What are the key growth drivers and the prospect of the fertilizer industry? Which types of nutrients are the largest market segment and most traded globally, especially in Indonesia?
In increasing soil fertility, many farmers use mineral or chemical fertilizers. The global fertilizer market is divided into three main types of nutrients, namely nitrogen, phosphorus, and potassium. Of the three types of nutrients, nitrogen is the most important fertilizer. According to the data from statista.com noted that in 2019 nitrogen consumed 56% of the total global fertilizer consumption. And it is known that the production of nitrogen fertilizers reached 95 million metric tons in the 2000s. And it continues to increase until 2020 has reached more than 123 million metric tons.
In Indonesia itself, mordorintelligence.com explained that domestic production capacity has recently increased significantly along with increased domestic demand from the plantation industry. Considering that Indonesia is the third largest exporter of cocoa and rubber in the world. The increase in demand was due to an increase in the cultivation of inflorescences in the commercial and export-oriented crop segment.
How is the growth of the fertilizer industry in Indonesia? What is the support of the government to make the industry to be more productive and competitive?
Global Fertilizer Industry Growth and Potential
Based on data from statista.com stated that the global fertilizer market value in 2021 had increased by 12% compared to 2020, reaching USD 193 billion. It is predicted that the market value will continue to grow to USD 240 billion in 2030, and East Asia is the region with the highest fertilizer production capacity globally, reaching more than 30% of total world production. Followed by Eastern Europe and Central Asia which reached 17%.
In terms of consumption, it is known that China is the largest consumer of fertilizers in the world, with a consumption value of more than 45 million metric tons in 2019. Meanwhile, the second largest consuming country is India with a value of 28.4 million metric tons, and the third is the United States with a value consumption of 20.4 million tons in the same year.
In 2021 the global fertilizer export value reached USD 85 billion, 50% higher than the export value in 2020 where this value is the peak for the last decade. The increase in global fertilizer consumption was driven by economic growth and population growth as the main factors.
It is estimated that Latin America and Asia will be the main drivers of global fertilizer demand growth. Meanwhile, the demand for fertilizer in the European and North American markets will remain stable in the years to come. World demand for fertilizer is expected to continue to grow to reach 208 million metric tons of nutrients in 2026.
Fertilizer Industry Opportunities in Indonesia as an Agricultural Country
According to the data from mordorintelligence.com that the Indonesian fertilizer market will score a CAGR of 4.6% during the period 2022 to 2027, and estimates that it will continue to increase. The Indonesian fertilizer market is growing positively in line with the increase in arable land for plantations and agriculture. Based on data from the Food and Agriculture Organization (FAO) of the United Nations (UN), the total arable land in Indonesia in 2019 reached 57 million hectares, an increase from the previous year’s 52 million hectares.
The positive correlation between arable land and fertilizer consumption is the main driver of the Indonesian fertilizer market. The increase in the development of the plantation and agricultural industries such as commercialization, and industrialization, also supported by urbanization in recent years; has changed the production system in the agricultural industry in Indonesia significantly. With the adoption of modern agricultural methods and the need to increase crop productivity, this has become a driving force for the use of fertilizers.
With the increasing need for food caused by an increase in population, the country needs a lot of effort to increase the productivity of food crops. The nitrogen segment is the largest market segment and urea is the most traded nitrogen fertilizer in Indonesia. Much of the export demand for urea fertilizer comes from Vietnam, Singapore, Thailand, and the Philippines.
Support from the Government Encouraging the Development of the Indonesian Fertilizer Industry
Based on kemenperin.go.id, the fertilizer industry is one of the industries that is included in one of the government’s priority programs as an effort to achieve national food security. The Indonesian Ministry of Industry is committed to increasing the guidance and development of the fertilizer industry so that it is more productive and competitive and is able to meet market demand.
Currently, many fertilizer factories in Indonesia are quite old with an average age of more than 30 years so the consumption of energy and raw materials is not optimal. The Indonesian Ministry of Industry is carrying out a fertilizer industry revitalization program by replacing old factories and building new factories and securing existing factory operations.
It is considered that factory replacement has increased production efficiency by reducing natural gas consumption by 33%. The fertilizer industry is also included as one of the sectors that received discounted gas price facilities from the Indonesian government. In this way, the industrial cost price (HPP) of fertilizer becomes cheaper and has an impact on reducing the burden of fertilizer subsidies while still increasing tax revenues.
The application of the gas price discount policy has also helped the fertilizer industry to survive during the pandemic. With the decline in natural gas prices, the utility of the fertilizer industry increased from 85% in 2019 to 88% in 2020, which then increased dramatically in 2021, namely 104%.
According to the data from The Central Statistics Agency (BPS) that Indonesia’s fertilizer imports increased by 30.01% to 8.12 million tons in 2021 compared to the previous year which amounted to 6.25 million tons. The following are the three largest supplying countries for Indonesian fertilizer imports.
Indonesia’s largest fertilizer import value is met from Canada with a volume reaching 1.8 million tons with a value of USD 545.7 million in 2021. According to the data from statista.com, Canada exported agricultural fertilizer to the world with a value of USD 6.6 billion. Fertilizer consumption in Canada has increased significantly by 60% over the past 10 years, reaching 4.9 million metric tons in 2020.
Nitrogen is the most widely used fertilizer, reaching 2.9 million metric tons in 2020. Production volume for potassium in Canada achieved the highest which reached 8.59 million metric tons in 2016.
The second largest fertilizer import came from China with a volume of 1.78 million tons or USD 525 million in 2021. Based on statista.com that China globally exported USD 11.5 billion worth of fertilizer in 2021. China’s total production of 55.44 million tons of nitrogen, phosphate, and potassium fertilizers.
Meanwhile, the market value of the nitrogen fertilizer industry in China reached USD 32 billion in 2022 where nitrogen is the most widely used fertilizer nutrient. And it is known that in 2021, the country’s fertilizer consumption rate reached 308 kilograms of fertilizer per hectare or around 45.79 million metric tons of agricultural fertilizer as a whole.
According to the data from statista.com, the export value of Egyptian phosphate and mineral fertilizers was the highest among European Union (EU) countries, amounting to around USD 204 million in 2016. Egypt alone, in 2019 consumed around 415 kilograms of fertilizer per hectare which is the highest on the African continent.
From the production side, Egypt has produced up to 117.5 million metric tons of nitrogen fertilizer in 2018. Meanwhile, Egypt’s nitrogen content urea production volume is predicted to reach 3 million metric tons in 2018, an increase from 2016 which reached 2.7 million metric tons.
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