use willhave to increase significantly above present levels, and to achieve this willrequire a major effort to improve the factors which influence the use offertilizers; for example, extension work geared more specifically towardsincreased fertilizer use, improved credit and fertilizer distribution margins,and better facilities for storage and distribution.

E. Future Availability of Fertilizer Raw Materials

5.15 It is unlikely that the shortage of fertilizer raw materials willlimit the development of the fertilizer industry within the current century.Phosphate rock, potash and sulphur are plentiful and, although the preferredsource of hydrocarbon to fix nitrogen may change in the future, there is notlikely to be any major supply problem here either.

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1. Nitrogen

5.16 About 98% of all nitrogenous fertilizer is produced through ammoniaand the feedstock for this is natural gas, naphtha, oil and coal. About 3%of natural gas and about 0.5% of oil products and coal are processed intonitrogenous fertilizers. The feedstock for nitrogenous fertilizers are widelydistributed in both developed and developing countries. Natural gas is thepreferred raw material, both on economic and technical grounds, but as theprice of gas and oil and naphtha increase, there may be a gradual trendtowards coal as the raw material. As there is sufficient coal for severalcenturies, raw material is not likely to be a constraint to fertilizer use.The development of relatively cheaper nuclear power also offers the possi-bility of hydrogen feedstock for ammonia, either by electrolysis of waterand/or high temperature dissociation of water. Also, in the longer term,the biological fixation of nitrogen may help meet nitrogen fertilizerrequirements.

2. Phosphate

5.17 World reserves 1/ of phosphate rock and total resources 2/ of phos-phate rock are currently estimated at about 27 billion tons and 67 billiontons respectively, and although it is believed that the availability of phos-phate of all nutrients will be the first constraint on food production, atpresent rates of increase, known resources will last about 200 years. In theevent, it is likely that the rate of increase of phosphate consumption willslow down and, in any case, new resources will almost certainly be discovered.However, although phosphate deposits are widely scattered, most of the sig-nificant deposits are in a few locations with the situation being dominatedby Morocco, which has about two-thirds of the world's known phosphate resources.Apart from the USA (about 12% of world resources), the USSR (5%), South Africa(10%) and Australia (3%), all other deposits lie in developing countries. Itis expected that most of the development in the phosphate industry, both inphosphate rock production and phosphatic fertilizer production outside theUSA, will occur in developing countries.

3. Potash

5.18 In many ways the situation for potash is similar to that for phos-phate except that in this case the USSR and Canada, with about 80% of theworld's total reserves between them, dominate the scene. Apart from somerelatively small developments in Jordan and possibly in the future in Thailand,Brazil and UK, there will be very few new potash mines outside the USSR andCanada. There are sufficient reserves to last for several centuries and, inthe long term, potash can be extracted from sea water even with known tech-nology to give almost unlimited resources.

1/ Reserves - economically recoverable at present market prices.

2/ Resources - economic recovery currently or potentially feasible.

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F. Organic Fertilizers

5.19 About 10% of all fertilizers are currently made up of organic wasteand it is believed that there is the potential to increase this to about 25%.The two main countries who use organic waste are China and India. Considerableattention has been given within the last few years to the possibilities ofusing more organic fertilizers in developing countries but it seems unlikelythat any rapid increase in organic fertilizer will reduce the projected needsfor inorganic chemical fertilizers. The lack of adequate infrastructure forthe collection, distribution and sale of such high bulk, low unit valuematerials as organic fertilizers and the competing use of organic wastematerial as a fuel has constrained its further development. Nevertheless,the Bank continues to look for worthwhile projects in this field. It isimplicit in the Bank forecasts that organic fertilizers will continue tomake a significant contribution to fertilizer requirements.

G. Bio-Fertilizers

5.20 The biological fixation of nitrogen is a very cheap and promisingsupplementary source of nitrogen for crops. Many countries and in particularthe USA and Australia have a significant contribution to plant foods fromthe fixation of nitrogen using legumes, and other contributions from atmos-pheric nitrogen come from green manuring and Azolla culture. Work in theharnessing of blue-green algae which can fix up to 40Kg/Ha of nitrogen isgoing on in many countries particularly on rice crops. Undoubtedly thebiological fixation of nigrogen can be exploited much more, to make an in-creasing contribution even in the short term to plant nutrient requirements,by cropping patterns rotation and intercropping involving legumes. The Bankhas in fact included legume based nitrogen fixation technology in some 20projects in a wide range of countries with encouraging results.

5.21 A very dramatic reduction in the need for industrial nitrogenfixation could be achieved if nitrogen fixing capability could be fostered,even partially, in nonleguminous plants, since these constitute a much greaterproportion of current world food crops. A substantial number of public andprivate organizations are deeply involved in this particular problem andalthough the work may eventually be very far-reaching in its influence onagriculture, it is sufficiently long term not to have any significant impactwithin the time-frame of this report that is within the next 10-15 years.

H. Assistance from the Oil/Gas Rich Countries

5.22 Report 830 reported on the plans of the OPEC countries, announcedin 1975, to build between 5 and 10 plants producing 1.5 million tons ofnitrogen annually. The output of these plants would constitute a fertilizerfund from which OPEC would sell to needy countries at prices covering rawmaterials and operating costs. No further information has been received onthese intentions. Although many OPEC countries appeared to be favorablyplaced to produce ammonia and urea from flared associated gas, it is nowmuch clearer that this is not necessarily so. The additional cost of plantand infrastructure required in remote locations where gas is often available,

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including the cost of equipment to collect and sweeten the gas, can oftenoutweigh the advantages of cheap gas. A detailed comparison of investment

and operating costs in different locations is given in Annex 4-1. This

factor, together with the difficulties of obtaining experienced technicalpartners for such ventures and assured markets for the products, has deferred

plans for fertilizer plants in many oil/gas rich countries. In the longer

term, however, as the relative energy advantage of the OPEC countries improves

even more and infrastructure is developed within these countries, it is also

likely that an increasing number of nitrogen plants will be built. Few major

developments are expected during the present period of nitrogen surplus.

I. Environmental Considerations

5.23 The manufacture and use of fertilizers, both in developed and

developing countries, require that more and more consideration should be

given to environmental issues. If proper care is not taken, fertilizermanufacture can cause serious pollution to both atmosphere and local water

supplies. The Bank accepts the special responsibility it has towards devel-

oping countries to ensure that Bank fertilizer projects do not endanger thesafety and health of employees and local population and have a harmful effect

on the environment. The lack of education, training and established stand-

ards or legislation usually make environmental considerations a specialproblem in developing countries, and all fertilizer projects are reviewed,

both during appraisal and implementation to ensure that the required high

standards prevail. The Office of Environmental and Health Affairs within the

Bank is responsible for advising this subject. Although careful attention is

given to process and plant design, special emphasis is placed on the training

of managers and operators, and most Bank loans contain some element for andare also conditional on such training being carried out. The Bank would be

prepared to reject a project if it felt that it constituted a significant

threat to safety, health or the environment.

5.24 The Fertilizer Unit maintains contact with the leading fertilizer

authorities to ensure that the Bank is kept well informed on environmentalsubjects. For example, the effect of denitrification of nitrogen fertilizers

and its effect on the earth's ozone layer and on water supplies is one subject

currently under review. Another relates to the safe disposal of gypsum and

fluorine compounds as part of phosphate fertilizer manufacture.

VI. FERTILIZER INVESTMENT REQUIREMENTS

A. Technical Considerations

6.01 In order to estimate future investment requirements for the next

ten years or so, it is important to assess whether or not there are likely

to be any major technical developtents that could affect the situation.

Although the last twenty years have seen considerable development in fer-

tilizer technology, most of this has been related to the improvement of

existing processes in efficiency and scale. There have been no fundamental

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changes in fertilizer processes which have significantly decreased productioncosts, and due to environmental considerations and increases in equipmentand skilled labor, the cost of fertilizer plants in real terms over the lastten years, has on average increased by about 5 1/2% per annum. The largestincreases occured in the years 1973 to 1976 inclusive, but within the last twoyears the increases have fallen to more or less match inflation rates. Itis not anticipated that there will be any radical changes in technology overthe next decade, and it seems safe to assume that investment requirements canbe projected on existing experience and cost data.

6.02 Although much attention has been focused on the use of nitrogenfixing symbiotic bacterium as a method of enhancing nitrogen use directlyfrom atmospheric nitrogen, and other work is directed to studying the asso-ciated catalysts and reactions which would permit the synthesis of nitrogenfertilizers at lower temperatures and pressures and hence cheaper operatingconditions, authorities on these subjects do not expect major developmentswithin the next 15 to 20 years.

6.03 For nitrogen fertilizers, it seems likely that urea, ammoniumnitrate and ammonium sulphate will remain the main nitrogenous fertilizers.The basic process for ammonia is unlikely to change and natural gas willremain the main feedstock. The main source of phosphate fertilizers willbe the processes involving the acidulation of phosphate rock with sulphuricacid. The main potash fertilizer will remain as potassium chloride producedby conventional dry mining. Short of some unlikely and unforeseen revolu-tionary change, fertilizer development is likely to continue its presentcourse of increasing nutrient concentration, improving the efficiency offertilizer use, improving process efficiency and energy consumption andreducing costs by larger scale operations.

B. Adaptive Technology

6.04 Much attention has been given recently to the possibility of usingadaptive technology which would be very specifically suited to a developingcountry, and reference is made to the Chinese fertilizer case where severalthousand small fertilizer plants have been constructed at the commune level tomake nitrogen fertilizers using simple plant and process technology. Theremay undoubtedly be potential applications for adaptive technology in somedeveloping countries with limited fertilizer requirements, particularly wherethere are small local deposits of raw materials which would not justify largescale development or where distribution is particularly difficult. Oneparticular application of this, for example, would be the manufacture ofground phosphate rock or single superphosphate from small local rock deposits.Another case might be the use of windmills or water to provide electricityfrom which nitrogen fertilizers might be produced either directly by fixationor electrolysis.. One of the major points made in favor of adaptive technologyis that it can be applied more easily and hence probably more economicallythan large-scale high level technology. Even after taking this factor intoaccount, it has been the Bank's experience that small fertilizer plants, andparticularly nitrogen plants, based on old or adaptive technology, can rarelybe justified on economic grounds.

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6.05 Assuming the market conditions indicate it to be the best economic

consideration, the erection of large scale, high level proven technology in

developing countries is usually well justified. In most cases, Bank-financed

fertilizer plants in developing countries have operated satisfactorily within

a relatively short period of time. In certain cases, it is well known that

performance of some plants have been disappointing in the early years, but

this was often due to outside factors such as unreliable electricity supplyor other essential services, or poor management and/or maintenance. Many

of these constraints are now being removed, and in India in particular,

the gradual improvement of plant performance as the industry moves up the

'learning curve' fully justifies the early decisions that were made to go for

large modern plants. If these decisions had been directed otherwise, it is

doubtful whether the Indian fertilizer situation would have advanced as far as

it has today. It is perhaps significant that China recently changed emphasis

and has purchased 16 large high-level technology fertilizer plants which will

increase its production capacity for nitrogen fertilizers by about 60%.

C. World Fertilizer Plant Investment Requirements

6.06 As the world demand for fertilizer increases, there will be a con-

tinuing and increasing demand for new fertilizer plants. There will also be

an increasing need for replacements as existing plants reach the end of their

useful life. In many cases, due to the change in both raw material sources

and markets, there is likely to be a change in the location of replacement

capacity.

6.07 Based on the current projections for fertilizer demand and assuming

that, on average, a fertilizer plant may be operated for about 25 years, some

rough estimates have been made of both number of plants and future investment

requirements for the world and for developing countries for the period 1983-

1993. Allowance has been made for changes in the structure of the fertilizer

industry that are likely to occur within that period.

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World Fertilizer Plant Investment Requirements 1983-1993(1978 US Dollars)

1983-1988 1988-1993

Nitrogen

New Nitrogen Capacity Million Tons N 24.4 29.4

New Plants Required 110 130

Investment Required US$ Billion 19.5 23.5

(Based on Average Size Plant of 1,700 tpd urea)

Phosphate

New Phosphate Capacity Million Tons P 205 11.0 12.9New Plants Required 37 43

Investment Required US$ Billion /a 8.8 10.3

(Based on Average Size Plant of 1,000 tpd P205)

Potash

New Potash Capacity Million Tons K 20 10.0 14.0New Plants Required 7 9

Investment Required US$ Billion 3.0 4.2

(Based on Average Size mine of 1.5 million tpy K20)

Total Investment Required US$ Billion 31.3 38.0

/a Includes investment for mining, phosphoric acid and phosphate fertilizerproduction.

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The figures indicate that in the five years between 1983 and 1988 the worldwill on an average require per annum about 22 new nitrogen complexes, 7 newphosphate complexes and 1 or 2 new potash mines to meet increasing fertilizerdemand and also to replace worn out plants. The total average investmentrequired per annum will be about US$6-7 billion. Based on current forecastsof supply and demand and taking into account the possible effects of earlyplant closures or delays in commissioning, it appears that there should be abalanced situation in all three nutrients by 1983 or earlier. Since the timeto initiate and complete these projects takes from 4 to 5 years, they must bestarted in 1979 for completion after 1983. Irrespective of the overall globalsituation, there will also be some plants in developing countries well justi-fied on supplying a domestic market based on cheap indigenous feedstock. Forexample, many countries such as India, Pakistan, Bangladesh, Brazil and otherswho have large domestic markets are also large importers of fertilizers.These countries will continue to build their own plants when it is economic-ally justified to do so (as is likely to be the case when based on their ownraw materials), even when there is a world surplus of fertilizers.

D. Investment Requirements of Developing Countries

6.08 In estimating the investment requirements of developing countries,specific consideration must be given to the location and availability of rawmaterials in these countries and plant infrastructural requirements.

Developing Country Fertilizer Plant Investment Requirements1983-1993 (1978 US Dollars)

1983-1988 1988-1993Nitrogen

New Nitrogen Capacity Million Tons N 9.8 11.7New Plants Required 43 52Investment Requirement US$ Billion 7.8 9.4

Phosphate

New Phosphate Capacity Million Tons P 205 6.7 7.7

New Plants Required 22 26Investment Requirement US$ Billion 5.3 7.4

Potash

New Potash Capacity Million Tons K 20 1.5 1.5New Plants Required 1 1Investment Requirement US$ Billion 0.5 0.5

Total Investment Requirement - US$ Billion 13.6 17.3

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1. Nitrogen

6.09 Developing countries import large quantities of nitrogenous fer-tilizers but considering that feedstocks such as gas and oil are available inmany of them, it seems likely that the main emphasis on increased fertilizerproduction will continue to be on nitrogenous fertilizers. Assuming that thecurrent trend to self-sufficiency continues as it has in the last five yearsor so, it is estimated that about 40% of the new capacity for nitrogen in theperiod 1983-1993 will be in developing countries including the gas/oil richcountries.

2. Phosphate

6.10 The relative and absolute increases in phosphate demand in theperiod 1983-1993 will be greater in developing countries than in developedcountries. As there is a trend towards the production of phosphate fer-tilizers at the mine site and because most of the new phosphate deposits whichare likely to be exploited, are located in developing countries, it is judgedthat about 60% of all new phosphate projects will be in developing marketeconomy countries.

3. Potash

6.11 Most new potash mines are projected for the USSR and Canada and,apart from the potash project which the Bank is helping to finance in Jordan,it seems unlikely that in the next few years there will be any other potashprojects in developing countries. In the medium and longer term, therecould be projects in Brazil and Thailand as these countries have known potashreserves. One of the projects has been indicated for 1983-88 and the otherfor 1988-93.

4. Fertilizer Infrastructure

6.12 Costs for fertilizer infrastructure include both software andhardware. The former involve farmer educational programs, extension work,marketing and distribution studies. The hardware costs include blending orgranulation plants, bagging and storage facilities, transport, handling andport facilities. Infrastructure investment costs are difficult to estimateand as they depend to a large extent on existing infrastructural and socialconditions they can vary significantly from place to place. As indicatedearlier, where complete fertilizer infrastructure has to be provided, theinvestment requirements may be of a magnitude comparable to those of manu-facture. Sometimes, private industry is capable and willing to invest in thedownstream side of the production process and also the facilities required forinfrastructural projects can often be provided from local resources and paidfor in local currency. Nevertheless, investment requirements for fertilizerinfrastructure in developing countries will still be significant, and even ifone assumes that in future it is only half the magnitude of the manufacturingfacilities for the primary fertilizer materials, it is still likely to be ofthe order of US$1 billion per annum over the next ten years or so.

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VII. BANK GROUP FERTILIZER OPERATIONS

A. Bank Group Investments in Fertilizer Production

7.01 In order to help developing countries satisfy their fertilizerneeds, the World Bank Group has continued to provide significant financialand technical help during the last few years. A list of fertilizer projectsfinanced since 1968 by the Bank Group (Bank/IDA/IFC) is given on the followingpage, and new fertilizer projects are being appraised although the pace, atleast temporarily has slackened. Generally, Bank Group help has been mainlydirected towards new nitrogen projects where the need has been greatest andwill continue to be the greatest. However, in order to encourage and ensurea proper balance of all nutrients, the Bank Group has also financed phosphateand potash projects.

7.02 Besides financial assistance, an equally important aspect of Bankhelp has been the assistance given to developing countries during the iden-tification, preparation, appraisal and implementation of the projects. Tosupport the loans, a great deal of investigational work is required on markets,financial, technical, managerial and economic aspects of the projects, andeven where the Bank may be a minority lender, it is often able to attractother lenders through its appraisal work. 1/ In addition, the Bank frequentlyassists the Governments in identifying the need for and assisting in theimplementation of policy and institutional improvements necessary to promoteoptimum use of fertilizer under efficient conditions. In this context, theBank has played an important role in improvements in fertilizer pricingpolicies, distribution systems, organization and management of the fertilizersector of the borrowers in many countries.

1/ In one case, IDA provided only 13.5% of the total project cost whilefive other external agencies joined in financing the project; in anothercase, about 80% of a project's cost was financed by the Bank, the averagereflecting about one-third of project cost being financed by the BankGroup.

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FERTILIZER PROJECTS FINANCED BY THE BANK GROUP SINCE 1968

AMOUNT CAL.YEAR IBRD/IDA/REGION/COUNTRY PROJECT (US$ MILLION) END PRODUCT APPROVED IFC

EAST ASIA

Indonesia Pusri II 30.0 Ammonia/Urea 1970 IDAPusri II (Supplemental) 5.0 Ammonia/Urea 1973 IDA

Indonesia Pusri III 115.0 Ammonia/Urea 1975 IBRDIndonesia Pusri IV 70.0 Ammonia/Urea 1976 IBRDIndonesia Pusri Distribution 68.0 Distribution 1975 IBRD

SUBTOTAL 288.0

SOUTH ASIA

India Cochin II 20.0 NPK 1971 IDAGorakhpur 10.0 Urea 1972 IDANangal 58.0 Ammonia/Urea 1973 IDATrombay IV 50.0 NPK 1974 IDASindri 91.0 Ammonia/Urea 1974 IDAIFFCO 109.0 Ammonia/Urea 1975 IBRDIndustry Credit 105.0 Various Debottle- 1975 IDA

neckingThal 250.0 Ammonia/Urea 1979 IBRD

Pakistan Dawood Hercules 34.9 Ammonia/Urea 1968 IBRD/IFCMultan 35.0 Ammonia/NP/CAN 1974 IBRDFauji 55.0 Ammonia/Urea 1978 IDA

Bangladesh Ashuganj 33.0 Ammonia/Urea 1975 IDA

SUBTOTAL 850.9

EMENA

Turkey Igsas 24.0 Ammonia/Urea 1973 IBRDIgsss (Supplementary) 18.0 Ammonia/Urea 1975 IBRD

Morocco Maroc Phosphore I 50.0 Phos.Acid/MAP 1974 IBRDMaroc Phosphore I - Expan. 50.0 Phosphoric Acid 1978 IBRD

Egypt Talkha 20.0 Ammonia/Urea 1974 IDANew Valley Phosphates 11.0 Tech. Assistance 1979 IBRD

Romania Bacau 60.0 Ammonia/Urea 1974 IBRD

Tunisia Gafsa 23.3 Phosphate Rock 1974 IBRD

Jordan Jordan Fert. Ind. (Eng. Cr.) 3.1 Phes. Acid/DAP 1975 IFCJordan Fert. Ind. 70.0 Phosphoric Acid 1978 IFCArab Potash (Eng. Ctredit) 1.0 Potash Engineering 1975 IDAArab Potash 35.0 Potash 1978 IBRD

Portugal Quimigal 58.0 Ammonia/Ammonium 1979 IBRDNitrate

SUBTOTAL 423.4

LAC

Mexico Fertimex 50.0 Urea/Pesticides 1975 IBRDFertimex 80.0 AN/DAP/NPK 1979 IBRD

Brazil Araucaria 50.0 Ammonia/Urea 1976 IBRDSergipe 64.0 Ammonia/Urea 1977 IBRDValefertil 82.0 MAP/TSP 1977 IBRD

SUBTOTAL 326.0

TOTAL BANK GROUP 1,888.3

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7.03 As a result of the comprehensive approach to fertilizer projects andalthouah many of the projects are large and complex, the overall performanceof Bank projects so far completed has been generally good and most plants haveoperated at relatively high capacities and shown satisfactory performance.This, in part, is due to provisions in Bank projects for obtaining technicalhelp during the critical periods of implementation and start-up with adequatearrangements for training programs for management and operators. The Bankexperi-nce has clearly demonstrated the ability of many developing countries,with appropriate management and technical assistance, to operate the large,high-technology plants efficiently. The actual economic returns of the BankGroup projects so far completed are satisfactory and, on the average, close toappraisal estimates despite increases in the costs of some projects completedduring the high inflation period of 1974-78.

7.04 Although the primary object of the Bank's activity has been to pro-vide fertilizers at economic costs with which to grow food, there have beenmany other benefits from these projects which must be taken into account inassessing the value of the Bank contribution to the fertilizer industry indeveloping countries. The infrastructure and social improvements which comeabout directly and indirectly as a result of a new fertilizer plant can bevery significant. In one recent project appraised, it has been estimatedthat the project would create directly 1,565 jobs but indirectly up to 5,000jobs in transportation, marketing and communications (with, of course, someadditional investments in these downstream activities). If the overall effecton new jobs could be estimated due to increased agricultural production andassociated activities, the number would be very much greater still. In addi-tion to increased agricultural production, the diversified nature of thefertilizer industry brings with it benefits such as ports, railroads andrelated industries. Another important indirect benefit of Bank-financedprojects is the transfer of technology to developing countries. As elaboratedfurther below, implementation of these plants has led to the development oflocal skills in design and engineering, equipment manufacturing and in manage-ment skills in construction and operation of large industrial projects. Inview of the high level of Bank activities in financing fertilizer plants indeveloping countries, the overall impact of these activities has undoubtedlybeen very considerable.

7.05 Co-financing has continued to be an important element in Bank Groupfinanced projects. In most cases, the Bank has provided one-third or less ofproject financing and was often not the largest single lender. Regional andbilateral agencies that have worked with the Bank include KfW, USAID, US Exim-Bank, Japan OECF, UK-ODM, ADB, IDB, Kuwait Fund, Arab Fund, Abu Dhabi Fund,Islamic Bank, OPEC Special Fund, Saudi Fund, Libyan and Iraqi Funds, etc., andin addition a number of commercial banks. As is the case in many other Bankfinanced projects with co-financing, frequently the borrowers and the co-lendershave relied on Bank staff analysis to take their own investment decisions andhave asked the Bank to take a lead in suggesting various project and financingalternatives. In many cases, the Bank has coordinated the activities of halfa dozen or more co-lenders. While this has increased Bank staff input, it hasfacilitated efficient project processing and implementation.

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7.06 The main fertilizer activities of the Bank initially concentrated inthose countries where the need for fertilizers was the greatest and which couldeconomically justify the development of domestic fertilizer production, thatis, the countries which were major importers of fertilizers such as India,Indonesia, Pakistan, Egypt, Brazil and others. The main objective in eachcountry, supported by both economic and financial considerations, was to helpthe countries achieve self-sufficiency in fertilizer production and hence foodproduction. In each case, it was necessary for the Bank to adopt a differentapproach specific to the needs of the country and designed to ensure not onlythat the country achieved its fertilizer requirements as quickly as possible,at economic costs, but at the same time, the country fully benefitted from thetransfer of technology and the other changes, both social and infrastructural,that also resulted from the project. Several major Bank projects were approvedin the early 1970's when it was clear that world fertilizer capacity waslagging behind demand, and although the plants probably could only play aminor part in alleviating the fertilizer crisis in 1974/75, there is no doubtthat for the major developing countries new capacity which came on streamafter that period, financed by the Bank, has done much to help the supplysituation since.

7.07 In addition to such domestic market oriented projects, the Bank Grouphas also financed a few export-oriented fertilizer projects in countries witha clear economic advantage in the field due to the presence of domestic re-sources and with a reasonable prospect of exporting the product at economiccosts. The phosphoric acid projects in Morocco and the potash and phosphaticfertilizer projects in Jordan fall in this category and will help diversifythese countries' export base while providing other fertilizer deficit countrieswith needed products.

7.08 While promoting the development of new fertilizer industries indeveloping countries, the Bank has tried to ensure that such development takesplace in the most efficient manner possible. Different approaches to projectimplementation have been used depending on the situation prevailing in acountry at a given time. For example, some of the Bank's first major projectswere in Indonesia, a country with a small industrial base and a large agri-cultural population. In this particular case, a turnkey approach to projectimplementation was adopted in order to expedite the projects and ensure fer-tilizer to meet an increasing demand. At the same time a major training com-ponent was included as part of the projects to ensure that the plants wouldbe efficiently operated after the expatriate engineers left. The Bank-financed plants in Indonesia have operated at high rates and efficienciessince commissioning, and the emphasis given by the Bank to the training ofoperators and staff and management as well as helping to build up a marketingand distribution system was fully justified.

7.09 In India the case was somewhat different as India already had asmall (but struggling) fertilizer industry and a significant and growingindustrial base. The general approach here was to upgrade existing companiesby expanding capacity and, at the same time, encourage and support an engineer-ing and technical contribution from experienced overseas companies to local

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industry. The impact on both the Indian fertilizer industry and local sup-porting industries has been very significant, and India now has one of thelargest and most up-to-date fertilizer industries in the world. India isitself now manufacturing several categories of chemical plant and machinery,including large centrifugal compressors under licence from Italy, and it islikely that in a few years India will be able to provide most of its owndesign and equipment for new large fertilizer plants. Several completefertilizer plants which have been built by Indian engineering companiesworking through agreements with European and Japanese firms are alreadyoperating well.

7.10 One interesting aspect of the technology transfer is that someIndian engineering companies can now design and build plants and also providetechnical consultant help to other developing countries. The Bank encouragesthis, and other developing countries have used Indian consulting companies forstudies on fertilizer projects. One advantage of this is that developingcountry companies are often much more aware of the problem facing other suchcountries. They can also provide outlets for acquired technical skills atmore competitive costs compared with expatriates from the more developedcountries. The Bank has also made a significant contribution to fertilizersector investment planning and studies financed by the Bank and recommenda-tions on certain necessary institutional changes have ensured that theindustry is continuing to expand in an orderly fashion.

7.11 The Bank itself has gained considerable experience by its earlyoperations in South Asia and Indonesia, and has used this in its work inother developing countries in the preparation, design and implementationof a wide range of projects with different types of technology.

7.12 Although most of the Bank's nitrogenous fertilizer plants are forthe production of urea, which is particularly suitable in most developingcountries with adequate rainfall and/or irrigation facilities, it has also

financed production of other nitrogenous fertilizers and of phosphatic andpotash fertilizers. For example, in Pakistan and India, the Bank has financednitrophosphate plants which will be particularly suitable for local agricul-tural needs and will save costly sulphur imports. In Brazil, a MAP/TSP plantwas financed to meet the country's phosphatic fertilizer needs in conjunctionwith the two Bank financed nitrogen fertilizer projects. In Morocco, theBank has financed two stages of an export-based phosphate project, and hashelped Morocco in the first part of a long-term plan to become a major world-supplier of phosphoric acid. As mentioned, Morocco has the largest andrichest phosphate deposits in the world, and the Bank is helping to ensurethat these are developed in the best way to meet the needs of both developingand developed countries.

7.13 While most Bank financed projects were prepared by the borrowerswith their own resources, the Bank has also used engineering credits as avehicle to help resolve critical technical and economic issues and to preparecomplex projects with outside assistance. The Bank, through an engineeringcredit, enabled Jordan to carry out a pilot project to recover potash from

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the Dead Sea after developing optimum project design to exploit this valuableresource. The successful completion of this project was followed by a loanfor a potash producing project in Jordan, mostly for exports.

7.14 Frequently, the Bank has been asked by member governments for adviceon the development of their countries' fertilizer sectors and, in many cases,this has been included as a major part of Bank pre-appraisal and economicmissions. The Bank has also been asked for advice on the feasibility ofvarious fertilizer projects including those where Bank financial help would,and would not be required. In certain cases, the Bank has been able to pro-vide important and critical judgement as to why fertilizer plants should notbe built or plans for them modified substantially in timing and/or scope foreconomic or technical reasons. In most cases, this information and advice hasbeen appreciated and accepted by the governments concerned.

7.15 Although the major projects financed by the Bank Group and completedduring the past few years have generally given satisfactory performance, manyother fertilizer plants in developing countries have failed to meet theirrated capacity. This has often been the result of political and infrastruc-tural constraints as well as shortcomings in plant design and operation orimbalances between various facilities. The Bank Group has been working onthis problem in a number of countries. At the end of 1975, IDA approved acredit of US$105 million to help increase India's fertilizer production byimproving capacity utilization of the existing plants. This credit is assist-ing ten fertilizer plants in removing production bottlenecks and will helpincrease fertilizer production by 250,000 tpy of nutrients. This should allowproduction in the existing facilities to be raised to an industry-wide averageof 85%. The recently approved Fertilizer Industry Modernization project inPortugal will do the samne by revamping old facilities, building additionalcapacity in a few areas to better balance different capacities and byreplacing obsolete plants. Similar operations are under consideration inother countries, including Turkey.

7.16 - The Bank Group has always followed a comprehensive approach tofertilizer projects fully realizing that the principal object is to ensurethat fertilizer reaches the farmer at the right price. Although a majoreffort has always been concentrated on the production facilities, help andadvice have been given on other aspects of the industry, particularly thepricing, marketing and financial management. The Bank has encouraged involve-ment of experienced fertilizer companies in projects in developing countriesto ensure that the necessary expertise is available. Many major studies havebeen financed by the Bank to help its clients develop satisfactory marketingand distribution systems although, as pointed out later, it is aware thatthere is much more useful work that could be done in this area in the future.

B. Fertilizer Pricing Systems in Bank-Financed Projects

7.17 A review of the fertilizer pricing systems in member countrieswith Bank-financed projects indicates that:

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(a) In all these countries, fertilizer prices, at both farmerand producer levels, are determined by the government,either directly or indirectly as are crop prices in mostcases.

(b) In practically all developing countries, the governmentsare making their fertilizer pricing policies responsiveto two basic objectives of (i) making fertilizer availableto the farmers at stable and attractive prices to encourageincreased agricultural production through greater fertilizeruse, and (ii) giving fertilizer producers a reasonablereturn on their investments to encourage increased productionand efficient operations.

(c) In all countries in which the Bank has financed fertilizerproduction except in Brazil, the farmers are paying substan-tially less than the estimated delivered cost of importedfertilizer. In five countries, farmer prices are alsosubstantially lower (by about 20% or more) than comparabledomestic producer prices with the differential being paid bythe government.

(d) In all these countries except, again, one, the domesticproducer prices are lower than the cost of imported material.

(e) In most countries, the twin objectives are met by theadoption of some kind of a two-step pricing mechanism throughwhich the farmer price is set on a criteria (normally relatedto established crop prices) different from that used forsetting the producer prices, making the farmer price lower,at times than the ex-factory price plus distribution costs.

(f) In most cases,the differential payments to farmers are thusprovided at the marketing and distribution stage. Whereverthe producers are also involved in marketing, they are askedto sell the products at the farmer prices and are, in turn,compensated by the government through direct payments orcharged a "surcharge" if the ex-factory price is lower.

7.18 These pricing systems are meeting the governments' two basic objec-tives mentioned above and are working well in most cases, at least from theproducer and farmer point of view. This is true where the governments have(a) set up an explicit pricing policy defining precisely how the interest ofthe producers and farmers will be treated; (b) ensured in the pricing mecha-nism that the producers and distributors have sufficient incentive to makemore fertilizer available under efficient operating/marketing conditions;and (c) adopted administrative procedures necessary to promptly reimbursethe producers any "compensation" due to them. On the other hand, in countrieswhere one or more of these elements are missing, the pricing system has failedto achieve one or both of these objectives.

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7.19 In its work on fertilizer projects, the Bank has consistentlyopposed direct or indirect subsidization of its projects to (a) prevent mis-allocation of resources to inefficient investments, and (b) promote efficientoperations. The above-mentioned analysis would indicate that, on the whole,the Bank has succeeded in achieving this considering that, in almost all theBank-financed projects, ex-factory prices are below the landed cost of im-ported materials. On the other hand, the Bank has been more flexible whenconfronted with the much more complicated problems of subsidization offarmer fertilizer prices.

7.20 Over the years, the Bank has become increasingly aware that theissue of subsidization of fertilizer prices to farmers is integrally linkedwith the overall agricultural pricing policies and the national budget.While in principle the Bank is opposed to subsidy arrangements due to thepotential inefficiencies involved in any subsidy system and the burden itcauses on the national budget, it has also increasingly recognized that allfertilizer subsidies cannot be eliminated without a careful analysis of theirrelationship with crop and other input prices, and then again their relation-ship with the overall agriculture sector pricing structure and their effecton the purchasing power of a large segment of a country's population. There-fore, before their gradual elimination or reduction, governments must ensurethat the farmers would still retain enough incentive to make increased useof fertilizer though, of course, only up to an agronomically optimum level.Since these optimum levels may vary not only from country to country but alsobetween different crops and between different regions of the same country,the Bank has normally moved cautiously before recommending total eliminationof farmer subsidies on fertilizer.

C. The Bank Group Fertilizer Unit

7.21 Report 830 discussed the terms of reference and operations of theFertilizer Unit which had been set up in 1974 within the Industrial ProjectsDepartment. The Unit is small in size comprising two professionals and oneresearch assistant and works in close cooperation with the Department'sChemical and Fertilizer Division and Mining Division responsible for theBank's fertilizer financing operat,ions. The main objective of the FertilizerUnit is to coordinate the planning of Bank Group assistance in the form ofboth finance and advisory services for improved supply and use of fertilizersin developing countries. Within the last few years, the Fertilizer Unit hasbecome established as an important advisory unit offering a "comprehensiveadvisory service" on fertilizer topics to all departments within the BankGroup as well as to other international agencies. 'The Unit also provides.information to industry in both developing and developed countries. Theappraisal of new fertilizer projects by operational units within the BankGroup ensures a continuous input of new fertilizer information to this Unit,particularly on investment and production costs as well as on fertilizermarkets both on a world and countrywide basis.

7.22 A fertilizer data base has been established and the Bank has accessto the bases maintained by such agencies as the Tennessee Valley Authority(TVA), the International Phosphate Industry Association (ISMA) and the

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International Fertilizer Development Center (IFDC). Through its contactswith industry and national and international agencies as well as from Bankfertilizer projects, the Unit has built up a comprehensive information systemcovering a wide range of fertilizer topics including raw materials, productionand technology, marketing and distribution and agronomic aspects of fertilizeruse. Apart from the value of this information for project appraisal, itforms an important basis for Bank sector work and economic missions, and theFertilizer Unit and the Bank's Chemical and Fertilizer Division and MiningDivision contribute to this work both directly by participation or indirectlyby briefing on economic work in those developing countries where the produc-tion of fertilizer raw materials or products is important. The Unit publishesa quarterly Fertilizer News Bulletin which is widely circulated within theBank Group. This reviews the international fertilizer situation and containsinformation on fertilizer export prices, freight and new projects. Withinthe last two years, the Unit has produced major world surveys on the nitrogen,phosphate and potash industries. The Unit in collaboration with other depart-ments carries out research work on new analytical methods of projecting fer-tilizer demand and on fertilizer investment planning.

7.23 As well as maintaining major collaborative programs with otheragencies such as UNIDO and FAQ on fertilizer issues, the Bank maintainsa very close contact with other international organizations through theUNIDO/FAO/World Bank Fertilizer Working Group. In addition to the threeagencies referred to, other international groups and representatives ofindustry participate in the meetings such as the International PotashInstitute, Centre d'Etude de l'Azote, the Sulphur Institute, the Inter-national Phosphate Industry Association, the International FertilizerDevelopment Center, TVA, the Fertilizer Institute, the U.S. Department ofAgriculture, the U.S. Bureau of Mines and others. Within the last few years,this Working Group has achieved an important role as an international forumfor the harmonization of fertilizer supply and demand figures. The Groupprovides an informal atmosphere where the various authorities can meet twicea year and discuss their fertilizer information. Where there are differences,these are analyzed and, if necessary, a judgement applied to harmonize results.This procedure meets the request of the World Food Conference, November 1974,that the international agencies as a matter of urgency establish and regularlymaintain an authoritative analysis of the long-term fertilizer supply anddemand position in order to provide the elements of a world fertilizer policythat would include the overall aim of avoiding cyclical imbalances betweensupply and demand. The fertilizer figures presented at meetings of the FAQFertilizer Commission in Rome in 1975, 1976 and 1977 were prepared by the"Fertilizer Working Group". In addition to the work on supply/demand, theGroup also prepares information on fertilizer investment and production costsand raw materials availability which is disseminated to developing countries.The Group also has responsibility for preparing fertilizer projections for theUNIDO Consultation Meetings on Fertilizers. In view of the contribution ofthese data for investment purposes and to prevent cyclical imbalances, theBank regards the work of this Group as very important and makes a major con-tribution to both, by providing data and by helping to coordinate the workof the Group.

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D. Regional and Country Fertilizer Planning

7.24 The World Food Conference, the FAO Commission on Fertilizers andthe UNIDO Consultation Meetings on Fertilizers have all asked that the Bankand other international agencies should assist in regional fertilizer planningand development. This was also one of the recommendations made within BankReport 830 in 1975. Regional planning can involve many issues such as long-range contracts and harmonization of investment programs, but to be successfulin any one or all of these, it is important that such collaboration should bebased on sound economic considerations which ensure mutual benefit to partici-pating countries. It should also, of course, as one of the prime motivesensure cheaper fertilizer to the farmer than would otherwise be available.The Bank has given considerable attention to this subject in the last two orthree years and, in particular, to the preparation of regional investmentplans which are important to Bank work. Some of the Bank projects up to nowin the fertilizer sector were identified or planned without the benefit ofsuch formal and comprehensive sector planning exercises since most of theseprojects were import substituting and their economic need and location wasin most cases quite obvious. With most of such "obvious" projects now underimplementation and considering the major developments taking place in thefertilizer industries in developing countries, greater attention must begiven both to the identification and planning of fertilizer investment ina more systematic manner than in the past.

7.25 A fertilizer programming model has been developed by the Develop-ment Policy Staff of the Bank which offers a convenient and efficient methodof doing this, and already several major studies using these models have beencarried out which could have important implications for future investmentplanning. These studies, which often require interregional collaborationwithin the Bank, are coordinated by the Fertilizer Unit. The program allowsthe determination of the investment, production, importation and transporta-tion patterns that minimize the cost of meeting a region's fertilizer require-ments. This includes the selection of plant sites, plant sizes, feedstocks,produc-t mix and most appropriate transportation patterns. The completeinvestment planning model permits the explicit specification of economicsof scale in the production of fertilizer and intermediate product. It mayincorporate a variety of intermediate and final products, regionally specifiedfertilizer requirements, alternative production processes in the sector aswell as alternative means of transport. Finally, it permits the analysis ofoptimal import and export policies for the sector.

7.26 Regional and country studies which have already been carried outinclude:

(a) ASEAN (The Association of Southeast Asian Nations:Indonesia, Philippines, Malaysia, Thailand and Singapore);

(b) ANDEAN Group (Venezuela, Bolivia, Peru, Colombia, Ecuador)- jointly with the Secretariat of the ANDEAN Group and theInter American Development Bank.

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(c) CARICOM Group, in collaboration with the Caribbean DevelopmentBank, FAO, and the Fertilizer Industry Advisory Committee (FIAC).

(d) India - jointly with the Government of India.

(e) Egypt, in collaboration with General Organization forChemical Industry.

VIII. OTHER INTERNATIONAL ASSISTANCE IN FERTILIZERSTO DEVELOPING COUNTRIES

A. Food and Agriculture Organization of the United Nations (FAO)

8.01 FAO has maintained a high level of assistance to developing coun-tries in fertilizer topics during the last few years. This has included

country and regional studies to help developing countries establish fertilizeruse policies and it has also included field projects and training programs.For example, in 1977, the FAO Fertilizer Program carried out more than 3,000simple trials and almost 5,000 multiple fertilizer use demonstrations in13 countries. More than 11,000 field days were held attended by about 113,000

farmers and a total of 137 training courses benefitting 3,426 national staff,were organized at district, national and international level. The Inter-

national Fertilizer Supply Scheme (IFS) was established in July 1974 to helpdeveloping countries, and in particular those most severely affected (MSA) by

the fertilizer crisis. By October 1978, US$120.5 million had been pledgedto the IFS fertilizer pool, both in cash and in kind as well as services asfollows: (a) US$18.5 million from donor governments; (b) US$54.2 millionin fertilizer materials from donor governments; and (c) US$47.8 million fromthe Special Account of the Secretary-General (UNEO). Since the inception of

the Scheme, 134 fertilizer assistance operations have been carried out benefit-ting more than 52 countries of whom 39 were classed as MSA. The total amountof fertilizer delivered in the four years was 497,000 tons. FAO has also con-tinued to support international consultation meetings on fertilizers such as

the FAO Fertilizer Commission, and the FAO/Fertilizer Industry AdvisoryCommittee.

B. United Nations Industrial Development Organization (UNIDO)

8.02 The UNIDO activities in fertilizers have centered on providing

technical assistance for the debottlenecking and maintenance of existingfertilizer plants and on the evaluation of new fertilizer plants mainly inAfrica and the Central American region. In January 1977, UNIDO held itsfirst Consultation Meeting on Fertilizers with worldwide representation fromindustry and governments. Following the recommendations of this meeting, a

number of expert group meetings have been held to discuss ways and means bywhich the cost of erecting new fertilizer plants and the production of fer-tilizers in developing countries can be optimized. The second UNIDO Con-sultation Meeting was held in Austria in November 1978.

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C. Economic and Social Commission for Asia and the Pacific (ESCAP)

8.03 Specific work on fertilizers in ESCAP began in 1975 as a firstphase under the Agricultural Requisites Scheme for Asia and the Pacific(ARSAP). Its purpose was to assist Governments of developing member countriesin the field of fertilizer marketing policy and practice, and to prepare theground for a specialized regional service. The main work during this phaseconsisted of the preparation of review reports on the domestic fertilizersituation in 10 countries of the ESCAP region, conducting and arranging fortraining, workshop programs, a regional consultation meeting and sponsoringspecial surveys and consultant services. Arrangements have been made forthe establishment of an ESCAP/FAO/UNIDO Fertilizer Advisory, Developmentand Information Network for Asia and the Pacific (FADINAP).

D. Inter-American Development Bank (IDB)

8.04 IDB has helped to finance fertilizer projects in Argentina, Venezuela,Uruguay and Brazil. In addition several technical loans have been made. Forexample, a loan has been made to El Salvador to help rationalize the importsof fertilizer including improvement of storage, transport and distributionfacilities and also to help establish granulation facilities. IDB has alsohelped to finance the preparation of the fertilizer sector planning model ofthe ANDEAN sub-region jointly sponsored by JUNAC, IBRD and IDB. In 1977, IDBapproved US$1.7 million loan for the preparation of a feasibility study ofphosphate rock in Colombia using Empresa Colombiana de Minas (ECOMINAS) as theexecuting agency. Also in 1977 from a US$40 million loan for a science andtechnology program in Brazil, some US$3.5 million of the loan was earmarkedfor the establishment of the Fertilizer Studies Center (CEFER) which willstudy the production and marketing of fertilizer based on local raw materials.IDB has also continued to support work of the national agricultural researchand extension institutes as well as the development of the internationalagricultural research centers which are also engaged in fertilizer responseinvestigations.

E. Asian Development Bank (ADB)

8.05 The Asian Development Bank has made a significant contribution inhelping poor food-deficit countries meet their fertilizer requirements, andduring the early and mid-1970s when the need was greatest, made loans total-ling US$165 million for 5 major nitrogen fertilizer projects in Indonesia,Pakistan, Bangladesh and Sri Lanka, some of them jointly with the Bank.ADB has since provided financial and technical assistance for feasibilitystudies which could lead to new fertilizer projects. Recently, a loan ofUS$5.7 million was approved to provide storage and distribution facilitiesfor fertilizers and agrochemicals in Afghanistan.

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F. OECD Development Assistance Committee (DAC)

8.06 In addition to their support through multilateral agencies, DACmembers provide considerable bilateral fertilizer assistance to the develop-ing countries as shown in the tables on the following page. Of the maindonors, the United States Agency for International Development (USAID)primarily finances fertilizer shipments, most of which now go to the IndianSubcontinent. Other major donors of fertilizer supplies include Canada, theFederal Republic of Germany, Japan, the Netherlands, Norway and the UnitedKingdom. The financing of fertilizer supplies is sometimes on a grant basis,sometimes as loans; mostly the procurement of fertilizers is restricted tothe respective donor countries. Recently, the emphasis in the financingof fertilizer supplies seems to have shifted from program assistance toproject loans or grants. The financing of fertilizer supplies is often nowa component of agriculture development projects or of more general projectsto improve fertilizer distribution and promote increased fertilizer usageamong the farmers. Projects for rural development and agricultural extensionoften have a fertilizer component. DAC members also provide finance for fer-tilizer production projects. Major sources of such finance include, in par-ticular the Federal Republic of Germany, Japan and the USA. Finance forfertilizer plants is almost exclusively on a loan basis, and procurement ofservices and equipment covered by such loans is mostly restricted to the donorcountries. In addition to the financial transfers, a great deal of technicalassistance in the field of fertilizers is provided by DAC members involvingthe transfer of experience and technology to the developing countries.

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DAC Members' Bilateral Aid Finance of Fertilizer Supplies(US$ Million)

1974 1975 1976 1977 a/

Australia 12.00 2.10 0.50 -Austria - - 0.10 -Belgium - 0.40 0.90 -

Canada 37.60 20.08 20.60 -Denmark 0.57 4.70 2.00 -Finland - - 1.60 -France - 1.50 - -

Germany 34.50 20.80 2.10 6.00

Japan 47.20 2.00 22.00 -Netherlands 28.70 39.61 39.30 50.20New Zealand 4.50 - - -

Norway 19.40 15.09 14.90 -Sweden 5.40 9.40 2.80 1.20Switzerland - 2.40 0.20 -

United Kingdom 8.20 64.60 15.50 0.10

United States 175.00 106.30 49.80 80.00

Total DAC 373.07 288.98 172.30 137.50

a/ Provisional, partial data.

Source: OECD, DD-539 March 1977 and DD-575 (Addendum) May 1978.

DAC Members' Bilateral Aid Finance of Fertilizer Plants b/(US$ Million)

1974 1975 1976

Austria - - 0.20

Denmark - 1.74 -

Germany 68.35 36.54 26.60

Japan 37.74 147.28 5.00

Netherlands 0.39 - 8.60Norway - 0.60

Switzerland 0.58 - 0.80

United Kingdom - 1.79 7.70

United States - 30.00 6.00

Total DAC 107.06 217.35 55.50

b/ Source: OECD, DD-539 March 1977 and DD-575 (Addendum) May 1978.In the sources, the data was referred to as "Manufacturing and Main-

tenance of Agricultural Means of Production" but in fact nearly all

the finance is for fertilizer plants.

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G. International Fertilizer Development Center (IFDC)

8.07 IFDC was formed in October 1974 as a private non-profit corporationmainly with USAID funding hbut also with support from Canada's InternationalDevelopment Research Center (IDRC). USAID has stated its intention to par-tially support IFDC for 10 years, but has encouraged the Center to seek addi-tional funds for basic research and direct assistance. IFDC has a developmentprogram with the major objectives of improving the efficiency of fertilizersused in the tropics and sub-tropics, assisting developing countries in makingbetter use of indigenous resources, and providing them with a wide range oftechnical assistance in fertilizer subjects. IFDC is now helping thedeveloping countries in the operation and maintenance of fertilizer plants,and in agronomic field projects. It also has training programs in plantoperation and maintenance, and in fertilizer marketing and distribution.

IX. THE FUTURE ROLE OF THE WORLD BANK GROUP IN FERTILIZER DEVELOPMENT

A. Some General Considerations

9.01 Report 830 discussed the future role of the Bank Group in somedetail, and this report basically comments on the progress that has beenmade in fulfilling this role and, where appropriate, updates our previousviews. Generally, however, these views remain the same, that the Bank shouldmaintain a comprehensive and balanced approach to fertilizer development con-centrating in those areas and facilities which will result in the improveduse of fertilizer and hence in food production. In some areas, considerableprogress has been made, principally in helping to provide new efficient fer-tilizer production facilities, debottlenecking and modernization capacityimprovements in developing countries, and also in providing technical assis-tance, fertilizer data, etc. In other areas associated more with fertilizermarketing and distribution and use, greater effort must be made, both inassociation with new fertilizer projects that add to the domestic fertilizerproduction in those countries and independently where constraints exist inthose areas rather than fertilizer availability.

9.02 One of the world's serious problems is that developing countriesare becoming more and more dependent on the developed countries for theirfood. Most experts agree that if this situation continues, the results willbe very serious indeed for both developed and developing countries and thatone of the main ways to avoid or reduce this problem is through the increaseduse of fertilizers in developing countries. It is important therefore thatthe Bank maintain its high level of assistance in helping developing countriesmeet their fertilizer production requirements, and also by helping to providefacilities in the distribution and marketing which will promote and allow thegreater use of fertilizers.

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B. Investment Requirements for Fertilizer Plants in Developing Countries

9.03 In Chapter VI, it was calculated that developing countries willrequire about US$13.6 billion and US$17.3 billion investment in new fertilizerproduction plants and replacement plant to come on stream within the fiveyear periods 1983-88 and 1988-93 in order to meet projected demand. The mainrequirement, as in the past, will be for new nitrogen fertilizer plantsalthough there is a growing requirement for new phosphate fertilizer facili-ties. The analysis showed that after the Jordan project, there will be fewpotash projects coming forward from developing countries.

9.04 The Bank Group is currently helping to finance about 30% of newfertilizer plants in developing countries and on average it provides about 30%of the financing for each of these projects. If the Bank Group continues toprovide help at the same rate it would have to provide loans to cover each ofthe five year periods 1983/88 and 1988/93 of about US$1.3 billion and US$1.5billion respectively. In Report 830 in 1975, it was recommended that the Bankplans should include US$1 billion for the following five years and this rateof lending is being maintained, as loans of about US$0.83 billion (in 1975dollars) have been made in the four year period since then. It has beenestimated that the Bank Group's five year program 1980/84 contains aboutUS$1 billion for fertilizer plants. It appears, therefore, that the currentplanned rate of lending by the Bank for fertilizer plants is appropriate tomeet future needs of developing countries.

9.05 It is emphasized, however, that these estimates are based on current'effective' demand projections. If investment requirements in developingcountries to meet fertilizer production needs to attain self-sufficiency infood were used as a basis, the investment requirements of developing countrieswould have to be significantly higher, perhaps as much as one-third again.

C. Fertilizer Infrastructure

9.06 The increasing need for more investment in fertilizer infrastructurehas already been discussed in Chapter V, and based on this analysis, it isestimated that the investment required in developing countries for fertilizerinfrastructure will approximately equal the need for investment in productionfacilities, that is about US$2 billion per annum. This infrastructure includesboth physical assets and software, and the greater part of the investmentrequired would call for 'local currency expenditures. Although it is muchmore difficult to identify projects and hence estimate financing requirementsfor this type of operation, it is important that the Bank Group increases itshelp in this area. One reason is that the Bank is probably more able thanother lenders to bring about the institutional changes which may be requiredto affect improvements in fertilizer distribution and marketing, and alsobecause help in this area is complementary to other help that the Bank isgiving in agricultural development.

9.07 Although it was recommended in Report 830 that the Bank shouldplace increasing emphasis on this area, progress has been limited for severalreasons. One of the major reasons is that identification and appraisal ofinfrastructural projects are difficult, and require a great deal of profes-sional staff time. More than fertilizer production projects, fertilizer

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infrastructure needs vary from country to country and depend much more on localconditions. Furthermore, fertilizer marketing and distribution projects callfor a multi-sectoral approach which often involve several ministries (Agricul-ture, Transportation, Finance, Industry, etc.), and equally in the Bank callfor a multi-disciplinary team.

9.08 Whereas a great deal of expertise and experience has been built upin the Bank on fertilizer production, the Bank is lacking in project expe-rience in fertilizer marketing and distribution. Considerable help is beingobtained and at an increasing rate from outside consultants to complement thisshortage of in-house skills. However, in order to establish a more consistentapproach to fertilizer marketing and distribution and to give greater assis-tance to developing countries, initially through a number of key demonstrationprojects, the Bank will have to consider how it can best coordinate the variousactivities that would lead to the identification and appraisal of fertilizerinfrastructural projects. The ability of developing countries to meet thisrequirement is of great importance as - independent of whether fertilizer isbeing produced in a country or imported - such infrastructure would in anycase be required. Assistance by the Bank to satisfy infrastructural require-ments could be undertaken in two ways. Firstly, where appropriate, fertilizerproduction projects should also include the direct investments needed forstorage and transportation to its main market area with a component to providefor training and education. Secondly, and perhaps more importantly, fertilizershould be more clearly identified as a major input of food production and bethe basis for a number of directly assisted marketing and distribution proj-ects. There is considerable need for such projects in India, Bangladesh,Pakistan, Brazil, Nigeria and many other large developing countries. Theprime objective in these projects would be to improve existing fertilizermarketing and distribution systems rather than the financing of the physicalinfrastructural facilities themselves.

9.09 One of the main developments to increase fertilizer use and par-ticularly in countries which are too small to support large primary productionfacilities is the establishment of small secondary production units such asblending and granulation plants. There is growing evidence of the need forsuch plants particularly in the smaller countries of Africa, South America,Asia and the Caribbean. However, because the cost of these plants is rela-tively small - US$5-20 million - and because they often involve private sectorinvestment, they are rarely identified as candidates for direct World Bankloans. Such projects may be more suitable for IFC or IDF financing andthere should be closer collaboration within the Bank Group on the identifica-tion of fertilizer projects to ensure that small secondary fertilizer projectsas well as large fertilizer projects are properly considered.

D. Investment Planning

9.10 Up to now, the identification of many Bank fertilizer projects hasbeen a relatively simple matter. In most cases, the need was self-evidentwith a large domestic market that could easily absorb the output of any newplant. As developing countries build up their fertilizer industries, the

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identification and planning of new projects becomes more difficult. This isparticularly so when developing countries have to rely on the export marketto absorb part or all of their production. In these cases, it is even lesspossible than at present to consider specific country requirements withoutlooking at interactions with other countries' plans, and also the worldsituation over a time period. It is important that the Bank should continueto develop a systematic approach to fertilizer investment planning in orderto identify the worthwhile fertilizer projects within a country and a regionand to encourage fertilizer development in a way which will lead to low costto the farmer and the avoidance of cyclical imbalances of fertilizer supplyand demand.

9.11 The Bank has made considerable progress towards developing fertilizersector programming models which in their dynamic form permit the assessmentand the development of optimum phased investment programs, both for individualcountries and regions. The Bank should continue to work in this field toassist the formulation of regional investment plans and hence Bank lendingprograms. It should also continue to give assistance using the Bank fer-tilizer model on fertilizer sector planning to those countries and regionswho request it.

E. World Fertilizer Data Base

9.12 One of the most important resolutions to be fulfilled after theWorld Food Conference has been the establishment of a world fertilizer database through the discussions of the UNIDO/FAO/World Bank Fertilizer WorkingGroup in collaboration with fertilizer industrial associations and others.The preparation and wide dissemination of fertilizer supply/demand dataperforms a most useful task of keeping developing nations informed on thesupply situation and indirectly helps to minimize cyclical imbalances.Similarly, data on production and investment costs can also be used toassess realization price for export fertilizer material which should be fairto both buyer and seller. The Bank should continue to support and enlarge,where appropriate, the assistance it can give to developing countries byproviding fertilizer data both directly and through its collaboration withother agencies.

9.13 One area which undoubtedly deserves further study is the relation-ship between food production and fertilizer use and the implications of thisfor the developing countries to improve nutrition and increase food production.Although the problem has been recognized as major over the next ten years orso, it has not yet been properly quantified. The Bank should, in collabora-tion with the other agencies, carry out a study to investigate this problemmore fully as it could have Important implications for further fertilizerplant investment.

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F. Conclusions

9.14 The principal conclusions on the role of the World Bank in fer-tilizer development which emerge from this review are as follows:

1. The World Bank Group is playing an important part in assistingdeveloping countries meet their fertilizer requirements andshould continue to do so. It is currently helping to financeabout 30% of new fertilizer plants in developing countriesand, on average, it provides about 30% of the financing foreach of othese projects. If the Bank Group continues toprovide help at the same rate, it would have to provide loansto cover each of the five year periods 1983/88 and 1988/93 ofabout US$1.3 billion and US$1.5 billion respectively. TheBank Group's planned involvement in fertilizer projects forthe five year fiscal period FY80/84 is about US$1 billion.This figure reflects the somewhat lower investment activityfor fertilizer plants in developing countries during thenext few years due to the near term slight over-supplysituation in nitrogen and phosphate fertilizers.

2. The World Bank Group should also help developing countriesfinance fertilizer infrastructure. Over the next ten yearsor so, investments for transport, storage and secondaryproduction for fertilizers in developing countries is expectedto be about US$10 billion. So far, the Bank has made limitedprogress in identifying and appraising worthwhile projects inthis area and to be more successful in the future, it will benecessary to acquire additional marketing expertise and to makearrangements for coordinating this multi-sector activity withinthe Bank. The prime objective of Bank assistance for fertilizerdistribution will be to improve the marketing and distribu-tion systems and, where appropriate, to help provide key itemsof transportation and storage.

3. To ensure that prudent investments are made in fertilizerproduction and infrastructural facilities to meet thefertilizer needs of developing countries, the Bank Groupshould continue its work on regional and country fertilizersector investment planning which would help to promoteregional production and trading agreements.

4. The World Bank Group should, through the UNIDO/FAO/World BankFertilizer Working Group, continue to cooperate with otherinternational agencies, national agencies and industries,to establish, maintain and disseminate worldwide informationon fertilizer supply and demand as well as other importantfertilizer information.

Industrial Projects DepartmentSeptember 1979

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WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

COUNTRY CLASSIFICATION BY ECONOMIC CLASSES AND REGIONS

The Economic Classes and Regions into which the world is divided for the pur-poses of FAO's analytical studies are given below: (countries listed in thisclassification are only those for which figures are shown in the appendix tables).

Class I : Developed Market Economies

Region (a) - Northern America: Canada, U.S.A.Region (b) - Western Europe: Austria, Belgium-Luxembourg, Denmark, Finland, France,Germany Federal Republic, Greece, Iceland, Ireland, Italy, Malta, Netherlands,Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, Yugoslavia.Region (c) - Oceania: Australia, New ZealandRegion (d) - Other Developed Market Economies: Israel, Japan, South Africa.

Class II : Developing Market Economies

Region (a) - Africa: Algeria, Angola, Benin, Botswana, Burundi, Cameroon, CapeVerde, Central African Empire, Chad, Congo, Equatorial Guinea, Ethiopia, Gabon,Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Kenya, Lesotho, Liberia,Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Niger,Nigeria, Reunion, Rhodesia, Rwanda, Senegal, Seychelles, Sierra Leone, Somalia,Swaziland, Tanzania, Togo, Tunisia, Uganda, Upper Volta, Western Sahara, Zaire,Zambia.Region (b) - Latin America: Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil,Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador,Grenada, Guadeloupe, Guatemala, Guyana, Haiti, Honduras, Jamaica, Martinique,Mexico, Netherlands Antilles, Nicaragua, Panama, Paraguay, Peru, St. Kitts-Nevis-Anguilla, St. Lucia, St. Vincent, Surinam, Trinidad and Tobago, Uruguay, Venezuela,Virgin Islands (U.S.).Region (c) - Near East: Afghanistan, Bahrain, Cyprus, Egypt, Iran, Iraq, Jordan,Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Sudan, Syria, Turkey, UnitedArab Emirates, Yemen Arab Republic, Yemen Democratic.Region (d) - Far East: Bangladesh, Bhutan, Burma, Hong Kong, India, Indonesia,Korea, Republic of Lao, Malaysia (Peninsular Malaysia, Sabah, Sarawak), Nepal,Pakistan, Philippines, Singapore, Sri Lanka, Thailand.Region (e) - Other Developing Market Economies: Christmas Islands (Aust.), Fiji,Gilbert Islands, Nauru, Papua New Guinea, Samoa.

Class III - Centrally Planned Economies

Region (a) - Asian Centrally Planned Economies: Chiinal", Democratic Kampuchea,Democratic People's Republic of Korea, Mongolia, Vietnam.Region (b) - Eastern Europe and USSR: Albania, Bulgaria, Czechoslovakia, GermanDemocratic Republic, Hungary, Poland, Romania, USSR.

ALL DEVELOPED COUNTRIES: Developed Market Economies + Eastern Europe and USSR.ALL DEVELOPING COUNTRIES: Developing Market Economies + Asian Centrally Planned

Economies

1/ FAO includes Taiwan in the People's Republic of China. This report treats Taiwanseparately but for regional analysis Taiwan has been kept in the Asian CentrallyPlanned Economies (Socialist Asia) in agreement with the FAO classification.

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD AMIONIA CAPACITY DEVELOPMENT AS OF MARCH 1978('000 Metric Tons Per Year)

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

DEVELOPED MARKET ECONOMIES 32,768 34,009 34,437 37,853 38,400 40,359 40,825 40,907 41,277 41,548

North America 13,893 14,958 15,086 18,132 18,843 19,468 19,848 19,848 19,848 19,848

USA 12,767 13,711 13,788 16,061 16,772 17,397 17,777 17,777 17,777 17,777Canada 1,126 1,247 1;298 2,071 2,071 2,071 2,071 2,071 2,071 2,071

Western Europe 14,380 14,556 14,526 14,940 14,776 16,110 16,196 16,196 16,566 16,837

Austria 320 501 501 501 501 501 501 501 501 501Belgium 609 609 654 669 669 669 664 669 669 669Denmark 33 33 33 33 33 33 33 33 33 33Finland 246 246 246 246 246 246 246 246 246 246France 2,463 2,463 2,491 2,522 2,522 2,826 2,826 2,826 2,826 2,826Germany, Fed. Rep. 2,359 2,399 2,399 2,399 2,399 2,849 2,849 2,849 2,849 2,849 gGreece 241 241 262 262 262 262 348 348 348 619Iceland 8 8 8 8 8 8 8 8 8 8Ireland 38 38 38 38 38 403 403 403 403 403Italy 1,865 1,820 1,666 1,543 1,543 1,788 1,788 1,788 1,788 1,788Netherlands 2,151 2,151 2,151 2,151 2,151 2,151 2,151 2,151 2,151 2,151Norway 647 647 647 647 647 647 647 647 647 647Portugal 263 263 263 263 263 263 263 263 263 263Spain 942 942 942 1,195 1,113 1,113 1,113 1,113 1,113 1,113Sweden 109 109 109 109 109 109 109 109 109 109Switzerland 53 53 53 53 53 53 53 53 53 53U.K. 1,449 1,449 1,479 1,717 1,635 1,605 1,605 1,605 1,605 1,605Yugoslavia 584 584 584 584 584 584 584 584 954 954

OCEANIA 394 394 435 435 435 435 435 435 435 435

Australia 394 394 435 435 435 435 435 435 435

1x

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD AMMONIA CAPACITY DEVELOPMENT AS OF MARCH 1978('000 Metric Tons Per Year)

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

Other Developed MarketEconomies 4 ,101 4,01 4,390 4,346 4,346 4 ,346 4,34 2 4,428 4 ,428

Israel 68 68 -68 68 68 68 68 68 68 68Japan 3,639 3,639 3,656 3,612 3,612 3,612 3,612 3,612 3,612 3,612South Africa 394 394 666 666 666 666 666 748 748 748

DEVELOPING MARKET ECONOMIES 7,682 8,533 9169j 11,198 12,803 15,397 18,779 19,884 23,424 26,410

Africa 386 386 386 386 386 551 1,095 1,095 1,095 1,095

Algeria 271 271 271 271 271 271 815 815 815 815Gabon - - - - - 54 54 54 54 54Kenya - - - - - 54 54 54 54 54Rhodesia 90 90 90 90 90 90 90 90 90 90Zambia 25 25 25 25 25 82 82 82 82 82

Latin America 2,105 2,432 2,432 2,965 3,865 3,892 4,218 4,710 5,771 7,199

Cuba 218 218 218 218 218 218 218 218 218 218Mexico 493 739 739 1,354 1,708 1,708 1,708 1,708 2,446 3,184Netherlands Antilles 82 82 82 - - - - - - -

Trinidad 209 209 209 209 505 505 505 505 828 1,151Venezuela 651 651 651 651 651 651 651 651 651 651Argentina 64 64 64 64 64 64 64 64 64 64Brazil 229 229 229 229 479 479 805 1,297 1,297 1,297Chile - - - - - - - - - 367Colombia 124 124 124 124 124 151 151 151 151 151Peru 35 116 116 116 116 116 116 116 116 116

OQzoI J

I-.m

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD AMMONIA CAPACITY DEVELOPMEN'T AS or MARCH 1978('000 Metric Tons Per Year)

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

Near East 1,646 1,704 1,808 2,297 2,569 3,410 5,096 5,096 5,912 6,457

Egypt 167 167 271 271 271 596 868 868 868 868Libya - - - - 272 272 272 272 272 272Afghanistan 58 58 58 58 58 58 58 58 58Abu Dhabi - - - - - - - - 544 544Iran 309 309 309 309 309 581 907 907 907 907Iraq 54 54 54 271 271 271 815 815 815 815Kuwait 543 543 543 543 543 543 543 543 543 543Qatar 244 244 244 244 244 488 488 488 488 488Saudi Arabia 163 163 163 163 163 163 163 163 163 163Syria 41 41 41 41 41 41 313 313 313 313Turkey 125 125 125 397 397 397 669 669 941 1,486

Far East 3,545 4,011 4,543 5,550 5,983 7,544 8,370 8,983 10,646 11,659

Bangladesh 54 54 233 233 233 233 233 233 484 484India 2,172 2,459 2,812 3,138 3,299 4,395 4,802 5,415 6,149 6,760Pakistan 341 341 341 341 341 534 806 806 1,078 1,078Burma 66 66 66 66 66 66 66 66 66 196Indonesia 109 288 288 560 832 1,104 1,104 1,104 1,510 1,782Korea 626 626 626 1,035 1,035 1,035 1,035 1,035 1,035 1,035Malaysia 41 41 41 41 41 41 41 41 41 41Philippines 109 109 109 109 109 109 109 109 109 109Sri Lanka - - - - - - 147 147 147 147Thailand 27 27 27 27 27 27 27 27 27 27

xe P

PI '

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD AMMONIA CAPACITY DEVELOPMENT AS OF MARCH 1978('000 Metric Tons Per Year)

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

CENTRALLY PLANNED ECONOMIES 24,115 26,702 28,361 30,725 33,557 38,716 41,306 43,023 46,855 47,799

Socialist Asia 7,132 7,132 7,132 8,437 10,044 11,132 11,132 11,332 11,332 11,332

China 6,297 6,297 6,297 7,385 8,745 9,833 9,833 9,833 9,833 9,833Taiwan 345 345 345 345 592 592 592 592 592 592North Korea 490 490 490 707 707 707 707 907 907 907

East Europe 16,983 19,570 21,229 22,288 23,513 27,584 30,174 31,691 35,523 36,467

Albania 50 50 50 50 50 50 50 50 50 50Bulgaria 641 812 812 842 857 857 857 857 857 1,227Czechoslovakia 996 996 996 996 996 996 996 996 996 1,200Germany, Dem. Rep. 948 1,318 1,318 1,318 1,318 1,318 1,318 1,318 1,318 1,318Hungary 557 557 829 829 829 829 829 829 829 829 ~Poland 1,926 1,973 1,920 1,920 1,920 1,920 1,920 2,327 2,327 2,327Rumania 1,693 1,940 1,940 2,434 2,434 3,175 3,175 3,175 3,175 3,175USSR 10,172 11,924 13,364 13,899 15,109 18,439 21,029 22,139 25,971 26,341

WORLD TOTAL 64,565 69,244 71,967 79,776 84,760 94,472 100,910 103,814 111,556 115,757

Source: UNIDO/FAO/World Bank Fertilizer Working Group, March 1978.

Fertilizer Unit,Industrial Projects DepartmentApril 1978 m x

WORLD FERTILIZER REVIEW AND FERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD NITROGEN FERTILIZER SUPPLY DEMAND AND B4LANCES-------------------------------------------------------

!.-ILLION f,,ETRIC TCNS OF NUTRIENTS)

ACTUAL FORECAST

1973/74 1974/75 1975/76 1976/77 1977/78 1976/79 1979/80 1980/81 1981/82 1982/63 1983/04 1984/85

DEVELOPED MARKET ECONOMIES

NORTH AMERICA

CAPACITY 13.89 14.96 15.09 18.13 18.84 19.47 19.85 19.85 19.85 19.85 19.85 19.85SUPPLY CAPABILITY 9.96 9.37 1C.37 10.75 11.28 11.95 12.57 12.82 12.92 12.96 12.96 12.96CONSU'iPTION 8.81 8.34 10.00 10.26 9.69 10.77 11.17 11.56 11.94 12.40 12.92 13.44SJRPLUS(-DEFICIT) 1.15 1.03 0.37 0.49 1.59 1.18 1.40 1.26 0.98 0.56 0.04 -0.48

WESTERN EUROPE

CAPACITY 14.38 14.46 14.53 14.94 14.78 16.11 16.20 16.20 16.57 16.84 16.84 16.84SUPPLY CAPABILITY 9.70 10.18 9.31 9.59 9.96 10.50 10.81 11.08 11.36 11.51 11.63 11.70CONSUrAPTION 7.75 7.59 8.06 8.42 8.71 8.66 9.14 9.44 9.71 10.12 10.64 11.16SURPLUS(--DEFICIT) 1.95 2.59 1.26 1.17 1.25 1.64 1.67 1.64 1.65 1.39 0.99 0.54

OCEANIA

CAPACITY 0.39 0.39 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44SUPPLY CAPABILITY 0.20 0.20 0.18 0.22 0.22 0.21 0.21 0.23 0.25 0.26 0.26 0.26CO1NSLIMPTION 0.21 0.20 0.18 0.23 0.23 0.24 0.26 0.27 0.29 0.30 0.32 0.34SURPLUS(-DEFICIT) -0.01 0.00 0.00 -0.01 -0.01 -0.03 -0.05 -0.04 -0.04 -0.04 -0.06 -0.08

OTHER DEVELOPED MARKET ECONCMIES________________________________

CAPACITY 4.10 4.13 4.39 4.35 4.35 4.35 4.35 4.43 4.43 4.43 4.43 4.43SUPPLY CAPABILITY 2.43 2.65 1.90 1.53 1.91 1.92 1.95 1.99 2.02 2.03 2.03 2.03CONSUMAPTION 1.C0 0.95 0.98 1.0U 1.07 1.18 1.21 1.25 1.28 1.32 1.37 1.43SURPLUS(-DEFICIT) 1.35 1.70 0.92 0.45 0.84 0.74 0.74 0.74 0.74 0.71 0.66 0.60

TOTAL DEVELOPED MARKET ECONOMIES…_______________________________

CAPACITY 32.76 33.91 34.45 37.86 38.41 40.37 40.84 40.92 41.29 41.56 41.56 41.56SUPPLY CAPABILITY 22.29 22.40 21.76 22.09 23.37 24.56 25.54 26.12 26.55 26.76 26.88 26.95CONSUMPTION 17.95 17.07 19.22 19.99 19.70 21.05 21.79 22.52 23.22 24.14 25.25 26.37SIJRPLUS(-DEFICIT) 4.44 5.32 2.5S 2.10 3. 37 3.53 3.76 3.60 3.33 2.62 1.63 0.58

WORLD NITROGEN FERTILIZER SUPPLY DEMAND AND BALANCES--------------- ____-_____-___________-_____-___________

(I.I!1LIEON METPIC TC,NS OF NUTRIENTS)

ACTUAL FORECAST

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85

DEVELOPING MARKET ECONOMIES

AFRICA

CAPACITY 0.39 0.39 0.39 0.39 0.39 0.55 1.10 1.10 1.10 1.10 1.10 1.10

SUPPLY CAPABILITY 0.15 0.18 ' 0.14 0.16 0.16 0.23 0.26 0.31 0.34 0.37 0.50 0.55

CCNSuMPTION 0.42 0.41 0.44 0.52 0.47 0.62 0.67 0.72 0.77 0.82 0.87 0.92

SURPLUS(-DEF!CIT) -0.27 -0.23 -0.30 -0.36 -0.31 -0.39 -0.41 -0.41 -0.43 -0.45 -0.37 -0.37

LATIN ANMERICA________________________________

CAPACITY 2.11 2.43 2.43 2.97 3.87 3.89 4.22 4.71 5.77 7.20 7.20 7.20

SUPPLY CAPABILITY 0.86 1.10 1.20 1.32 1._9 1.49 1.67 1.S7 2.05 2.28 3.05 3.40

CONSUN.PTION 1.69 1.88 1.98 2.27 2.57 2.69 2.92 3.15 3.39 3.65 3.93 4.23

SURPLUS(-DEFICIT) -0.82 -0.78 -0.78 -0.96 -1.18 -1.20 -1.25 -1.28 -1.34 -1.37 -0.88 -0.83

NEAR EAST

CAPACITY 1.65 1.70 1.81 2.30 2.57 3.41 5.10 5.10 5.91 6.46 6.46 6.46

SUPPLY CAPABILITY 0.72 0.85 0.96 1.04 1.18 1.61 1.89 2.35 2.97 3.31 3.71 3.85

CONSUr,'PTION 1.19 1.04 1.33 1.64 1.52 1.86 2.04 2.23 2.44 2.66 2.90 3.15

SURPLUS(-DEFICIT) -0.47 -0.18 -0.37 -0.6J -0.34 -0.25 -0.15 0.12 0.53 0.65 0.81 0.70

FAR EAST___ ____________________________

CAPACITY 3.55 4.01 4.54 5.56 5.98 7.54 8.37 8.98 10.65 11.66 11.66 11.66

SUPPLY CAPABILITY 2.16 2.35 2.85 3.21 3.70 4.53 5.36 6.11 6.39 6.85 7.62 7.87

CONSUMPTION 3.48 3.45 3.94 4 36 5.'2 5.77 6.31 6.84 7.43 8.04 8.70 9.40

SURPLUS(-DEFICIT) -1.32 -1.10 -1.09 -1-15 -1.42 -1.24 -0.95 -0.73 -1.04 -1.19 -1.08 -1.53

TOTAL DEVELOPING MARKET ECONOMIES…__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

CAPACITY 7.70 8.53 9.17 11.22 12.81 15.39 18.79 19.89 23.43 26.42 26.42 26.42

SJPPLV CAPABILITY 3.89 4.49 5.15 5.72 6.44 7.86 9.18 10.64 11.75 12.81 14.88 15.67

CONSUMPTION 6.77 6.78 7.68 £.79 9.E8 10.94 11.94 12.94 14.03 15.17 16.40 17.70

SURPLUS(-DEFICIT) -2.88 -2.29 -2.53 -3. 07 -3.24 -3.08 -2.76 -2.30 -2.28 -2.36 -1.52 -2.03

WORLD NITROGEN FEQTILIZER SUPPLY DEMAND AND BALANCES

(MILLION METRIC TONS OF NUTRIENTS)

ACTUAL FORECAST…___ ____ _____ -…_ - -- -- --- - --- - - - - -- - --- -- - -- - -- --- --- - -- --- --- -

1973/74 1974/75 1975/7b 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/63 1983/84 1984/85-______ ------- -______ _____- _----__ _____ ------- ------- ----

CENTRALLY PLANNED ECONOMIES

SOCIALIST ASIA_______________________________

CAPACITY 7.13 7.13 7.13 8.44 10.04 11.13 11.13 11.13 11.13 11.13 11.13 11.13SUPPLY CAPABILITY 3.03 3.34 3.43 4.12 5.07 4.49 4.87 5.34 5.85 6.11 6.37 6.63CONSUMPTION 4.40 4.38 4.82 5.02 6.63 5.90 6.26 6.68 7.13 7.43 7.74 8.07SURPLUS(-DEFICIT) -1.36 -1.05 -1.39 -0.U9 -1.56 -1.41 -1.39 -1.34 -1.28 -1.32 -t.37 -t.44

EASTERN EUROPE

CAPACITY 16.98 19.57 21.23 22.29 23.51 27.58 30.17 31.69 35.52 36.47 36.47 36.47SUPPLY CAPABILITY 11.23 12.21 13.44 13.95 14.70 15.76 16.88 18.64 20.86 22.02 23.54 23.74CONSUMPTION 9.68 10.34 11.52 11.28 11.69 13.24 14.21 15.24 16.28 17.37 18.53 19.74SURPLUS(-DEFICIT) 1.55 1.87 1.93 2.67 3.01 2.52 2.67 3.40 4.58 4.65 5.01 4.00 1

TOTAL CENTRALLY PLANNED ECONOMIES

CAPACITY 24-11 26.70 28.36 30.73 33.55 36.71 41.30 42.82 46.65 47.60 47.60 47.60SUPPLY CAPABILITY 14.26 15.55 16.88 1S.07 19.77 20.25 21.75 23.98 26.71 28.13 29.91 30.37CONS',:.IPTION 14.07 14.74 16.35 16.30 18.32 19.14 20.47 21.92 23.41 24.80 26.27 27.81SURPLUb(-DEFICIT) 0.19 0.82 0.53 1.78 1.45 1.11 1.28 2.06 3.30 3.33 3.64 2.56

WORLU TUTAL

CAPACITY 64.57 69.14 71.98 70.81 8.1.7' 94.47 100.93 103.63 111.37 115.58 115.58 115.58SUPPLY CAPABILITY 40.44 42.43 43.80 45.88 40.58 52.69 56.47 60.74 65.01 67.70 71.67 72.99CONSUMPTION 38.69 38.58 43.24 45.09 47.70 51.13 54.19 57.38 60.66 64.11 67.92 71.88SURPLUS(DEFICIT) 1.75 3.85 0.56 0.79 1.88 1.56 2.28 3.36 4.35 3.59 3.7S 1.11

Note"SUpDIV refes t.o actual or estimted production until 1977/78. In forecast years "Supply" refers to maximun supply capability should deand be there, except thatSone production cuts announced by producers have bern taken account of e.g., in North Aerica and particularly In Japan (Other Developed). Forecast supply capabilitiesare based on existing and announced new anonla capacity. For nev capacitiea coning on stream, the escalation of capacity utilisation is assuced to be fro- 20% of finaleoerage capacity otili.stion daring the first 6 ..onthe to 707. during the following 18 nonthsa her.after the country average utilisatios rate is assumed to have beenreached. Capacity utilixation in ammonia units is based on past eperience on a country-by-country basis. Nonfertiliser uses have been deducted country-by-country snd °,ount to 157 on averaSe. LOuse., 5% in prinary production and 5% in secondary. down-strea, production sd distribution have aiso been deducted. "Con..ptio," refers to actual or eatiated use up to 1977/78 and to forecast use thereafter. "Surolus (Deficit)": Of this balance, 1.6 million tons of N in 1973/74, 1.8 In 1974/75. 1.6 in 1975/76, 1.7 in 1976/77 (l.., a stock reduction do 1975/76 and 1977178).end 1.8 million tons N in 1977/78 is accounted for by technical production in the USSR, arnonia production in North and Caistral America exported for further proc"sing.*materials in transit and transportation losses and therefore not avwilable for fertilizer use. In the forecasts these adj.estmets are taken care of by the adjustmentsfor "losses" deacribed above.

Source Actuals nd Estimates: FAO.Forecasts: UNIDO/FA0/"/rld Bank Fertiliser Workng Croup

Ind utria1 Projects DepartmentFertiliser UnitFebrurry 1979

- 75 -

ANNEX 3-3

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD NITROGEN FERTILIZER CONSUMPTION 1967-1977AND FORECASTS TO 1988

(Million Tons N)

Annual Growth Rates as %Year Ending June 30 1977 1983 1988

1967 1977 1983 1988 1967 1977 1983

WORLD TOTAL 21.77 45.06 64.11 83.95 7.5 6.2 5.4

Developed Countries 16.61 31.28 41.51 51.28 6.5 4.9 4.3

North America 1/ 5.74 10.26 12.40 14.40 5.9 3.2 3.1Western Europey, 5.22 8.42 10.12 12.00 4.9 3.1 3.4Eastern Europe- 4.56 11.28 17.37 23.00 9.4 7.5 5.6Pacific & Others 1.09 1.32 1.62 1.88 1.9 3.4 3.1

Developing Countries 5.16 13.78 22.60 32.67 10.3 8.5 7.5

Latin America 0.81 2.27 3.65 5.80 10.8 8.2 7.2Africa 0.17 0.52 0.82 1.20 11.8 7.9 9.2Near East 0.44 1.64 2.66 4.17 14.1 8.4 8.8Far East 1.59 4.34 8.04 11.50 10.5 10.8 8.1Socialist Asia 2.14 5.01 7.43 10.00 8.9 6.8 6.1

1/ Yugoslavia included in Western Europe.

Industrial Projects DepartmentFertilizer UnitDecember 1978

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD PHOSPHATE FERTILIZER SUPPLY DEMAND AND BALANCES------------------------------ ____-----_-__--_---------

(MILLION METRIC TONS OF NUTRIENTS)

ACTEIAL FORECAST

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85

DEVELOPED MARKET ECONOMIES

NORTH AMERICA________________________________

PHOSPHORIC ACID CAPACITY 7.05 8.52 9.01 9.56 9.69 9.69 9.69 9.69 9.69 9.69 9.69 9.69PHOSPHORIC ACID PRODUCTION 5.70 6.09 6.19 6.87 7.27 8.14 8.15 8.15 8.15 8.15 8.15 8.15OTHER P205 PRODUCTION 1.23 1.14 0.95 0.93 0.89 0.89 0.88 0.88 0.89 0.90 0.93 0.95SUPPLY CAPABILITY 6.93 7.23 7.14 7.80 8.16 9.03 9.03 9.03 9.04 9.05 9.08 9.10CONSUMPTION 5.11 4.59 5.25 5.64 5.19 5.69 5.89 6.03 6.18 6.30 6.42 6.54SURPLUS(-DEFICIT) 1.82 2.64 1.89 2.16 2.97 3.34 3.14 3.00 2.86 2.75 2.66 2.56

WESTERN EUROPE_ _ _ _ ._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

PHOSPHORIC ACID CAPACITY 3.94 4.54 5.00 5.05 5.22 5.27 5.44 5.61 5.61 5.61 5.61 5.61PHOSP:,ORIC ACID PRODUCTION 2.61 2.52 2.54 3.39 3.46 3.92 4.03 4.16 4.24 4.26 4.26 4.26OTHER P205 PRODUCTION 3.67 4.01 2.65 2.30 2.30 3.34 3.32 3.30 3.28 3.26 3.24 3.22SUPPLY CAPABILITY 6.68 6.53 5.19 5.69 5.76 7.26 7.35 7.46 7.52 7.52 7.50 7.48CONSUtJPTICN 6.19 5.22 5.11 5.47 5.62 5.71 5.88 6.03 6.19 6.35 6.48 6.60SUR-LUS(-DEFICIT) 0.49 1.31 0.08 0.22 0.14 1.55 1.47 1.43 1.33 1.17 1.02 0.88

OCEANIA 0_____________.__________________

PHOSPHORIC ACID CAPACITY 0.19 0.19 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20PHOSPHORIC ACID PRODUCTION O.OB 0.05 0.07 0.10 0.12 0.13 0.13 0.13 0.13 0.13 0.13 0.13OTHER P205 PRODUCTION 1.51 0.98 0.79 1.00 1.10 1.13 1.18 1.23 1.25 1.28 1.30 1.32SUPPLY CAPABILITY 1.59 1.03 0.86 1.10 1.22 1.26 1.31 1.36 1.38 1.41 1.43 1.45CONSUMPiION 1.62 0.92 0.87 1.13 1.23 1.27 1.32 1.37 1.40 1.43 1.46 1.49SURPLUS(-OEFICIT) -0.03 0.11 -0.01 -0.03 -0.01 -0.01 -0.01 -0.01 -0.02 -0.02 -0.03 -0.04

OTHER DEVELOPED MARKET ECONOMIES________________________________

PHOSPHORIC ACID CAPACITY 1.31 1.34 1.38 2.06 2.03 2.03 2.03 2.15 2.15 2.15 2.15 2.15PHOSPHORIC ACID PRODUCTIUN 0.65 0.68 0.52 0.58 0.69 1.36 1.35 1.41 1.45 1.4C 1.48 1.48OTHER P205 PRODUCTION 0.44 0.48 0.47 0.46 0.45 0.45 0.44 0.43 0.42 0.41 0.41 0.41SUPPLY CAPABILITY 1.09 1.16 0.99 1.04 1.14 1.81 1.79 1.84 1-S7 1.87 1.89 1.89CCNSUNIPTION 1.15 1.05 0.99 1.12 1.15 1.15 1.18 1.20 1.23 1 26 1.29 1.31SURPLUS(-DEFICIT) -0.06 0.11 0.00 -0.08 -0.01 0.66 0.61 0.64 0.64 0.61 0.60 0.58

TOTAL DEVELOPED MARKET ECONOMIES________________________________

PHOSPHORIC ACID' CAPACITY 12.49 14.69 15.59 16.87 17.14 17.19 17.36 17.65 17.65 17.65 17.65 17.65 iPHOSPHORIC ACID PRODUCTION 9.24 9.34 9.32 10.94 11.54 13.55 13.66 13.85 13.97 14.00 14.02 14.02OTHER P205 PRODUCTION 7.05 6.61 4.86 4.69 4.74 5.81 5.82 5.84 5.84 5.85 5.88 5.90 !SUPPLY CAPABILITY 16.29 15.95 14.18 15.63 16.28 19.36 19.48 19.69 19.81 19.85 19.90 19.92CONSUMPTION 14.07 11.78 12.22 13.36 13.19 13.82 14.27 14.63 15.00 15.34 15.65 15.94 ,SURPLUS(-DEFICIT) 2.22 4.17 1.96 2.27 3.09 5.54 5.21 5.06 4.81 4.51 4.25 3 98

WORLD PHOSPHATE FERTILIZER SUPPLY DEMAND AND BALANCES-------------------------------------------------------

(MILLION METRIC TONS OF NUTRIENTS)

ACrUAL FORECAST

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1991/82 1982/83 1983/84 1984/85

DEVELOPING MARKET ECONOMIES

AFRICA________________________________

PHOSPHORIC ACID CAPACITY 0.73 0.86 1.19 1.55 1.55 1.55 1.88 2.5i 2.51 2.51 2.51 2.51PHOSPHORIC ACID PRODUCTION 0.37 0.33 0.21 0.23 0.37 1.13 1.22 1.51 1.72 1.77 1.77 1.77OTHER P205 PRODUCTION 0.15 0.16 0.20 0.20 0.20 0,24 0.25 0.26 0.27 0.28 0.29 0.30SUPPLY CAPABILITY 0.52 0.49 0.41 0.43 0.57 1.37 1.47 1.77 1.99 2.05 2.06 2.07CONSUMPTION 0.32 0.33 0.35 0.42 0.40 0.48 0.52 0.56 0.60 0.65 0.69 0.74SURPLUS(-DEFICIT) 0.20 0.16 0.06 0.01 0.17 0.89 0.95 1.21 1.39 1.40 1.37 1.33

LATIN AMERICA________________________________

PHOSPHORIC ACID CAPACITY 0,77 0.87 0.96 0.99 0.99 0.99 0.99 1.56 2.08 2.08 2.08 2.08PhOSPHCRIC ACID PRODUCTION 0.35 0.38 0.40 0.61 0.84 0.60 0.60 0.78 1.18 1.36 1.48 1.48ODHER P2DS PRODUCTION 0.36 0.38 0.42 0.54 0.58 0.58 0.61 0.67 0.67 0.67 0.67 0.61SUPPLY CAPABILITY 0.71 0.76 0.82 1.15 1.42 1.18 1.21 1.45 1.85 2.03 2.15 2.15COC'SUblPTION 1,34 1.48 i.56 1.89 2.14 2.21 2.43 2.66 2.90 3.13 3.36 3.61SURPLUS(-DEFICIT) -0.63 -0.72 -0.74 -0.74 -0.72 -1.03 -1.22 -1.21 -1.05 -1.10 -1.21 -1.46

NEAR EAST

PHOSPHORIC ACID CAPACITY 0.43 0.63 0.63 0.70 0.78 1.18 1.23 2.41 2.41 2.41 2.41 2.41PF:OSPHORIC ACID PRODUCTION 0.17 0.33 0.39 0.39 0.33 0.57 0.72 1.16 1.55 1.66 1.66 1.66OTHER P205 PRODUCTION 0.16 0.20 0.18 0.20 0.20 0.22 0.27 0.39 0.39 0.39 0.39 0.39SUPPLY CAPABILITY 0.33 0.53 0.57 0.59 0.53 0.79 0.99 1.55 1.94 2.05 2.05 2.05CO"ISUMlPlION 0.52 0.49 0.69 0.93 0.93 1.01 1.09 1.18 1.28 1.38 1.47 1.58SURPLUS(-DEFICIT) -0.19 0.04 -0.12 -0.34 -0.40 -0.22 -0.10 0.37 0.66 0.67 0.58 0.47

FAR EAST________________________________

PHOSPHORIc ACID CAPACITY 0.47 0.57 0.82 1.09 1.21 1.27 1.27 1.54 1.54 1.64 1.67 1.67PHOSPHORIC ACID PRODUCTIUN 0.40 0.40 0.48 0.60 0.81 0.89 1.01 1.02 1.13 1.17 1.20 1.21OTHER P205 PRODUCTION 0.15 0.18 0.12 0.18 0.23 0.30 0.37 0.39 0.42 0.47 0.47 0.47SUPPLY CAPABILITY 0.55 0.58 0.60 0.78 1.04 1.19 1.38 1.41 1.55 1.64 1.67 1.6SCONSUMPTION 1.19 1.10 1.14 1.24 1.63 1.73 1.97 2.08 2.25 2.42 2.80 2.73SURPLUS(-DEFICIT) -0.64 -0.52 -0.54 -0.46 -0.59 -0.54 -0.59 -0.67 -0.70 -0.70 -0.93 -1.11

TOTAL DEVELOPING MARKET ECONfMIES

PHOSPHORIC ACID CAPACITY 2.40 2.93 3.60 4.33 4.53 4.99 5.37 8.02 8.54 8.64 8.67 8.67PHOSPHORIC ACID PRODUCTION 1.29 1.44 1.48 1.33 2.35 3.19 3.55 4.47 5.58 5.96 6.11 6.12 2 EOTHER P205 PRODUCTION 0.82 0.92 0.92 1.12 1.21 1,34 1.50 1.71 1.75 1.81 1.82 1.63 SUPPLY CAPABILITY 2.11 2.36 2.40 2.95 3.56 4.53 5.05 6.18 7.33 7.77 7.93 7.95 '.CONSUMPTION 3.37 3.40 3.74 4.48 5.10 5.43 6.01 6.48 7.03 7.58 8.12 8.72SURPLUS(-DEFICIT) -1.26 -1.04 -1.34 -1.53 -1.54 -0.90 -0.96 -0.30 0.30 0.19 -0.19 -0.77

WORLD PHOSPHATE FERTILIZER SUPPLY DEMiND AND BALANCES

(MILLION METRIC TONS OF NUTRIENTS)

ACTUAL. FORECAST

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1963/84 1984/85

CENTRALLY PLANNED ECONOMIES

SOCIALIST ASIA

PHOSPHORIC ACID CAPACITY 0.03 0.03 0.07 0.07 0.07 0.07 0.18 0.18 0.18 0.18 0.18 0.18PHOSPHORIC ACID PRODUCTION 0.01 0.01 0.02 0.03 0.03 0.03 0.06 0.10 0.11 0.11 0.11 0.11OTHER P205 PRODUCTION 1.25 1.49 1.44 1.G1 1.61 1.78 1.89 2.00 2.16 2.33 2.50 2.66SUPPLY CAPABILITY 1.26 1.50 1.46 1.64 1.64 1.81 1.95 2.10 2.27 2.44 2.61 2.77CONSUMPTION 1.42 1.58 1.48 1.64 1.75 1.94 2.10 2.28 2.47 2.67 2.87 3.07SURPLUS(-DEFICIT) -0.16 -0.08 -0.02 0.00 -0.11 -0.13 -0.15 -0.18 -0.20 -0.23 -0.26 -0.30

EASTERN EUROPE

PHOSPHORIC ACID CAPACITY 3.17 3.87 4.87 4.99 5.03 5.74 6.01 7.16 7.49 7.49 7.49 7.49PHOSPHORIC ACID PRODUCTION 1.45 2.09 2.88 3.22 3.34 4.13 4.51 5.09 5.69 5.92 5.98 5.98OTHER P205 PRODUCTION 3.75 3.80 3.85 3.87 4.22 4.26 4.32 4.38 4.54 4.70 4.72 4.74SUPPLY CAPABILITY 5.20 5.89 6.73 7.09 7.56 8.39 8.83 9.47 10.23 10.62 10.70 10.72CONSUMPTION 5.32 5.93 6.69 7.00 7.26 8.30 9.10 9.90 10.90 11.90 12.40 12.80SURPLUS(-DEFICIT) -0.12 -0.04 0.04 0.09 0.30 0.09 -0.27 -0.43 -0.67 -1.28 -1.70 -2.08

TOTAL CENTRALLY PLANNED ECONOMIES

HOUPPHORIC CACIDCAPACIT -T Y 6 3.20 3.90 4.94 5.06 3 .10 5.81 6.19 7.34 7.67 7.67 7.67 7.67POTrHER PCL PRODUCTION 5.00 5.29 5.29 5.48 5.83 6.04 6.21 6.38 6.70 7.03 7.22 7.40SUPPLY CAPABILITY 6.46 7.39 8.19 ti.73 9.20 10.20 107 11. 57 12. 50 13. 06145 13.31 13.49CONsu:.IYriON 6.74 7.51 8.17 13.64 9.01 10.24 112-2.6 1.37 14.57 15.27 15.387SURPLLS(-OEFICIT) -0.2a -0.12 0.02 0.09 0.19 -0.04 -0.42 -0.61 -0.87 -1.51 -1.98 -2.38

WORLD TOTAL

PHOSPHORIC ACID CAPACITY 18.09 21.52 24.13 20.26 26.77 27.99 28.92 33.01 33.a6 33.96 33.99 33.99PHOSPHORIC ACID PRODUCTION 11.99 12.88 13.70 1G.02 17.26 20.90 21.78 23.51 25.35 25.99 26.22 26.23OTHER P205 PRDDUCTION 12.87 12.82 11.07 11.29 11.78 13.19 13.53 13.93 14.29 14.69 14.92 15.13SUPPLY CAPABILITY 24.66 25.70 24.77 27.31 29.04 34.09 35.31 37.44 39.64 40.88 41.14 41.36AVAILABLE SUPPLY 24.07 24.68 23.68 26.02 27.60 33.07 34.25 36.32 38.45 39.46 39.91 40.12CONSUMPTION 24.18 22.69 24.13 26.40 27.30 29.49 31.48 33.29 35.40 37.49 39.04 40.S3SURPLUS(DEFICIT) -0.11 1.99 -0.45 -0.46 0.30 3.58 2.77 3.03 3.05 1.97 0.67 -0.41

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tIdootri.l P-orJc- Drpatt--F.oiltio- UnitPshr-ary 1979

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD PHOSPHORIC ACID CAPACITY DEVELOPMENT AS OF MARCH 1978('000 Tons P205)

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982'83

DEVELOPED MARKET ECONOMIES 12,49 14,693 15,587 16,863 17,134 17.184 17.354 17.639 17.639 17.6.3

North America 7,051 8,623 9,014 9,559 9 687 9.687 9.687 9.687 9,687 9.687

Canada 969 977 1,005 1,005 1,005 1,005 1,005 1,005 1,005 1,005USA 6,082 7,646 8,009 8,554 8,682 8,682 8,682- 8,682 8,682 8,682

Western Europe 3,941 4,540 4,997 5,052 5,222 5,272 5,442 5,607 5,607 5,607

Austria 50 50 70 70 70 70 70 70 70 70Belgium 450 530 530 530 530 530 530 530 530 530Denmark 30 30 30 30 30 30 30 30 30 30Finland 183 183 183 183 183 183 183 183 183 183France 707 1,026 1,230 1,230 1,230 1,230 1,230 1,230 1,230 1,230Germany 202 202 202 202 202 202 202 202 202 202 ;Greece 165 165 271 271 271 271 271 271 271 271Ireland 91 91 91 91 91 91 91 91 91 91Italy 332 332 332 332 332 332 332 332 332 332Netherlands 335 335 388 403 403 403 403 403 403 403Norway 23 23 23 23 23 23 23 23 23 23Portugal 34 34 58 72 72 72 72 72 72 72Spain 438 583 583 583 583 583 583 583 583 583Sweden 150 150 150 150 150 150 165 165 165 165Switzerland 10 10 10 10 10 10 10 10 10 10United Kingdom 576 576 576 582 582 582 667 667 667 667Yugoslavia 165 220 270 290 460 510 580 745 745 745

Other Developed Market 1,312 1,344 1,380 2,056 2,02 2,029 2,029 2,149 2,149 2,149Economies

Israel 195 195 212 229 229 229 229 349 349 349Japan 856 858 877 942 915 915 915 915 915 915South Africa 261 291 291 885 885 885 885 885 885 885

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD PHOSPHORIC ACID CAPACITY DEVELOPMENT AS OF MARCH 1978('000 Tons P205)

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

Oceania 186 186 196 196 196 196 196 196 196 196

Australia 186 186 196 196 196 196 196 196 196 196

DEVELOPING MARKET ECONOMIES 2,471 3,011 3,675 4,417 4,536 5,000 5,362 8,018 8,541 g,641

Africa 730 862 1,192 1,554 1,554 1,554 1,876 2,510 2,510 2,510

Algeria 165 165 i65 165 165 165 165 165 165 165Morocco 165 165 495 825 825 825 990 1,485 1,485 1,485Tunisia 318 450 450 482 482 482 630 778 778 778Rhodesia 34 34 34 34 34 34 34 34 34 34Senegal 23 23 23 23 23 23 23 23 23 23Tanzania 25 25 25 25 25 25 25 25 25 25Togo

Latin America 774 873 956 994 994 994 994 1,557 2,080 2,080

Mexico 533 533 533 548 548 548 548 611 809 809Brazil 147 246 246 246 246 246 246 746 1,071 1,071Chile 50 50 50 50 50 50 50 50 50 50Colombia - - - - - - - -

Ecuador 17 17 17 17 17 17 17 17 17 17Peru - - - - - - -

Venezuela 27 27 110 133 133 133 133 133 133 133

Near East 502 708 708 782 782 1,187 1,227 2,409 2,409 2,409

Cyprus _- - - 40 40 40 40Egypt - - - - - - - 56 56 56Lebanon 99 198 198 198 198 198 198 198 198 198Iran 158 158 158 158 158 258 258 258 258 258Iraq - - - - - - - 416 416 416

Jordan - - - - - - - 410 410 410

Syria 30 30 30 30 30 190 190 190 190 190 > zTurkey 215 322 322 396 396 541 541 841 841 841 x

lJ

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD PHOSPHORIC ACID CAPACITY DEVELOPMENT AS OF MARCH 1978('000 Tons P2O25)

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

Far East 465 568 819 1,087 1,206 1,265 1,265 1,542 1,542 1,642

Bangladesh 11 56 56 56 56 56 56 56 56 56India 199 199 232 500 619 678 678 955 955 1,037Indonesia - - - - - - - - - -Korea 174 232 450 450 450 450 450 450 450 450Pakistan - - - - - - - - - -Philippines 81 81 81 81 81 81 81 81 81 81

CENTRALLY PLANNED ECONOMIES 3,200 3,900 4,936 5,056 5,096 5,806 6,185 7,340 7,670 7,670

East Europe 3,166 3,866 4,869 4,989 5,029 5,739 6,009 7,164 7,494 7,494

Bulgaria 110 310 310 310 310 510 510 510 510 510Czechoslovakia 12 12 12 12 12 12 12 12 12 12Germany, Dem. Rep. 30 30 30 30 30 30 30 30 30 30Poland 456 576 576 576 616 616 616 616 616 616Rumania 312 312 392 392 392 502 502 502 502 502USSR 2,246 2,626 3,549 3,669 3,669 4,069 4,339 5,494 5,824 5,824

Socialist Asia 34 34 67 67 67 67 176 176 176 176

China 24 24 24 24 24 24 24 24 24 24Taiwan 10 10 43 43 43 43 43- 43 43 43Vietnam - - - - - - 109 109 109 109

WORLD TOTAL 18,161 21,604 24,198 26,336 26,766 27,990 28,901 32,997 33,850 33,950

Source: UNIDO/FAO/World Bank Fertilizer Working Group, March 1978.

Fertilizer Unit,

Industrial Projects Department

April 1978

- 82 -

ANNEX 3-6

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD PHOSPHATE FERTILIZER CONSUMPTION 1967-1977AND FORECASTS TO 1988(Million Tons P205)

Annual Growth Rates %Years Ending June 30 1977 1983 1988

1967 1977 1983 1988 1967 1977 1983

WORLD TOTAL 16.10 26.50 37.52 45.17 5.1 5.9 3.8

Developed Countries 14.13 20.37 27.27 30.69 3.7 4.9 2.4

North America 4.28 5.64 6.30 6.86 2.8 1.8 1.7West Europel/ 4.66 5.48 6.35 6.85 1.6 2.4 1.5Eastern Europel/ 3.06 7.00 11.90 14.00 8.6 9.2 3.3Pacific & Others 2.13 2.25 2.69 2.98 0.5 3.0 2.1

Developing Countries 1.97 6.13 10.25 14.48 12.0 8.9 7.2

Latin America 0.52 1.89 3.13 4.46 13.7 8.7 7.3Africa 0.12 0.42 0.65 0.88 13.4 7.5 6.2Far East 0.18 0.93 1.38 1.94 17.8 6.8 7.0Near East 0.52 1.24 2.42 3.45 9.0 11.8 7.3Socialist Asia 0.63 1.65 2.67 3.75 10.1 8.3 7.0

1/ Yugoslavia in Western Europe.

Industrial Projects DepartmentFertilizer UnitDecember 1978

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD POTASH CAPACITY DEVELOPMENT AS OF MARCH 1978('-0-00 Metric Tons K20))

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

DEVELOPED MAkRKET ECONOMIES 17.176 17,346 17,779 18,091 17,817 18,047 18,336 18,352 19,122 19,132

North America 10,254 10,199 10,289 10,571 10,292 10,477 10,587 10,587 11,307 11,307

USA 2,714 2,659 2,749 2,771 2,497 2,507 2,507 2,507 2,507 2,507Canada 7,540 7,540 7,540 7,800 7,800 7,970 8,080 8,080 8,800 8,800

Western Europe 6,352 6,487 6,Jj7 6,770 6,770 6 6,999 7,015 6,965 6,925

France 2,192 2,192 2,200 2,200 2,200 2,200 2,200 2,200 2,100 2,000Germany, F.R. 2,660 2,795 2,920 2,920 2,920 2,920 2,949 2,965 3,015 3,075Italy 250 250 250 250 250 250 250 250 250 250Spain 650 650 800 800 800 850 1,000 1,000 1,000 1,000United Kingdom 600 600 600 600 600 600 600 600 600 600 O

Other Developed Market 570 660 720 750 750 750 750 750 850 900Economies

Israel 570 660 720 750 750 750 750 750 850 900

DEVELOPING MARKET ECONOMIES 330 330 330 30 30 30 30 30 30 750

Africa

Congol/ 300 300 300 - - - - - - -

Latin America

Brazil - - - - - - - - -Chile 30 30 30 30 30 30 30 30 30 30

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD POTASH CAPACITY DEVELOPMENT AS OF MARCH 1978('000 Metric Tons K20)

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

Near East

Jordan - - - - - - - - 720

CENTRALLY PLANNED ECONOMIES 10,010 11,060 12,200 12,370 13,340 14,460 15,380 16,400 17,050 17,650

Asia 300 300 300 320 340 360 380 400 450 500

China 300 300 300 320 340 360 380 400 450 500

Eastern Europe 9,710 10,760 11,900 12,050 13,000 14,100 15,000 16,000 16,600 17,150

Germany, D.R. 3,110 3,110 3,150 3,200 3,300 3,400 3,500 3,550 3,600 3,650USSR 6,600 7,650 8,750 8,850 9,700 10,700 11,500 12,450 13,000 13,500

00

WORLD TOTAL 27,516 28,736 30,309 30,491 31,187 32,537 33,746 34,782 36,202 37,532

1/ The mine was flooded and closed in 1Y//.

Source: UNIDO/FAO/World Bank Fertilizer Working Group.

Fertilizer Unit, 'U.

Industrial Projects DepartmentApril 1978.

WORLD FERTILIZER REVIEW ANDF:ERTILIZER PEQUIREENITS OF DEVELOPIUIG CO-UlITTIES 197 )

WORLD POTASH FERTILIZER SUPPLY,DEMAND AND BALANCES-------------------------------------------------------

(MILLION METRIC TONS OF NUTRIENTS)

ACTUAL FORECAST

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 19B4/85

DEVELOPED MARKET ECONOMIES

NORTH AMERICA

CAPACITY 10.25 10.20 10.29 10.57 10.29 10.48 iO.59 10.86 11.58 11.58 11.58 11.58SUPPLY CAPABILITY 7.44 7.70 6.94 8.00 8.16 9.23 9.35 9.48 9.83 10.17 10.22 10.28CONSUY.PTiON 4.80 4.25 4.97 5.54 5.28 5.73 5.31 6.10 6.28 6.50 6.89 7.23SURPLUS(-oEFICIT) 2.63 3.45 1.97 2.4G 2.88 3.4^ 3.54 3.38 3.55 3.67 3.33 3.05

WES1ER" EUROPE

CAPAC:TY 6.35 6.49 6.77 G.77 6.77 6.82 7.00 7.02 6.97 6.93 6.93 6.93SUPPLY CAPABILITY 5.22 5.30 4.27 4.b4 4.92 6.34 6.54 6.62 6.58 6.54 6.54 6.54 1CONSUMIPTION 5.57 4.76 4.04 4.91 5.19 5.43 5.78 5.98 6.17 6.32 6.49 6.63 X

SURPLUS(-DEFICIT) -0.35 0.54 -0.37 -0.37 -0.27 0.25 0.7S 0.64 0.40 0.22 0.05 -0.09 '

OCEANIA.APA 0.00 0.0 00 00 00 _ 00 00 0

CAPACIAY 0.00 0.00 0.00 0.00 0.00 0.CO 0.00 0.00 0.00 0.00 0.00 0.00SUPPLY CAPABILITY 0.00 0.05 0.00 0.00 0.00 O.CO 0.00 0.00 0.00 0.00 0.00 0.00

CON4SUMPTION 0.29 0.23 0.19 0.25 0.24 0.25 0.30 0.32 0.35 0.38 0.40 0.42SURPLUS(-DEFICIT) -0.29 -0.23 -0.19 -0.25 -0.24 -0.25 -0.30 -0.32 -0.35 -0.38 -0.40 -0.42

OTHER OEVELOP$O MARKET ECONOMIES

CAPAC'TY 0.57 0.66 0.72 0.75 0.75 0.75 0.75 0.75 0.85 0.90 0.90 0.90SUPPLY CAPABILITY 0.51 0.65 0.71 0.G5 0.72 0.71 0.71 0.71 0.81 0.86 0.86 0.86CONSUMPTICN 0.82 0.86 0.72 0.84 0.82 0.86 0.87 0.89 0.90 0.91 0.93 0.95SURPLUS(-DEFICIT) -0.31 -0.21 0.00 -0.20 -0.10 -0.15 -0.16 -0.17 -0.09 -0.06 -0.07 -0.09

TOTAL DEVELOPED MARKET ECONOMIES

CAPACITY 17.18 17.35 17.78 18.09 17.61 18.05 18.34 18.62 19.39 19.40 19.40 19.40

SUOPLY CAPABILITY 13.17 13.65 1i.93 13.19 13.80 16.28 15.60 16.81 17.22 17.56 17.62 17.68 HCONSuMPTION 11.48 10.11 10.52 11.54 11.52 12.36 12.77 13.29 13.70 14.11 14.71 15.23SURPLUS(-DEFICIT) 1.69 3.54 1.41 1.65 2.28 3.90 3.84 3.53 3.51 3.45 2.91 2.45

WORLD POTASH FERTILIZER SUPPLY DEMAND AND BALANCES_______________________________________________________

(MILLION METRIC TONS OF NUTRIENTS)

ACTUAL FCRECAST

1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85

CEVELOPING MARKET ECONOMIES

AFRICA________________________________

CAPACITY 0.30 0.30 0.30 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00SUPPLY CAPABILITY 0.27 0.29 0.28 0.27 0.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00CCNSUMPTION 0.18 0.21 0.20 0.21 0.23 0.27 0.30 0.33 0.36 0.39 0.42 0.45SURPLUS(-DEFICIT) 0.09 0.07 0.08 0.06 -0.16 -0.27 -0.30 -0.33 -0.36 -0.39 -0.42 -0.45

LATIN AMERICA________________________________

CAPACITY 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03SUPPLY CAPABILITY 0.02 0.01 0.01 0.02 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02CONSUMPTION 0.90 0.93 0.87 1.11 1.39 1.37 1.50 1.63 1.76 1.89 2.04 2.20SURPLUS(-DEFICIT) -0.88 -0.92 -0.86 -1.10 -1.38 -1.35 -1.48 -1.61 -1.74 -1.87 -2.02 -2.18

NEAR EASTCAPACITY 0.00 0.0 0.0 0.0 0.0 0.0 000

CAPACITY 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.72 0.72 0.72SUPPLY CAPABILItY 0.00 o.oo o.oo 0.00 0.00 0.00 0.00 0.00 0.00 0.14 0.43 0.54CONSUMPTION 0.04 0.04 0.04 0.05 0.05 0.06 0.06 0.07 0.07 0.08 0.08 0.09SURPLUS(-OEFICIT) -0.04 -0.04 -0.04 -0.05 -0.05 -o.c6 -0.06 -0.07 -0.07 0.07 0.35 0.45

FAR EAST________________________________

CAPACITY 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00SUPPLY CAPABILITY 0.00 0.00 0.00 0.)00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00CONSUMPTION 0.78 0.79 0.70 0.76 0.94 1.05 1.14 1.23 1.33 1.43 1.53 1.65SURPLUS(-OEFICIT) -0.78 -0.79 -0.70 -0.76 -0.94 -1.05 -1.14 -1.23 -1.33 -1.43 -1.53 -1.65

TOTAL DEVELOPING MARKET ECONOMIES___________________---__ ------- A

CAPACITY 0.33 0.33 0.33 0.33 0.03 0.03 0.03 0.03 0.03 0.75 0.75 0.75 ¢SUPPLY CAPABILITY 0.28 0.30 0.29 0.26 0.09 0.02 0.02 0.02 0.02 0.17 0.45 0.56CONSUMPTION 1.89 1.97 1.81 2.13 2.62 2.74 2.99 3.26 3.52 3.78 4.07 4.39SURPLUS(-DEFICIT) -1.61 -1.67 -1.52 -1.84 -2.53 -2.72 -2.97 -3.24 -3.50 -3.62 -3.62 -3.83

WORLD POTASH FERTILIZER SUPPLY DEMAND AND BALANCES-------------------------------------------------------

(MILLION METRIC TONS OF NUTRIENTS)

ACTUAI FORECAST

1973/74 1974/75 19 7S/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85

CENTRALLY PLANNED ECONOMIES

SOCIALIST ASIACPCT0.0 00 03_.2 03 03 0.8 04_4 0.0 05_.

CAPACITY 0.30 0.30 0.30 0.32 0.34 0.36 0.38 0.40 0.45 0.50 0.55 0.60SUPPLY CAPABILITY 0-30 0.30 0.30 0.32 0.32 0.32 0.34 0.36 0.41 0.45 0.50 0.5S

CONSUrlPTION 0.61 0.62 0.49 0.50 0.57 0.60 0.65 0.73 0.77 0.80 0.84 0.88SURPLUS(-DEFICIT) -0.31 -0.32 -0.19 -0.17 -0.25 -0.28 -0.31 -0.37 -0.37 -0.35 -0.34 -0.33

EASTERN EUtOPE

CAPACITY 9.71 10.76 11.90 12.05 13.00 14.10 15.00 16.00 16.60 17.15 17.70 18.75SUPPLY CAPABILITY 8.47 9.45 10.96 11.47 11.58 13.03 13.B5 14.76 15.30 15.80 16.30 17.30CONSUMPTION 6.75 7.12 8.72 8.91 8.59 9.70 10.24 10.72 11.29 12.05 12.80 13.68SURPLUS(-DEFICIT) 1.72 2.33 2.24 2.56 .3.00 3.33 3.61 4.04 4.01 3.75 3.50 3.62

TOTAL CENTRALLY PLANNED ECONOMIES 4

CAPACITY 10.01 11.06 12.20 12.37 13.34 14.46 15.38 16.40 17.05 17.65 18.25 19.35 l

SUPPLY CAPABILITY 8.77 9.75 11.26 11.79 11.90 13.35 14.19 15.12 15.70 16.25 16.80 17.85CONSUMPTION 7.36 7.74 9.21 9.40 9.15 10.30 10.89 11.44 12.06 12.85 13.64 14.56SURPLUS(-DEFICIT) 1.42 2.01 2.05 2.39 2.75 3.05 3.30 3.67 3.64 3.40 3.16 3.29

WORLD TOTAL____________

CAPACITY 27.52 28.74 30.31 30.79 31.18 32.54 33.75 35.05 36.47 37.80 38.40 39.50

SUPPLY CAPABILITY 22.23 23.70 23.49 25.27 25.79 29.65 30.82 31.95 32.94 33.98 34.87 36.09

AVAILABLE SUPPLY 21.21 21.70 21.48 23.17 23.70 27.18 28.25 29.29 30.20 31.15 31.97 33.08CONSUMPTION 20.73 19 .A2 21.54 23.07 23.3- 25.42 26.65 27.99 29.28 30.75 32.42 34.16SURPLUS(DEFICIT) 0.48 1.88 -0.06 0.10 0.39 f.76 1.60 1.30 0.90 0.40 -0.45 -1.10

Note:"Supply" refers to actual or estimated production until 1977/78. For forecast years "supply" refers to supply capability should demand be there. For

existing plants capacity utilization is based on past experience. For new mines coming on stream the escalation of capacity utilization is assumed at ,C

30, 75, 80 and 90% for known developed ore bodies and 20, 60, 75 and 907 for unknown ore bodies for the first, second, third and fourth year and there- a

after respectively. World "Available Suppl" is the total of regional supply capabilities less 3.5% technical potash and less 5% toaccount for normal stock changes, X

transportation and distribution losses and the time lag between production and consumption.

"Consumption" refers to actual or estimated use until 1977/78 and to forecast use thereafter.

"Surplus (Deficit)" refers to actual or estimated surpluses (deficits) of supply capability over forecast demand. The World "Surplus (Deficit)" does

not add up with the regional totals due to the adjustment described above to arrive *t total "Available Supply" from total "Supply Capability"

Source: Actuals and Estimates: FAO. Forecast: UNIDO/FAO/World Bank Fertilizer Working Group. Industrial Projects Department/Fert1lizer UnitFebrua_y 1979

- 88 -

ANNEX 3-9

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

WORLD POTASH FERTILIZER CONSUMPTION 1967-1977AND FORECASTS TO 1988(Million Tons K20)

Annual Growth Rates %Years Ending June 30 1977 1983 1988

1967 1977 1983 1988 1967 1977 1983

WORLD TOTAL 13.08 23.08 30.75 39.73 5.8 4.9 5.3

Developed Countries 12.12 20.46 26.16 33.19 5.3 4.2 4.8

North America 3.47 5.55 6.50 8.20 4.8 2.7 4.7Western Europ1l/ 4.10 4.91 6.32 7.10 1.8 4.3 2.3Eastern Europ-/ 3.67 8.91 12.05 16.40 9.2 5.2 6.4Pacific & Others 0.88 1.09 1.29 1.49 2.1 2.8 2.9

Developing Countries 0.96 2.62 4.59 6.54 10.4 9.8 7.5

Latin America 0.33 1.10 1.89 2.90 12.8 9.4 8.9Africa 0.10 0.21 0.39 0.54 7.7 10.9 6.7Near East 0.01 0.05 0.08 0.11 14.5 8.2 6.6Far East 0.30 0.76 1.43 1.98 9.6 11.3 6.7Socialist Asia 0.22 0.50 0.80 1.01 8.3 8.2 4.8

1/ Yugoslavia included in Western Europe.

Inductrial Projects DepartmentFertiLizer UnitDecember 1978

- 89 -

ANNEX 3-10

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

THE USE OF BOX-JENKIN'S METHOD IN FORECASTING FERTILIZER DEMAND

There are two basic methods of projecting fertilizer demand. The firstand most common method is a projection of past trends, and although this methoddoes have the advantage that it automatically takes into account factors whichhave had an important effect on the demand in the past, it does not normallyallow for any major new factor which is likely to arise in the future. It alsohas the disadvantage that i.ny suiall erroi Ls in assessing the mathematical re-lationship between historical consumption can become compoun,ded into majorerrors in future projections.

The second method used in the determination of future demand is based onviews of future agricultural practice such as crops, recommended levels offertilizer application and crop acreage. Theoretically, this method should bethe most accurate of forecasting techniques, and it can be used successfully forlimited studies when there is an adequate supply of data to justify such anapproach. Such a technique, however, is almost impossible when attempting toestimate fertilizer demand on a global basis and, in this case, apart from pro-jections of historical trends, the most common approach has been to relate ferti-lizer demand to projected population growth, GNP or other factors.

Most procedures. for forecasting time series from its own current and pastvalues have been of a somewhat ad hoc nature, though theoretical justificationfor their use is generally claimed. In particular, there exists a group of tech-niques classed under the heading "exponential smoothingt' characterized by theproperty that for any one of these techniques a single model was employed for theproduction of forecasts from any time series. The Box-Jenkins approach, which isnow attracting more attention in time series analysis, differs significantly fromthese past methods and represents a new approach to this problem. The methodoffers a class of models and a strategy by which, for any given time series, aparticular model is chosen from this class according to the properties of theindividual time series under study. Thus, the form of the eventual forecastfunction is dictated, to a large extent, by the data - a principle known as"letting the data speak for itself". This ensures that a model best tailored tothe particular phenomenon is obtained. The Box-Jenkin's method uses a flexibleclass of stable statistical models which are known to give adequate representationfor the structure of actually occurring series.

The iterative model building proceeds in three stages: identification,estimation and diagnostic checking. The goal is first to identify the mostappropriate model from the general class of Box-Jenkin's models. Visual inspec-tion may provide a clue as to the type of model that would be most suitable, but

- 90 -

ANNEX 3-10Page 2

the integers and coefficients for the model are obtained using fully efficientstatistical techniques. Finally, diagnostic checks on the adequacy of the re-presentation to the given data set are made. Any inadequacies found in this waymight be expected to suggest some alternative form for the equation, in whichcase the whole cycle of identification, estimation and diagnostic checking isrepeated until a satisfactory model is obtained. Although the operation is com-plex, it can be carried out using electronic computers fairly quickly.

The method is becoming established as one of the most comprehensive andreliable for making projections from current and past values, but it is importantto realize that information input into this type of approach is limited andcannot substitute for thinking about the peculiarities of the system itself. Thetechnique can be used in conjunction with other methods of forecasting as one ofa number which together may enable the analyst to obtain the best possible fore-cast of future demands.

Fertilizer UnitIndustrial Projects DepartmentDecember 1978

- 91 -

ANNEX 4-1

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

INVESTMENT AND PRODUCTION COSTS FOR FERTILIZERS

Mining and Beneficiation Costs for Phosphate Rock

Phosphate rock production and investment costs vary widely depending ongeological nature and site location, so it is difficult to estimate standardcosts. Some model costs are given to cover broad classifications of rock pro-duction and, although they are mainly indicative and do not represent anyspecific case, it is possible to characterize different operations broadly with-in the main six cases considered. The costs are based on 1977 constant USdollars, and show the investment, operating costs and realization pricesnecessary to obtain acceptable return on investments for projects contracted atthe present time.

Site location is extremely important in determining the economics ofphosphate rock production. The availability of port facilities, road or railtransport, fresh water and local labor will all influence both operating andinvestment costs. Three different scenarios have been chosen to represent threetypes of mine location. The first is for a developed site, for example such asFlorida and Morocco, where there is already a large rock production and wheretransport, port and other facilities, such as technical expertise, exist. Thesecond scenario is for a developing site with some infrastructure. In thiscase, it may be necessary to enlarge port and rail facilities and build a planton a new site. There is probably a local township to provide workers and somesocial amenities. Producing countries such as Jordan and Senegal might comewithin this category. The third site is a remote location where it would benecessary to provide new port and transport facilities - perhaps a long railroad,a township, etc. Because of the remote location, the investment costs for plantwould be high. Typical sites would be the Egyptian deposits in the New Valley,the deposits in the Sechura Desert in Peru and the deposits in Queensland,Australia or Saudi Arabia.

Rocks can fall into many types, both with regard to ease of mining andrefining. In this assessment, it is assumed that two types of rock are mined,one of which is both easy to mine and process with high recovery. The otherrock is assumed to be of poor quality and difficult to mine and process. Inpractice, for any site location, the direct production costs will fall somewherebetween these two extremes. Cost estimates are given in Table 4-1.

- 92 -

ANNEX 4-1Page 2

Phosphate Fertilizers

The costs of producing phosphatic intermediates and phosphate ferti-lizers are dependent mainly on the cost of raw materials such as phosphate rockand sulphur. Plant investment and utilization of plant are also very importantin determining production costs, particularly on remote sites in developingcountries where infrastructural requirements can be very expensive.

Phosphoric acid, triple superphosphate and ammonium phosphates are madein many places throughout the world, although in the last few years there hasbeen a strong trend to manufacture phosphatic intermediates at or near thesource of the phosphate rock mine. There are two main advantages in this;firstly, that significant savings in freight can be derived from shipping a con-centrated fertilizer intermediate or product rather than phosphate rock and,secondly, it allows the utilization of lower grade rocks. These rocks, whichwould have relatively low market value, can be converted into high grade pro-ducts at the mine site, in plants specially designed to deal with a single typeof low grade feed. An analysis of new plants that have recently been built orare planned within the next five years, indicates that the majority of theseplants will be at rock producing sites, and that the average size of new plantsis between 500-1,000 tpd P205.

In the cost basis therefore, it is assumed that the most likely placefor a new phosphoric acid plant would be at a rock producing site and based onboth economic and technical considerations, the size of the plant would be1,000 tpd P205. One general exception to this situation would be at a sitewhere rock is not produced but where sulphur is readily available or by-productsulphuric acid is available cheaply from a smelting operation.

Three different scenarios have been considered:

A. Phosphate fertilizer plant on developed site: This would apply mainlyto new phosphoric acid plants built in the USA (Florida), Europe or North Africa(Morocco), and where there is existing infrastructure which can be used for theproduction, storage and transport of phosphate fertilizers. For example, itassumes existing port and rail facilities and the availability of fresh waterfor process and cooling, and also an existing source of power.

B. Phosphate fertilizer plant on developing site where there is some infra-structure. It is assumed in this case that local labor would be available tohelp with plant construction and that there would be some port and rail facilities,although these would have to be extended for the new plant. It also assumes avail-ability of fresh water, but an allowance has been made to increase availability ofpower.

- 93 -

ANNEX 4-1Page 3

C. Fertilizer plant in developing site in remote location. The most likely

case is a desert area where all transport facilities such as rail and ports (or

jetty) would have to be provided. There would be no local labor to assist with

construction, and all amenities such as housing, etc., would have to be

provided.

The comparative production and investment costs with realization pricesto give an acceptable return on investment are given in Tables 4-2 to 4-7. The

estimates ielate to 1977 US constant dollars and to plants contracted at the end

of 1977.

Nitrogen Fertilizers

The cost of producing ammonia and urea depends on many factors, but the

cost of feedstock, plant investment and utilization of plant are probably themost important. Here again, a major factor in comparing the manufacturing costs

in various sites is the cost of infrastructure which, for a developing site,

might cost as much, or more than the battery limit costs of the plant itself.

Another important factor influencing the capital and production costs of

urea is the size of operation. Although urea plants up to 2,000 tpd in a single

stream have been built, as have 1,500 tpd ammonia plants, the most popular size

at the present time is about 1,600-1,700 tpd urea and 1,000-1,350 tpd ammonia.

At this size, there is now considerable technological experience and, above this

size, economies of scale at the present time appear to be limited.

Although urea plants based on naphtha, heavy oil and coal are currentlybeing evaluated and built, the economics of using these feedstocks tend to be

very specific, and can usually only be justified when there is a local and

captive market for the product. In general assessments, natural gas appears tobe the most attractive feedstock both from investment and operating costs, and

is expected to remain the most important feedstock in the foreseeable future.

Present gas prices vary widely from one location to another. In oil-

rich areas of the developing world, where associated gas is still being flared,

gas can be as low as US$0.25-0.50/Mscft. In most industrialized countries, the

current price varies from US$1.0-2.0/Mscft and, in some cases, is above this

range.

The cost of building new plants and producing urea at three locations

has been considered:

(a) A developed site such as the USA or Western Europe.

(b) A developing country possessing natural gas and already

having some infrastructure and some fertilizer market,

justifying an economically-size plant, for example,Indonesia, Brazil or India.

- 94 -

ANNEX 4-1Page 4

(c) A plant in a remote location where well-head gas is verycheap but where there is little or no infrastructure andall the product must be exported, for example, SaudiArabia.

The comparative cost data are given in Tables 4-8 and 4-9.

Potash Fertilizers

Information on potash costs is difficult to obtain, possibly due to thefact that the nature of the deposits, and hence costs, vary widely, and alsobecause of the close marketing arrangements that exist between many producers,tends to inhibit the dissemination of such information. It is generally accepted,however, that the production costs in Canada, where mines are large and modernand the potash seams rich and regular, are probably the lowest in the world.Figures generally quoted for Canada would indicate that the present direct oper-ating costs there would be in the range of US$13-18 per short ton of potash. Thecost of new mines is also reported to fall mainly in the range of IJS$130-160investment per annual short ton of product.

Investment and Operating Costs for New Potash Plants

In order to establish reliable data, help was obtained from engineeringcompanies who have considerable experience in the design and engineering ofpotash plants throughout the world. Costs were calculated for a mine in Canadaand a mine in New Mexico. It was assumed that underground dry mining would beused in both locations employing continuous mining equipment and conventionalflotation, with crystallizer scavenger circuits for beneficiation. The size ofmines chosen were determined by the nature and size of the assumed deposits andthe mine shaft capacity. The following criteria were used to establish thecosts for the two plants.

Design Item Canada Plant New Mexico Plant

Plant production, stpy 1,500,000 850,000Shafts, 16 ft diameter 2 @ 3,000 ft 2 @ 2,000 ftProduct grade, % KC1 95 95Feed : % K20 26 15

: % Insoluble 5 5Feed, stpy 4,000,000 4,352,000Ratio of concentration 2.67 5.12Recovery 90% 83%

- 95 -

ANNEX 4-1Page 5

Capital Costs

The capital costs of each plant reflect the complete facilities to pro-duce fertilizer grade material. The mine costs include continuous miners andhaulage equipment, underground crushing, storage, etc., ore and service shaftsand hoisting facilities. The surface plant also includes offices, laboratories,maintenance and product storage buildings. Special allowances for costs tocover special environmental requirements have also been included. The main in-crease in cost between the surface plant in Canada and New Mexico is explainedby the more difficult climatic conditions in Canada.

Direct Operating Costs

Direct operating costs include all direct labor, supervisory and officepersonnel, administrative expenses, utilities, operating supplies and mainten-ance.

Total Production Costs and Realization Prices

Estimates of total production costs and realization prices to obtain10% and 15% return on investment have been calculated. These figures do not in-clude allowance for the reserve tax which currently prevails in Saskatchewan.

Equilibrium Prices

The realization prices calculated above for various raw materials andfertilizers are mainly to show how these prices can vary with site location,feedstock cost and investment cost. As presented, however, they would notnecessarily represent a range of future equilibrium prices. For example, somelocations for urea production may have the benefit of both relatively low invest-ment and feedstock cost. Similarly, many phosphate fertilizer producers andparticularly the USA and Morocco, will be able to cost phosphate rock into theirplants at less than US$25/ton. Based on these considerations related to both newand planned fertilizer projects and by interpolation of the parameters andresults calculated above, the most likely range of equilibrium export prices in1977 US dollars for fob export prices are as follows:

Phosphate Rock 25-30Phosphoric Acid 270-300Triple Superphosphate 125-145Diammionium Phosphate 180-200Urea (bagged) 150-175Potash 70-75

ESTIMATED INVESTMENT AND PRODUCTION COSTS FOR PHOSPHATE ROCK(1977 US$/ton)

Basis - 3.0 Million Tons per Year ProductRock A - High Grade. High recovery and low processing requirements.Rock B - Low Grade. Low recovery and high processing requirements.

|Site Developed Site DevelopinR Site_ Develoin. Site-

I New Site: Some Infrastructure New Site: Remote LocationIRock Type Rock A Rock B Rock A Rock B Rock A Rock B

lPlant Investment - $ Annual Ton 40.0 45.0 80.0 86.0 140.0 147.0Working Capital - $ Annual Ton 2.2 3.1 | 2.8 3.7 3.7 4.5

iTotal Investment - $ Annual Ton 42.2 48.1 82.8 89.7 143.7 151.5

Operating Costs:

Mining 3.5 5.0 3.5 5.0 3.5 5.0Benefication 3.0 6.5 3.0 6.5 3.0 6.5Handling and Storage, Admini-stration, Laboratory, etc. 2.5 2.5 2.5 2.5 2.5 2.5

9.0 14.0 9.0 14.0 9.0 14.0|Depreciation 2.0 2.2 4.0 4.3 7.0 7.3

Total Production Costs: 11.0 16.2 13.0 18.3 16.0 21.3

'Transport and Loading 2.5 2.5 4.0 4.0 6.0 6.0

13.5 18.7 17.0 22.3 22.0 27.3

10% Capital Charge 4.2 4.8 8.3 9.0 14.4 15.115% Capital Charge 6.3 7.2 12.4 13.4 21.5 22.7

Realisation Price at 10% CapitalCharge 17.7 23.5 25.3 31.3 36.4 42.4

Realisation Price at 15% Capital ( a Charge 19.8 25.9 29.4 35.7 43.5 50.0 > 4

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _F__ _ _

ESTIMATED INVESTMENT AND PRODUCTION COSTS FOR PHOSPHORIC ACID(1977 US$/metric ton)

Basis . 1,000 tpd (100% P205)Capacity Utilization 90%Capacity . 330 days/year

330,000 tons/year P205Production 297,000 tons/year

Site Developed Site New Site New Site(Some Existing Infrastructure) (Remote Location)

Plant Investment US$ US$101 Million US$155 Million US$208 MillionWorking Capital US$ US$13 Million US$14 Million US$16 MillionTotal Investment US$ US$114 Million US$169 Million US$224 Million

Raw Materials US$/ton

Rock Phosphate 83.80 83.80 83.80(3.352 tons at $25/ton)Sulphur 63.45 63.45 63.45(0.976 tons at $65/ton)

Other Variable Costs US$/ton 15.00 15.00 15.00

Fixed Costs US$/ton 53.90 79.89 105.05

Production Costs US$/ton 216.15 242.14 267.30

Capital Charge 15% US$/ton 57.57 85.32 113.13

Realization Price US$/ton 273.72 327.46 380.43(ex-tactory)

For each $1.00/ton increase in rock costs, production costs increase by $3.35/ton P205. . A.For each $1.00/ton increase in sulphur costs, production costs increase by $0.98/ton P205.

REALIZATION PRICE VERSUS CAPITAL CHARGE FOR PHOSPHORIC ACID(1977 US$/Ton P20 5 )

Rock: S25/Ton - Sulohur: $65/Ton

Site Developed Site Developing Site Developing Site(Some Existing Infrastructure) (Remote Location)

Plant Investment US$101 Million US$155 Million US$208 Million

Working Capital US$ 13 Million US$ 14 Million US$ 16 Million

Total Investment US$114 Million US$169 Million US$224 Million

Operating Rate 100 90 80 70 60 100 90 80 70 60 100 90 80 70 60

Operating Cost $/Ton 211.08 216.15 223.29 232.01 243.63 234.15 242.14 252.12 264.96 282.08 256.80 267.30 280.44 297.32 319.83

Capital Charge $/Ton @ 5% 17.27 19.19 21.59 24.67 28.78 25.60 28.44 32.00 36.57 42.67 33.94 37.71 42.42 48.49 56.57 o@ 137, 34.54 38.38 43.18 49.34 57.56 51.20 56.88 64.00 73.14 85.34 67.88 75.42 84.84 96.98 113.14@ 15% 51.81 57.57 64.77 74.01 86.34 76.80 85.32 96.00 109.71 128.01 101.82 113.13 127.26 145.47 169.71@ 20-. 69.08 76.76 86.36 98.68 115.12 102.40 113.76 128.00 146.28 170.68 135.76 150.84 169.69 193.96 226.28@ 25% 86.35 95.95 107.95 123.35 143.90 128.00 142.20 160.00 182.85 213.35 169.70 188.55 212.10 242.45 282.85

Realization Price $/Ton @ 5% 228.35 235.34 244.88 256.68 272.41 259.75 270.58 284.12 301.53 324.75 290.74 305.01 322.86 345.81 376.40@ 10% 245.62 254.53 266.47 281.35 301.19 285.35 299.02 316.12 338.10 367.42 324.68 342.72 365.28 394.30 432.97@ 15% 262.89 273.72 288.06 306.02 329.97 310.95 327.46 348.12 374.67 410.09 358.62 380.43 407.07 442.79 489.54@ 20% 280.16 292.91 309.65 330.69 358.75 336.55 355.90 380.12 411.24 452.76 392.56 418.14 450.12 491.28 546.11@ 25% 297.43 312.10 331.24 355.36 387.53 362.15 384.34 412.12 447.81 495.43 426.50 455.85 492.54 539.77 602.68

For each $1.00/ton increase in rock cost, realization prices increase by about $3.35/ton P205.For each $1.00/ton increase in sulphur prices, realization prices increase by about $0.98/ton P20s.

mx

ESTIMATED INVESTMENT AND PRODUCTION COSTS FOR GRANULAR TRIPLE SUPEXPHOSPHATE(1977 US$/ton)

Basis : 1,200 tpd bulk product (46% P205)Capacity Utilization 90%Capacity 330 days/year

396,000 tons/year GTSPProduction 356,400 tons/year GTSP

Site Developed Site Developing Site Developing Site(Some Existing Infrastructure) (Remote Location)

Plant Investment US$ US$25 Million US$29 Million US$31 MillionWorking Capital US$ US$8 Million US$9 Million US$11 MillionTotal Investment US$ US$33 Million US$38 Million US$42 Million

Raw Materials IIS$/ton

Phosphate Rock 11.00 11.00 11.00(0.44 tons at $25/tonPhosphoric Acid - 0.34 tons* 86.54 101.66 116.52

Other Variable Costs US$/ton 2.95 2.95 2.95

Fixed Costs US$/ton 13.91 15.62 16.49

Production Cost US$/ton 114.40 131.23 146.96

Capital Charge (15%) US$/ton 13.86 15.99 17.67

Realization Price US$/ton 128.26 147.22 164.63

*Based on phosphate rock at $25/ton and sulphur at $65/ton.

For each $1.00/ton increase in rock costs, proauction costs increase by $1.58/ton TSP.For each $1.00/ton increase in sulphur costs, production costs increase by $0.33/ton TSP.

ESTIMATED REALIZATION PRiCE VERSUS CAPITAL CIURrE FOR BULK GRANUIAR TSP(1977 US$/Ton Product)

Site Developed Site Developing Site - Some Existing Infrastructure DeveloPing Site-(Remote LocatLOn)

plant Invescment US$25 Million US$29 Million us311 Million

Working Capital us$ 8 Million US$ 9 Million Us$11 Million

Total Investment us$33 Million US$38 Million US$42 Million

( Operating Rare 100 90 80 70 60 100 90 80 70 60 100 90 80 70 60

.~~~~~~~~~~~~~~~~~~~~~.Operating Cost $/Ton* 113.01 114.40 116.14 118.38 121.36 129.67 131.23 133.18 135.70 139.04 145.31 146.96 149.02 151.57 155.20

Capital Charge $5Ton @ 5% 4.16 4.62 5.20 5.94 6.93 4.80 5.33 6.00 6.86 8.00 5.30 5.89 6.62 7.57 8.83@ 10% 8.32 9.24 10.40 11.88 13.86 9.60 10.66 12.00 13.72 16.00 10.60 11.78 13.24 15.14 17.66@ 15% 12.48 13.86 15.60 17.87 20.79 14.40 15.99 18.00 20.58 24.00 15.90 17.67 19.86 22.71 26.49@ 20% 16.64 18.48 20.80 23.76 27.72 19.20 21.32 24.00 27.44 32.00 21.20 23.56 26.48 30.28 35.3212 25% 20.80 23.10 26.00 29.70 34.65 24.00 26.65 30.00 24.30 40.00 26.50 29.45 33.10 37.85 44.15

Realization Price $/Ton @ 5% 117.17 119.02 121.34 124.32 128.29 134.47 136.56 139.18 142.56 147.04 150.61 152.85 155.65 159.24 164.03@ 10% 121.33 123.64 126.54 130.26 135.22 139.27 141.89 145.18 149.42 155.04 155.91 158.74 162.26 166.81 172.86@ 15% 125.49 128.26 131.74 136.20 142.15 144.07 147.22 151.18 156.28 163.04 161.21 164.63 168.88 174.38 181.69(a 20% 129.65 132.88 136.94 142.14 149.08 148.87 152.55 157.18 163.14 171.04 166.51 170.52 175.50 181.95 190.52@ 25% 133.81 137.50 142.14 148.00 156.01 153.67 157.88 163.18 170.00 179.04 171.81 176.41 182.12 189.52 199.35

*Based on a phosphoric acid transfer pr,ce from plant operating at 90% of design capacity yith 10% ROI, and rock at $25/ton and sulphur at $65/ton.

ESTIMATED INVESTMENT AND PRODUCTION COSTS FOR DIAMMONIUM PHOSPHATE(1977 US$/ton)

Basis 1,200 tpd bulk product (18-46-0)Capacity Utilization: 90%Capacity 330 days/year

396,000 tons/year DAPProduction : 356,400 tons/year DAP

Site Developed Site Developing Site Developing Site

(Some Existing Infrastructure) (Remote Location)

Plant Investment US$ 30.0 34.5 36.0Working Capital US$ 11.8 13.2 14.5Total Investment US$ 41.8 47.7 50.5

Raw Materials US$/Ton

Phosphoric Acid* - 0.47 tons P205 119.62 140.53 161.08Ammonia - 0.225 NH3 33.75 33.75 33.75

Other Variable Costs US$/Ton 3.25 3.25 3.25

Fixed Costs US$/Ton 16.40 18.34 18.99

Production Cost US$/Ton 173.02 195.87 217.07

Capital Charge (15%) US$/Ton 17.58 20.07 21.24

Realization Price US$/Ton 190.60 215.94 238.31

*Based on phosphate rock at $25/ton and sulphur at $65/ton.

For each $1.00/ton increase in rock costs, production costs increase by $1.58/ton DAP.For each $1.00/ton increase in sulphur costs, production costs increase by $0.46/ton DAP. XFor each $1.00/ton increase in ammonia costs, production costs increase by $2.25/ton DAP. >

I- 4-

ESTIMATED REALIZATION PRICES VERSUS CAPITAL CHARGE FOR BULK GRANULAR DAP(1977 US$/Ton Product)

Site Developed Site Developing Site - Some Existing Infrastructure Developing Site(Remote Location)

Plant Investment US$30.0 Million US$34.5 Million US$36.0 Million

Working Capital US$11.8 Million US$13.2 Million US$14.5 Million

TotallInvestment US$41.8 Million US$47.7 Million US$50.5 Million

Operating Rate 100 90 80 70 60 100 90 80 70 60 100 90 80 70 60

Operating Cost $/Ton 171.38 173.02 177.12 185.82 205.42 194.03 195.87 197.54 201.10 205.03 215.17 217.07 219.44 222.49 226.56

Capital Charge $/Ton @ 57. 5.28 5.87 6.60 7.54 8.80 6.02 6.69 7.52 8.60 10.03 6.38 7.08 7.97 9.11 10.63@ 10% 10.56 11.74 13.20 15.08 17.60 12.04 13.38 15.04 17.20 20.06 12.76 14.18 15.94 18.22 21.26@ 15% 15.84 17.61 19.80 22.62 26.40 18.06 20.07 22.56 25.80 30.09 19.14 21.27 23.91 27.33 31.89@ 20% 21.12 23.48 26.40 30.16 35.20 24.08 26.76 30.08 34.40 40.12 25.52 28.36 31.88 36.44 42.52@ 25% 26.40 29.35 33.00 37.70 44.00 30.10 33.45 37.60 43.00 50.15 31.90 35.45 39.85 45.55 53.15

Realization Price $/Ton @ 5% 176.66 l75.89 183.72 193.36 214.22 200.05 202.56 205.11 209.70 215.06 221.55 224.15 227.41 231.60 237.19@ 10% 181.94 184.76 190.32 200.90 223.02 206.07 209.25 212.63 218.30 225.09 227.93 231.23 235.38 240.71 247.82@ 157. 187.22 190.63 196.92 208.44 231.82 212.09 215.94 220.15 226.90 235.12 234.31 238.31 243.35 249.82 258.45@ 20% 192.50 196.50 203.52 215.98 240.46 218.11 222.63 227.67 235.50 245.15 240.69 245.39 251.32 258.93 269.08@ 25% 197.78 202.37 210.12 223.52 249.42 224.13 229.32 235.19 244.10 255.18 247.07 252.47 259.29 268.04 279.71

ESTIMATED INVESTMENT AND PRODUCTION COSTS FOR UREA(1977 US$/Metric Ton)

Basis 1,650 tpd bagged productCapacity Utilization 90%Capacity 330 days/year

544,500 tons urea/yearProduction : 490,050 tons/year

Site Developed Site Developing Site Developing Site Barge-Mounted Plant(Some Existing Infrastructure) (Remote Location) (Remote Location)

Plant Investment US$ US$150 Millian US$230 Million US$320 Million US$250 MillionWorking Capital US$ US$7 Million US$10 Million US$15 Million US$15 MillionTotal Investment US$ US$157 Million US$240 Million US$335 Million US$265 Million

Raw Materials Gas @ $2.0/M scft Gas @ $0.6/M scft Gas @ $0.3/M scft Gas @ $0.3/M scft o

Natural Gas includingFuel and Gas for Steamand Power Generation 70.00 21.00 10.50 10.50

Other Variable Costs US$/Ton 11.87 11.87 11.87 11.87

Fixed Costs US$/Ton 45.96 62.82 80.69 67.04

Production Costs US$/Ton 127.83 95.69 103.06 89.41

Capital Charge (15x) US$/Ton 48.06 73.50 102.54 81.09

Realization Price US$/Ton 175.89 169.19 205.63 170.50(ex-factory)

Note: An increase in gas prices of US$0.1/M scft will increase the production cost and realization price of urea by X XUS$3.5/ton of urea. l l

REALIZATION PRICES VERSUS CAPITAL C8URARS FOR UREA(1977 US0/Ton)

Developed Site Developing Site - So-a Infr-stronttre DeIoping Site - Remote Locative Remote Location - Barge feasted Plant

Gan Price US$2.0/M sift USO$.60/M acft US$0.30/N acft US$0.30/M -ift

Plant Invesss-et- US$150 Millino US$230 Million US$320 Million US$250 Million

Wbtking Capitol US$7 Million US$10 Million US$15 Million US$15 Million

Total lveat-ent US$157 Million US$240 Million US$335 Million US$265 Million

100 90 S0 70 60 100 90 s0 70 60 100 90 80 70 60 100 90 80 70 60

Operating Cost $/Ton 123.23 127.83 133.57 140.96 150.80 69.41 95.69 103.55 113 65 127.11 90.00 103.06 113.15 126.12 143.41 02.71 89 41 97.80 108.57 122.94

Capital Charge $/Ton -@ 57. 14.42 16 02 18.02 20.60 24.03 22.05 24 50 27.56 31.50 36.75 30.75 34.18 38.44 43 93 51.25 24.33 27.03 30.41 34.75 40.55

C 107. 28.84 32.04 36 04 41.20 48.06 44.10 49.00 55.12 63 00 73.50 61.50 68.36 76.88 87.86 102.50 48.66 54.06 60.82 69.50 81.10@ 157. 43.26 48.06 54.06 61.80 72.09 66.15 73 50 82.68 94.50 110.25 92.25 102.54 115.32 131 79 153.75 72.99 81.09 91.23 104.25 121.657 207. 57 68 64.08 72.08 82.40 96.12 88.20 98 00 110.24 126.20 147.00 123.00 136.72 153.76 175.72 205.00 97.32 108.12 121 64 139.00 162.20@ 257. 72.10 80.10 90.10 103.00 120.15 110.25 122.50 137.80 157.50 183.75 153.75 170.90 192.20 219.65 256.25 121.65 135.15 152.05 173.75 202.75

Roalieation Price $/Tooat Variena Capital @ 5% 137 65 143.85 151.59 161.56 174.83 111.46 120.19 131.11 145.15 163.86 125.75 137.24 151.59 170.05 194.66 107 04 116.44 128.21 143.32 163.49Charges. @ 10% 152 07 159.87 169.61 182.16 198.86 133.51 144.69 158.67 176.65 200.61 156.50 171.42 190 03 213.98 245.91 131.37 143.47 158.62 178.07 204.04

@ 15% 166 49 175.89 187.63 202.76 222.89 155.56 169.19 186 23 208.15 237.36 187.25 205.60 228.47 257.91 297.16 155.70 170.50 189.03 212.82 244.59@ 207. 180.91 191.91 205.65 223.36 246.92 177.61 193 69 213 79 239.65 274.11 218.00 239.78 266.91 301 84 348.41 180.03 197.53 219.44 247.57 285.14@ 25% 195.33 207 93 223.67 243.96 270 95 199.66 218.19 241.35 271.15 310.86 248.75 273.96 305.35 345.77 399.66 204.36 224.56 249.85 282.32 325.69

Note An increase in gas prinni of US$0.1/M cft- wil increase the prod-trion cvt- and re-linaino. print of neon by U5S3.5/ten nofee

- 105 -

ANNEX 4-1Table 4-10

ESTIMATED INVESTMENT AND PRODUCTION COSTS FOR POTASH(1977 US$)

Site Canada New Mexico

Capacity stpy 1,500,000 850,000

Capacity metric tpy 1,364,000 773,000

Plant Investment US$ 211,825,000 97,325,000

Start-Up Fees 4,950,000 4,500,000

Subtotal 216,775,000 101,825,000

Contingency (10%) 21,677,000 10,182,000

Total Plant Investment 238,452,000 112,007,000

Working Capital 9,540,000 6,540,000

Total Investment 247,992,000 118,547,000

S.Ton M.Ton S.Ton M.Ton

Operating Cost - Mine 6.36 7.00 12.11 13.33- Refinery 6.83 7.51 8.83 9.71

Subtotal 13.19 14.51 20.94 23.04

Depreciation (8 1/3%) 13.23 14.55 10.98 12.08

Insurance and Local Taxes (1%) 1.59 1.75 1.32 1.45

Subtotal 14.82 16.30 12.30 13.53

Total Production Costs 28.01 30.81 33.24 36.56

(a) Capital Charges (15%) 24.80 27.28 20.92 23.01

Estimated Realization Price Ex-Worksat 15% Capital Charge 52.81 58.09 54.16 59.57

(b) Capital Charge (10%) 16.53 18.18 13.95 15.34

Estimated Realization Price Ex-Worksat 10% Capital Charge 44.54 48.99 47.19 51.90

Transport and Loading 18.50 20.35

(c) Estimated fob Realization Pricewith Capital Charge of 15% 71.31 78.44

(d) Estimated fob Realization Pricewith Capital Charge of 10% 63.04 69.34

Note: Production costs in the USA and Canada are usually expressed per short ton(2,000 lbs or 907 kg).

WORLD FERTILIZER REVIEW ANDFERTILIZER REQUIREMENTS OF DEVELOPING COUNTRIES 1979

FERTILIZER PRICE FORECASTS

(US$/Metric Ton) Price Yearly

Current Dollars 1978 Constant Dollars Deflator % ChangePhosphate Phosphate

Urea DAP TSP KCI NH3 h-3P04 Rock Urea DAP TSP KCI NH3 H3P04 Rock

1955 n.a. n.a. n.a. 32.5 n.a. n.a. 14.5 n.a. n.a. n.a. 108 n.a. n.a. 48 30.01960 n.a. n.a. n.a. 28.5 n.a. n.a. 13.0 n.a. n.a. n.a. 86 n.a. n.a. 39 33.0 0.9

1965 96.0 n.a. n.a. 29.5 n.a. n.a. 14.0 277 n.a. n.a. 85 n.a. n.a. 40 34.7 1.01967/69 67.0 64.0 41.0 24.0 44.0 n.a. 12.0 196 188 120 70 129 n.a. 35 34.1 -0.51970 48.0 54.0 42.5 31.5 35.0 n.a. 11.0 128 144 114 84 94 n.a. 29 37.4 4.6

1973 95.0 119.0 100.0 43.0 60.0 n.a. 14.0 176 220 185 80 111 n.a. 26 54.0 13.01974 316.0 333.0 304.0 61.0 304.0 384.0 54.5 468 493 450 90 450 569 81 67.5 25.11975 198.0 243.0 202.0 81.0 193.0 361.0 67.0 254 312 259 104 249 465 86 77.9 15.41976 112.0 12p.0 91.0 55.0 111.0 203.0 36.0 141 152 115 69 140 256 46 79.2 1.71977 127.0 133.0 97.0 51.0 110.0 182.0 30.5 146 153 11Z 59 127 210 35 86.8 9.61978 144.0 135... 98.0 56.4 99.0 203.0 29.0 145 140 98 56 99 203 29 100 0 15.2

1979 155.3 165.0 119.5 67.3 127.1 266.1 33.7 140 141 101 61 117 245 30 108.6 8.61980 163.4 184.2 135.8 74.8 135.8 299.3 36.8 142 160 118 65 118 260 32 115.1 6.01981 174.5 206.2 153.7 83.0 147.6 335.5 41.5 143 169 126 68 121 275 34 122.0 6.01982 187.6 223.9 168.2 89.3 172.1 375.3 45.3 145 173 130 69 133 290 35 129.4 6.01983 6.0 11984 6.019851/ 277.2 354.2 254.1 114.0 254.1 504.0 60.1 180 230 165 74 165 33 39 154.0 6.0 °

1990 354.1 452.4 324.6 163.3 324.6 643.0 76.7 180 230 165 83 165 335 39 196.7 5.0

Phosphate Rock, 75 BPL, fas Casablanca up to 1975, then 72 BPL.TSP (Triple Superphosphate), bulk, fob US Gulf.DAP (Diammonium Phosphate), bulk, fob US Gulf.Urea, fob Europe, bagged.Muriate of Potash, bulk fob Vancouver.Ammonia fob W. Europe.Phosphotic Acid fob US Gulf, 1007 P205 equivalent.

1/ Prices stated for 1985 and 1990 are the realisation prices required to give a reasonable return on a new investmentand thus rather express the long term equilibrium price than being estimations for the prices prevailing those years.

Fertilizer Unit 4Industrial Projects DepartmentApril 1979