FERTECON Innovations for Slow and Controlled Release & Stabilized Fertilizers

FERTECON Innovations for Slow and Controlled Release & Stabilized Fertilizers

About the authors Dr Kevin Moran brings more than 35 years of international experience in the fertilizer industry for the development of sales and marketing strategies, including technical training and communications programmes, in both developed and developing agricultural markets. He is also skilled in demand forecasting and identification of global fertilizer market trends, product positioning and launching. His particular strengths are in added-value fertilizer products, particularly micronutrients, as well as in speciality soil and crop conditioners and performance improvers. Furthermore, Kevin has considerable practical experience in the application of fertilizers to help improve the nutritional value of crops (agronomic bio-fortification) and extend harvested crop life thus reducing wastage in the food chain, especially in China. Contributions from: Luke Hutson is one of Fertecon s nitrogen specialists, working on long-term reports and consultancy projects. He has been a member of the Fertecon team since March 2013 and has nearly a decade s experience in fertilizer analysis. Luke prepares the Fertecon Urea Outlook, one of the longest-running urea quarterlies for the nitrogen industry, as well as the Urea Futures, the monthly forecast report with a rolling 12-month horizon. He works on the newly launched Nitrates Outlook report, a multi-product report covering UAN, CAN and AN.

Executive Summary This report provides a comprehensive review of Slow and Controlled Release Fertilizers (SCRF) and Stabilised Fertilizers (SF), and then considers their potential role in climate smart agriculture (CSA). Full definitions are given in the main body of the report, but as a brief introduction, a slow release fertilizer is one that release its nutrients at a slower rate than is usual for the un-modified form but the rate, pattern and duration of release are not well controlled. These fertilizers include sulphur coated urea (SCU), which will be covered within the report. Controlled release fertilizers typically have an additional thin polymer coating that introduces an improvement in the control of N-release with only a small reduction in nutrient analysis. Stabilised fertilizers typically contain a chemical additive known as an inhibitor. A nitrification inhibitor slows down the nitrification process, which turns nitrogen in the ammonium form to nitrate. Nitrate is the preferred form of nitrogen for plant uptake. A urease inhibitor slows the conversion of urea to ammonium. Food security The role that conventional fertilizers have played in increasing global crop yields has been well documented over the last 50 years or more but the environmental impact of those fertilizers is also under closer scrutiny. There is now a greater emphasis on nutrient-use efficiency (NUE); the reduction of greenhouse gas emissions (GHGs) from agriculture; water-use efficiency and the recognition that soil degradation is now an obstacle to achieving yield increases. Against these environmental drivers is one overarching factor namely, the unrelenting growth in the human population. To feed 9 billion people in 2050 from roughly the same amount of arable land will lead to searching questions on how our food is produced. Either farmers use more fertilizer with the associated environmental impacts mentioned above, or they are offered a different path, one that seeks to derive a greater yield from a lower volume of fertilizers. This is often referred to within the industry as obtaining more for less. As a result, slow/controlled release fertilizers and stabilised fertilizers are now at an inflexion point. Once they were specialist fertilizers for golf courses and other recreational turf. Having once been the preserve of niche markets, they are on the cusp of becoming more mainstream and consumed in larger volumes. Technical gains One of the key messages from this report is that downstream improvements have already been made from a technical perspective the energy efficiency for ammonia production is near its theoretical limit. Producers have invested to reduce ammonia emissions. There are already various programmes encouraging better practices, such as the 4Rs for fertilizer application (Right time, Right place, Right quantity, Right product). So where are the gains in NUE and GHG likely to come from? It appears they are set to come from the downstream side and that will require improvements/enhancements to traditional fertilizers

and their application. SRF/SCF/SF offer the potential to reduce the above negative environmental impacts. To put these products into context, the report provides an overview of conventional fertilizers, with an emphasis on nitrogen. Urea is the world s most widely used solid fertilizer product and has a nitrogen content of 46%. The losses inherent with urea as a straight applied fertilizers are the reason for it being the focus of SRF and CFR and stabilised technologies. One important point to note is that a coating on the urea will lower its nitrogen content to some degree from the 46%. As discussed in the report, the benefits of nitrates in terms of lower losses and the availability of nitrogen in the nitrate form also provide compelling reasons why AN will form a part of the product mix for climate smart agriculture. The relatively high cost of controlled-release urea against ammonium nitrate is one factor favouring the continued use of AN, even against security concerns of the product. Market growth From of a base of around 325,000 tonnes in the 1980s, and dominated by USA, West Europe and Japan, this report estimates the current market size for SCRF at around 4 million product tonnes globally. To put this in perspective, global apparent consumption of solid urea for fertilizer use was around 138 million t in 2015. In terms of projections, the global market is likely to grow to 7.5 million tonnes by 2024/25 with 2.7 million tonnes of growth in China, which will be worth 5.4 million t or 72% of the market. The current market value for SCRF based on 4 million products globally is estimated at $1.6 billion, based on a 2016 global average of $400/t, growing to $3 billion by 2025. This represents a differential with conventional urea of $150-180/t depending on delivered costs, and using the 2015 average for five of Fertecon s urea prices. The future is likely to be very different given the growth of China, coming onto the stage from literally nowhere in the 1990s to become the largest producer and consumer of SCRFs globally, totalling more than the original three of USA, Western Europe and Japan of regional markets put together. The growth of SCRF use in China can also be attributed to policy decisions by the Government, most recently through the 11th five-year plan commencing 2011, to encourage the production and use of more nutrient efficient fertilizer products with lower environmental emissions, representing yet another example of determined action and support at the highest level to deliver CSA. Regarding stabilised fertilizers (those incorporating nitrification or urease inhibitors), the 2015/2016 market size is estimated at 10.25 million t. The projection out to 2025 is growth at 6.8% CAGR giving a market of 19.8 million t. In 2025, North America is projected to be largest market with 9 million t followed by China with 6 million t. The premium for adding a stabilizer can be as high as $150/t to the urea, so using 2015 average of $287 (using five of Fertecon s benchmark urea prices) and adding a delivered cost (freight) of $25/t gives $312. This gives a price range of around $460-470/t, depending on freight, for stabilised

product. Current market size is therefore estimated at $4.7-4.8 billion, moving to $9.1-9.3 billion by 2025, assuming those same nominal prices for urea. Looking at the combined value for SCRF and SF, the total for 2015/2016 is $6.3-6.4 billion. An interesting comparison is to look at the value of traded urea. In 2015, 49 million tonnes of solid urea were traded, representing an FOB value of $14 billion using the $287/t average FOB price for five Fertecon benchmarks for the calendar year 2015. Obviously this was not the price paid by the consumer but it offers a comparison with investment into an exporting urea plant. There is a lot of commercial sensitivity around SCRFs. It should be noted that the premiums that can be achieved with SCRF and SF over conventional urea would depend on the prevailing market conditions in the conventional nitrogen markets. The production cost of SCRFs could also be a factor in their future market potential, since these fertilizers involve additional processing and materials. Any reduction in cost will make them more competitive. The price difference can be large, a multiple of 1.5-2 times in some cases, and so there is a trade-off here for both consumers and producers. For consumers, the trade-off is between paying more in exchange for effective usage, and therefore buying less conventional fertilizer. For producers, it is the trade-off between receiving a higher price, but selling lower volumes. The difference in production costs has been put beyond the scope of this report. Firstly, there is a variance in production costs for conventional fertilizers and so there will also be for producing SCRFs. This could provide a less than accurate picture. Secondly, any comparison is unlikely to offer much insight given the smaller proportion in volume of SCRFs (albeit growing) compared to conventional fertilizers. A producer can justify higher production cost if there are the markets willing to pay, and logistic costs are also favourable. For the purpose of this report, the relative difference in production costs is assumed to remain the same, although it should decline on a unit basis given the increase in volumes that are forecast. The difficulty is saying for which producers, and this is why the market is so sensitive to price. This is less the case with conventional urea, which is traded as global commodity, and as such there is greater transparency over the production cost. It also true to some extent with other fertilizer, phosphate and potash, where production costs are reported in a company financials. New capacity additions in conventional sector A necessary point to stress when looking at the SCRF/SF market is to compare its size by volume to the conventional fertilizer market. In Trenkel s seminal work on SCRFs (see References) it was estimated that in 2004/5 the SCRF share of world mineral fertilizer consumption was 0.47%. In this report, a projection to 2025 for SCRF and SFs by volume had been made and totals 27.3 million tonnes (7.5 million t + 19.8 million t). Using Fertecon s projected apparent consumption figures for urea/dap/map/mop/can/an/uan/as (fertilizer use) for 2025, the derived total is 373.4 million product tonnes, making the SCRF/SF percentage 0.073%. And this is including SFs, which Trenkel was not. Overall, there are two main point here: firstly, there are capacity additions to come in the conventional sector and these capacity additions need to be absorbed by the market, and

importantly, investors will want their return from them. Secondly, the conventional sector is already producing products aimed at enhanced efficiency and a more diverse portfolio of nutrient formulations. So even allowing for a healthy annual growth rate for the SCRF/SF market, it is still likely to form less than 1% of mineral fertilizer consumption by 2025. Climate smart applications The final chapters of this report consider the implication of SCRF and SF to climate smart agriculture (CSA). The aim is to put these fertilizers into a broader context. As mentioned above, there are a combination of environmental factors leading to a drive towards greater nutrient-use efficiency, which has savings all the way up the production change, reducing feedstock usage and GHG emissions. There is also another factor which is concerns over labour availability in rural areas around the globe. This is linked to climate smart agriculture in the sense that the fewer applications will reduce emissions from farm tractors, and help counter the decline in numbers of the rural workforce in some countries. Conclusion In the concluding section, entitled Where are the opportunities for SCRF/SF markets?, the main themes of this report are drawn together. These can be summarised as: The drivers of CSA applications will become a further market driver for SCRFs, SFs and allied inputs, particularly in developing countries. These opportunities will to some degree be dependent on developments in the conventional fertilizer sector and its continuing response to CSA. The opportunities from CSA for the SCFR/SF sector will be defined and determined by CSA itself and how it moves from concept to practice.

Contents 1. Overview of existing straight and compound fertilizers 2. Slow and controlled release fertilizers definitions, descriptions and products 3. Stabilised fertilizers - definitions, descriptions and products 4. Main markets and producers for SCRFs and SFs 5. Implications for CSA 6. Fertilizing to maintain soil quality: Mineral; Manures; Conservation; Biostimulants; Biofertilizers 7. Where are the opportunities for SCRF/SF markets? 8. References 9. Appendices Tables and Charts N Fertilizer use by product Global Urea consumption by region in product tonnes Average global ammonia emissions for Urea and AN Global Apparent Consumption for DAP, 2013 2025 Global Apparent Consumption for MAP, 2013 2025 Chart showing global consumption of MOP with growth projection N recovery by crops for Urea and AN Environmental Index (EcoX) per tonne of wheat grain produced by different fertilizer types Mean yields per hectare and grain N content produced by different fertilizer types. Top countries with irrigated land area and NPK fertilizer consumption Growth in compound blends of NP and NPK incorporating Zn in Turkey Comparison of ammonia emissions for U compared with a nitrate-based NPK at two soil ph The ideal Slow and Controlled Release Fertilizer (SCRF) matches supply to crop demand Ammonia losses from surface applied straight U and a CRF (ESN) Feast or Famine of multiple straight N-based fertilizer applications Electron micrograph of pores in a CRF polymer coating (courtesy of Kingenta International) Nutrient release mechanism of a polymer coated CRF P-release curves for straight-map and several coated forms with increasing release period

Simulation of coating residues remaining in soil as % over time with different degradation rates. Regional data for SCRF product groups between 1995 and 2005 (base-line total for 1980s = 325,000t) Growth of total and main SCRF regional markets over last two decades (Moran, 2015) SCRFs consumption by region and product type in 2005 (after Landels, 2010) SCRFs market sector usage by region in 2005 (after Landels, 2010) Estimated projections of SCRF growth in main regional markets in next decade (Moran, 2016) Estimates and forecast of main regional % of SCRFs as coated fertilizers Main global producers of SCRFs, with product types and brand-names (where appropriate) Main regional growth estimates with forecast for next decade for SFs (based on tonnes fertilizer treated) Main global producers of SFs, with product types and brand-names (where appropriate) Growth in neem-coated urea (NCU) in India resulting from government encouragement and support Summary table showing capacity expansions in Urea/CAN/DAP/MAP Summary table showing global capacity for SCU/PSCU/PCU by company by country Carbon footprint analysis for Urea and AN Response of wheat to AN showing optimum N rate Intensive agriculture has reduced GHG emissions since 1965 New production technology plus 4R s Nutrient Stewardship reduce GHG emissions further Appendices 1. Fertilizer production routes 2. Case study Nitrogenmuvek 3. Closing the yield gap 4. Balanced crop nutrition Company list Glossary