Fertilizer International 510 Sept-Oct 2022
30 September 2022
IFA 2022 Annual Conference
CONFERENCE REPORT
IFA 2022 Annual Conference
Some 1,160 delegates from 475 companies and 76 countries gathered in Vienna, Austria, for the 89th International Fertilizer Association (IFA) Annual Conference, 30 May – 1 June 2022. We report on the main highlights of this three-day flagship event.
IFA’s long standing annual conference is the largest and most prestigious event on the global industry’s calendar. For decades now, it has provided a once-ayear opportunity for key fertilizer players to congregate, network and catch-up on the latest industry developments.
The theme of this year’s conference was ‘Navigating Market Risks in Pursuit of Sustainability’. The programme covered systemic challenges and risks facing the fertilizer industry – and highlighted how these could translate into new opportunities and ultimately create value for investors.
Opening address
The conference was opened by IFA’s director general Alzbeta Klein and Svein Tore Holsether, IFA’s chair and the president and CEO of Yara International.
“We have plenty of work to do in many parts of the world including in Africa. How to navigate market risks and accelerate the sustainability of our industry is the focus of this gathering. I am confident we can navigate these waters and feed the world sustainably,” Alzbeta said in her introductory welcome to delegates.
Globally, food insecurity is double what it was two years ago, with the world’s poor being hit by the combined impacts of climate change, the Covid-19 pandemic, conflict in Ukraine and rising living costs. Svein Tore Holsether, while offering a sobering prognosis, provided leadership on how the fertilizer industry should respond to current crisis conditions.
“Some 276 million people were already in severe food insecurity at the start of year, double that of a couple of years ago. Today, 50 million are at the emergency level of hunger. The war in Ukraine is not the only reason, climate is also part of the equation,” Holsether said.
He stressed that the choice facing decision-makers is not about solving the food crisis or the climate crisis – it’s about doing both. One small positive from these looming crises, suggested Holsether, was that the rest of the world was starting to recognise the importance of fertilizers – both what they are and what they do.
This was shown by the focus on the global food system at this year’s World Economic Forum in Davos, for example. “Half of the world’s population gets food because of fertilizers,” Holsether said.
Svein Tore ended on a positive note by offering up prescriptions to address short-and medium-term food system challenges. The answer to the dire short-term situation, he suggested, was to shore up the World Food Programme and make this a priority, alongside the creation of safe corridors to get cereals out of Ukraine – something that was subsequently delivered over the summer in a deal between Russia and Ukraine brokered by the UN and Turkey. Making sure trade flows freely was the key to avoid famine, in his view. That included avoiding restrictions on exports and getting fertilizers to farmers.
Navigating risks in pursuit of sustainability
Shari Friedman, managing director for climate and sustainability at Eurasia Group, gave the keynote address. She highlighted how interconnected climate action, the energy transition and food security are.
“Fertilizer companies sit at the intersection of several global shifts – energy transitions, food security and the impacts of a changing climate,” Friedman said. “They have the opportunity to define their role in solutions that the world is urgently seeking.”
In her view, framing the climate debate solely by the question: “Are we going to limit global warming to one point five degrees?” – and then answering it with a binary yes/no was “not helpful”. This was because this enormous question has so many factors and sub-factors, some of which are unknowable.
Instead, Shari suggested it was more helpful to identify past and future ‘seismic shifts’ that will propel us towards meeting the 1.5°C target. The US Securities and Exchange Commission (SEC), for example, is currently mandating climate-related disclosures for business. This decision, Fridman suggested, can be traced all the way back to Bank of England governor Mark Carney’s ground-breaking speech on the financial risks of climate change in 2015.
Looking ahead, in the absence of decarbonisation policies, climate litigation was a new development that could force companies to act and spark a future ‘seismic shift’, in her view.
“We are hurtling down a dangerous path, we have solutions but not a lot of time. It takes political will,” said Friedman. “The drumbeat for solutions will continue, with increasing action from consumers, policymakers and other stakeholders.”
The keynote address was followed by a roundtable discussion between senior executives.
Incitec Pivot’s CEO, Jeanne Johns explained how her company had made a massive step change over the last 18 months by setting absolute targets for net zero by 2050 and defining a clear pathway for achieving this.
“Credibility is everything. We took the approach to [firstly] have an ambition for net zero and [next] to build a plan, then we defined the target,” said Johns. “Mindset counts [too] – going from seeing obstacles to seeing solutions.”
The company’s sustainability initiatives included the conversion of the Gibson Island plant in Brisbane to green ammonia.
“Converting a 50-year-old fertilizer plant to green ammonia will be ending one chapter and starting another,” said Johns. “Younger and older engineers and other employees are excited about the future – they see the opportunities as well as threats.”
Raviv Zoller, ICL’s president and CEO explained how “doing the right thing” on sustainability provided a “fabulous opportunity for connecting with employees”. He also stressed the need for credibility.
“Everyone loves change as long as it’s happening to someone else,” Zoller said. “I’ve learned that the strongest indicator of company success is the employee’s belief in the product, what the company stands for and our behaviour – living up to what we say we do.”
On sustainability, Alk Brand, CEO of avocado producer Westfalia Group, provided an amusing metaphor: “The best way to eat an elephant is piece by piece. Start by changing what’s in front of you.”
He advised company managers to “focus on targets” by picking obvious challenges that can make a real difference. “In France, we picked one customer, and decided to remove plastic [packaging] from just [this] one customer, which saved 65 tonnes of plastic,” Brand said.
Alexander Schmitt, chief marketing officer at Anglo American Crop Nutrients, spoke about the positive lessons he’s learned from the mining industry’s transition to sustainability. He urged his fertilizer industry peers to be prepared to think differently, challenge the conventions of the past and think outside the box.
‘FutureSmart Mining’ at the Quellaveco copper mine in Peru exemplifies Anglo American’s successful change of thinking on sustainability. This mine is safe, efficient, water-less, 100 percent digital, completely autonomous and powered by renewable energy. It’s a cutting edge production model that phosphate and potash miners could learn from.
Schmitt also stressed the importance of communities and partnerships in bringing Anglo’s under-construction Woodsmith polyhalite mine project to market in the UK, quoting from 15-year-old Vinisha Umashankar’s powerful speech at the 2021 COP26 summit in Glasgow: “We can only move together towards the future. So united we rise and, together, we will definitely succeed”.
Medium-term market outlook
Introducing the 2022-26 medium-term outlook, Laura Cross, the director of IFA’s market intelligence service, spoke about the unprecedented market circumstances currently.
“The situation in the market has never been seen in modern history. We’re in a market driven by availability and affordability,” Cross said, with the war in Ukraine having had a massive market impact: “As of 24th February, everything changed.”
What was unique about the current market was this combination of both an affordability and an availability crisis, Cross said:
“As it did in 2008-09, fertilizer affordability will present a challenge in 2022. The difference this year, is that the market is also facing an availability crisis.”
These extraordinary circumstances had prompted IFA to develop a completely new market forecasting methodology. This new approach, for example, considers the ‘delta’ between N, P and K global production (actual output), on the one hand, and production capacity on the other. This gap stands at 66 million tonnes currently. Combined, Russia and Belarus contribute a delta of 43 million tonnes. To put this in perspective, these two countries, at a stroke, easily eclipse the total world delta of 37 million tonnes in 2007.
As well as taking account of availability and constrained supply, the new forecast also provides three scenarios (optimistic, pessimistic, middle ground) based on five criteria:
- Evolution of the Russia-Ukraine conflict
- Sanctions regimes
- Ability of Russia and Belarus to export to ‘friendly’ countries
- Protectionist fertilizer policies
- Fertilizer affordability.
With fertilizer supplies hemmed in globally, IFA’s new forecasting approach also uses supply ‘capability’ as a measure of what’s available on the market, instead of the more usual capacity and capacity expansions. Results suggests that potash capability is most constrained – with potash also the nutrient most skewed to the downside – followed by nitrogen capability and then phosphates capability.
“Nitrogen and potash capability are exposed to downside risks in the coming years, driven by exports [or lack of] from Belarus and Russia and their [level of] trade with so-called ‘friendly’ and ‘unfriendly’ countries,” said Cross.
Short-term market constraints are expected to affect the three primary nutrients in different ways, with:
- P use dictated by affordability
- K use dictated by availability
- N use dictated by both of the above.
On the demand side, Armelle Gruère, IFA’s demand program manager, highlighted the significant decrease in fertilizer affordability over the course of 2021 and 2022.
For the 2022 fertilizer year (FY), IFA is forecasting a contraction in global fertilizer demand of between -0.2 percent (optimistic scenario), -3.8 percent (middle ground scenario) and -6.9 percent (pessimistic scenario).
“South Asia and East Asia are forecast to experience the largest fertilizer demand declines in fertilizer year 2022, but Africa could experience the sharpest drop in fertilizer use as a share of total consumption,” said Gruère.
Global demand is, however, expected to rebound in FY 2023 by as much as 1.9 percent (optimistic scenario) or as little as 1.2 percent (pessimistic scenario).
Low affordability
A panel discussion revealed the scale of the fertilizer affordability problem in this new supply-constrained world.
Despite the FAO Food Price Index (FFPI) rocketing to all-time highs this spring, agricultural commodity prices, in reals terms, are relatively low and falling, according to Josef Schimdhuber, deputy director of the FAO’s statistics division. This is explained by factoring in the costs of inputs using The Global Input Price Index (GIPI) – which has risen further and faster than the FFPI – to deflate these prices.
Schimdhuber explained what was needed to bring the market back into equilibrium: “Either costs for inputs, notably fertilizer and energy have to fall, or nominal prices for food and consumers need to rise – or a combination of the two.”
Fertilizer subsidies, however, risked creating unwelcome and perverse outcomes. “In a supply constrained market, if you subsidise demand, prices increase. It also takes away fertilizers from more productive to less productive farmers. Food production goes down which risks creating a food crisis in Asia,” Schimdhuber said.
With not enough fertilizers to go around, this raised a seemingly intractable dilemma of how you guarantee fertilizer supplies to the world’s poorest and most in need (but less efficient) farmers, if it diverts fertilizers away from more efficient commercial growers, without this compromising food production and food security.
Stepan Yashin, an associate partner at McKinsey, summarised the impacts of the Russia-Ukraine conflict on global food security. Removing Ukraine from global markets could see an initial 15 million tonne drop in agricultural commodity volumes (mostly wheat, corn, barley and sunflower seeds), a deficit that could rise to 20-41 million tonnes in the medium term.
“Logistics are the source of the greatest constraints in the current situation, in particular Black Sea ports,” said Yashin.
The stakes are high, in his view, given that 1.4 billion people live in highly vulnerable countries at risk of food insecurity. This applied particularly to national diets that mainly depend on wheat or maize.
Tom Kehoe, deputy director for agriculture at the Gates Foundation, raised the alarm on fertilizer affordability in parts of Africa. Malawi, for example, is seeing a new level of unaffordability due to a record $1,000 price spread between urea and maize. The previous high was $600.
“Fertilizer price escalation: this is what scares me most in Africa,” Kehoe said, telling delegates: “You guys need to step up and make clear fertilizer is a key part of food security – because it is.”
Kehoe was also concerned about the breakdown in normal market incentives. The commodity market maxim that “the cure for high prices is high prices” doesn’t apply currently in his view. “Farmers don’t have the ability to respond to high prices, as supply is constrained. We’re in a global auction,” he said.
Kehoe said “big bold levers” were needed in the current situation as normal incentives aren’t working. He called for the removal of sanctions on fertilizers, as well as removal of biofuel mandates/subsidies as these were diverting potentially lifesaving calories away from food production.
Managing supply chain risks
This high-level panel examined the causes of supply chain disruption and how these were best managed.
Corrine Ricard, the president of Mosaic Fertilizantes, highlighted Brazil’s 90 percent import dependence for fertilizers and its reliance on a narrow range of ports. The potential loss of Russian and Belarusian fertilizer imports was “just the latest disruption” in her view, adding to previous disruptions from the Covid-19 pandemic, extreme weather and bottlenecks caused by a lack of investment in infrastructure.
She described the new council, formed in response to Brazil’s national fertilizer plan, as “a glimmer of hope”. This public private initiative was bringing different ministries and companies together to problem solve on agriculture, infrastructure, energy and mining – its work on port infrastructure and logistics being one example.
“Some solutions involve bigger investment by the industry in infrastructure. We have gotten used to just in time delivery and that’s not happening now,” said Ricard.
Tip O’Neill, the president of International Raw Materials, said current supply chain problems were a result of “underinvestment in not just infrastructure but human capital” too – resulting in the current shortage of train and truck drivers and other supply chain employees.
Diverting fertilizers away from biofuels and removing obstacles to fertilizer trade were also issues in the current crisis, in O’Neill’s view: “We need to rethink some of these trade barriers – all governments. How long are we going to grow crops for biofuel?”
Ashish Lakhotia, CEO of Fertilizers & Agri Inputs at ETG Inputs pointed out the almost impossible decisions being faced by fertilizer buyers in Southern and Eastern Africa at a time of highly volatile prices. With minimal stocks on the ground in-country, the dilemma was when “should we buy, should we not buy”, Lakhotia said. Unfortunately, this was simply a recipe for indecision and paralysis.
Stephen Edkins, the CEO and Co-Founder of DCX/FertX, agreed with this analysis: “What Ashish describes is true in almost any medium and small nation.” He said that, from financing to working capital, almost everybody in the fertilizer trading arena was facing problems.
De-containerisation was also affecting logistics for speciality products such as liquid fertilizers. Edkins said there was “no silver bullet” for such transport woes – except the need for more containers.
Measuring sustainability and decarbonisation progress
Panellists in this session gave their practical takes in response to less-than-ideal market conditions.
Rupert Simons, senior project manager at SYSTEMIQ, outlined major opportunities to reduce the fertilizer industry’s downstream ‘scope 3’ agricultural emissions. Partnerships held the key, in his view.
“It’s only with partnerships that go up and down the value chain that we can unlock solutions,” he said. That included collaborating with food companies, retailers and farmers. These players could join together to market low-carbon food products, for example.
Simons said that recent price shocks did not reduce the imperative to cut emissions. “Some measures to fight climate change and the cost of living crisis are complementary. We need to do both,” he said.
Josie Armstrong, principal consultant at CRU, was also seeing more collaboration, plus greater interest in ESG: “Fertilizer producers are working with farmers to improve their farming methods and reduce their scope 3 emissions. Today, we see clients who previously had no ESG aspect to their business asking us what are the climate risks affecting them.”
Robert Vroege, commodities director at ING Bank, spoke about financing fertilizer industry decarbonisation and the shift in production to blue and green ammonia. Making decarbonisation financeable required three things, in his view: legislation, green product premiums and value chain partnerships.
On Green ammonia, Vroege said: “Who’s willing to pay [green] premiums. You need to certify that and be able to count on it.” He suggested that blue ammonia projects were a more immediate, lower capex decarbonisation option than green ammonia ventures currently. The introduction of the Carbon Border Adjustment Mechanism (CBAM) in Europe also provided an additional incentive for blue ammonia projects, according to Vroege, as it was “a simple calculation that you can bank on”.
Gender diversity
The conference’s final panel discussion, moderated by Alzbeta Klein, focussed on advancing diversity, especially within leadership teams.
This was actually a bottom line financial imperative for business, according to Corrine Ricard, president of Mosaic Fertilizantes. She pointed out that companies with more gender equality and greater ethnic diversity in their top management teams avoided ‘groupthink’ and therefore performed better with higher financial returns. “There is a global war for talent. Overlooking the fantastic potential of 50 percent of the world’s population is just plain foolish,” Ricard said.
Maliha Malik, COO of the Food Security and Agriculture Center of Excellence (FACE), Fauji Fertilizer Co (FFC), shared lessons from her professional experience of empowering women in agriculture. “49 percent of the population in Pakistan are women and 60 percent of them are working in agriculture. Access to education and knowledge, global farming practices and individual rights is key to alleviating mismatched skills and the recognition of women in different roles in agriculture,” Malik said.
The industry is heading in the right direction in its mission to attract, retain and develop more women in agronomy, suggested Rejane Souza, Yara International’s VP for crop knowledge and agronomy. She highlighted the importance of mentorship in career progression. “Mentoring is an extremely important part of developing new professionals and training them to succeed in the future,” Souza said.
This theme of mentorship was expanded on by Caroline Quignon, R&D product specialist, Yara International. She had benefitted professionally from this. “[Yara’s] mentorship programme enabled me to recognise bias and discrimination issues, how to face and overcome them – being aware that I’m not the only one stumbling over these topics over and over again is a very useful learning experience,” Quignon said.
Recognising and overcoming gender bias was also highlighted by Jeanne Johns, Incitec Pivot’s managing director and CEO: “There is a lot of unconscious bias about what leadership means, what it looks like, role models, and these soft barriers filter women out. [There’s a need to] create a cultural shift that starts at the top and embraces diversity in all senses and kinds – so people really hear every voice around,” Johns said.
