Businesses across Asia are bracing themselves for the impact of ‘super El Niño,’ but the phosphate fertilizer industry has more reason to fear than most. Here are three side-effects of El Niño that the fertilizer industry needs to be prepared for…
2015 is set to be a ‘super El Niño’ year. Ocean surface temperatures near the equator were already 1.4°C higher than normal in May, according to China’s National Climate Center, leading to South China being drenched by 50% more rainfall than normal that month.
And the US National Oceanic Atmospheric Administration predicts that there is a more than 85% chance that this year’s El Niño will continue through winter, when its effects tend to be more severe.
The dramatic climatic changes that come with El Niño have the potential to damage business in many different industries, but the phosphate fertilizer market is likely to be hit harder than most. If the phosphate fertilizer industry wants to ride out the storm, it needs to be prepared to deal with this triple-whammy of side-effects:
1. Phosphate fertilizers will become much less effective in many areas
El Niño years tend to bring extremes of precipitation. During the last ‘super El Niño’ in 1997, for example, China’s Yangtze River Basin experienced the worst flooding since 1954, while North China suffered the driest year in half a century.
Both heavy rainfall and droughts will severely affect phosphate fertilizer sales. Not only will farmers will use less fertilizer during dry spells, but they will be more likely to switch to specialized ‘anti-drought’ compound fertilizers. Water-soluble fertilizers, for example, are much more effective than traditional fertilizers during droughts. Heavy rainfall also greatly increases the risk of leaching.
2. Farmers’ finances will be disrupted
The extreme weather will also take its toll on yields. The 1997 El Niño had a devastating effect on harvests across Asia, with China’s corn output down 18% on the previous year, Australia’s wheat yields falling 15%, and palm oil harvests in Indonesia and Malaysia 7% and 5% lower than the previous year respectively.
A decrease in yields will be detrimental to farmers’ incomes anywhere, but any drop will be much more keenly felt in Asia, where 87% of the world’s family farms under two hectares are located, according to the Asia Farmers’ Association. For many of these small, low-income farmers, a decrease in yields will stretch their finances to the point where many will not be willing to spend so much on fertilizer. This will have a knock-on effect on sales of all fertilizers, including phosphate fertilizers.
3. Phosphorus ore prices will rise
Not only will fertilizer companies experience a dip in sales, but many are also likely to be hit by rising raw materials costs.
China, where a large proportion of the world’s phosphorus reserves are located, will suffer widespread drought this year due to El Niño, and this will hinder the extraction and transportation of phosphorus ore, pushing up prices.
Droughts have sparked increases in phosphorus ore prices in China twice in just the last three years: once in 2012 after a drought in Yunnan Province, and another time in August 2014 when drought struck many different regions across the country. But this time the droughts, and the price rises, could be much more serious.
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