In his speech at the Palm and Lauric Oils Conference and Exhibition last week, Sime Darby Plantation Sdn Bhd’s managing director Datuk Azhar Abdul Hamid complained that the cost of fertilisers had not come down in tandem with crude oil prices.Last year, high crude oil prices had led to high fertiliser costs as the producers use gas to make nitrogen-based plant nutrients such as anhydrous ammonia and urea. The three major plant nutrients are nitrogen, phosphorus and potassium or what agriculturists call N-P-K.Urea prices rose in tandem with crude oil prices and when the latter fell, urea declined as well. Urea rose as high as US$800 (RM3,200) per tonne in mid-2008 but prices are now less than US$300 per tonne, even lower than the US$350 seen a year ago. However, the price of potash or potassium and phosphorus derived from rock phosphate remains stubbornly high due to supply constraints as they are mined minerals available in a limited number of places worldwide.Since potash makes up the largest component of fertilisers used by oil palm estates, total fertiliser costs remain high. Fertilisers make up 30% of the total production costs of plantation companies in Malaysia. Last year’s high fertiliser prices caused planters, especially smallholders, to cut down on fertiliser application. According to Richard Kastilani, director of Tropical Oil Products Ptd Ltd and one of the speakers at the conference, fertiliser prices, at their peak, account for more than 60% of the total cash cost of crude palm oil (CPO) production in Indonesia.“Because of this, Indonesian farmers or smallholders, including oil palm plantations in Indonesia did not apply or used less fertiliser or postponed the buying of fertilisers because they were expecting the price to go down further,” he told the audience at the conference, adding that this will have a negative impact on the production of fresh fruit bunches and CPO this year.An officer with a plantation company with estates in Malaysia and Indonesia says some companies have reduced the application of potash while some have cut back fertiliser application by 10% to 20%. However, he doubts planters will cut back the application of nitrates for palm trees below 10 years of age as the nutrient is needed for root development and overall growth of the trees.“But those above 10 years can do with some reduction in muriate of potash (MOP) and rock phosphate (RP). RP is for roots which should be strong already and there could still be reserves of MOP in the trunks,” he says on the sidelines of the conference. The officer says that on average, the fertiliser prices the company locked in are still higher compared to a year ago although they have been softening. This is mainly because it managed to lock in prices at low levels early last year before they shot up.“You see a lot of differing prices if you ask around. Last year, we locked in MOP just below RM1,400 per tonne but we went in early. At the peak, it was RM3,700. The most recent price we got is RM2,200 and we were lucky we got it from a source who was trying to get rid of old stock. But for a lot of the major suppliers, if you want big quantities, they are not prepared to go down in prices because of their high costs,” he adds.Prices are expected to ease but at a gradual pace as fertiliser importers clear inventories. However, should the CPO price go up from current levels, planters will be encouraged to increase fertiliser application, putting pressure on available supplies.“There’s still a long way to go before we reach the prices we used to get in 2007 for some of the most important fertilisers we use. MOP hasn’t fallen that much. K and MOP are some of those fertilisers we use the most, in large quantities, and we haven’t seen these drop, which we’d like,” says Martin Bek-Nielsen, executive director (finance and marketing) at United Plantations Bhd.In his opinion, it will take at least another six months before fertiliser prices return to their norm or significantly lower levels. This is not just because of lower crude oil but also because of the global economic crisis which has affected farmers’ financial positions, with many having difficulty in getting credit, leading to lower demand for fertilisers.However, the Fertiliser Industry Association of Malaysia believes fertiliser prices are unlikely to drop further from current levels. A spokesman says that while prices have come down recently, they are unlikely to return to 2006 or even 2007 levels due to higher costs of production.Meanwhile, the Minister of Plantation Industries and Commodities Datuk Peter Chin Fah Kui says that in general, fertiliser prices have come down 40% since last November. He is hopeful prices will come down further and says the ministry will be looking into ways to stabilise prices, including collaborating with supplying countries to ensure long-term supply.
This article appeared in the Corporate page, The Edge Malaysia, Issue 746, March 16-22, 2009