Annual overview 2009

Without fertilizers‌ human life is unsustainable.

Feeding the world and combating climate change

report 2009 annual annual report 2009 1

Fertilizers Europe is the new name of the European Fertilizer Manufacturers Association, previously known as EFMA. Our new identity provides immediate recognition of our association as the official, dedicated source of information on fertilizers. This is particularly important because of the vital role the fertilizer industry plays in feeding the world. As the largest representative of mineral fertilizer manufacturers in Europe, we communicate with a broad range of legislators, experts and individual members of the public

Contents

seeking information on fertilizer technology, as well as a diversity of topics relating to today’s environmental, safety and economic challenges.

Our new identity expresses our function in a more direct way and facilitates the exchange of information.

www.fertilizerseurope.com Our new website is designed to provide the latest information on a range of subjects of immediate relevance to all those interested in fertilizers and their contribution to the world’s food supply.

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From the President

4

From the Director General

6

Fertilizers & food

8

Fertilizers & the environment

14

Life-cycle perspective

18

Fertilizer consumption forecast

26

Committees & Functions

27

Executive Committee

34

Members & staff

35

The world will have

3 billion

more mouths to feed by 2050.

Without fertilizers‌ many will go hungry.

annual report 2009

3

From the President 2009 was an incomparable year for the European fertilizer industry. After the global economic crash in October 2008 prices fell dramatically, trade came to a halt and the industry was forced to impose production cuts and temporary closures.

The market, however, started to recover slowly after the spring fertilizer application season and both fertilizer demand and prices improved further during the autumn. The crisis was shorter than many had expected but it was long enough to make 2009 a poor year for the industry.

The situation in global agricultural markets is not yet back to normal. Crop prices are still relatively low compared to their inputs and the economics of farming are not good worldwide.

Investment in agriculture has not yet recovered. This should worry us as the demand for food, as well as biomass for energy and bio-based raw materials, is expected to grow significantly in the coming years. World agriculture cannot respond if farm economics and farmers’ buying power and capability to invest do not return soon, or the response will be as sharp and unpredictable as 2-3 years ago.

The need for agricultural growth

The big challenge, globally as well as in Europe, is to combine increased food and biomass production with better environmental performance and sustainability.

No part of the production chain can do this alone.�

Renso Zwiers President, Fertilizers Europe Vice President for West & Central Europe, IFA President CEO, DSM Agro

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Europe is also preparing for the reform of CAP, the Common Agricultural Policy, in 2013. In this context, Fertilizers Europe wants to emphasise that European agriculture still needs to be a growing industry. Good production conditions, well organised markets and a high level of professionalism throughout the food chain must also find a place beyond Europe.The new EU policy should encourage European farmers to produce more quality products for the common needs of mankind.

The big challenge, globally as well as in Europe, is to combine increased food and biomass production with better environmental performance and sustainability. No part of the production chain can do this alone. Besides further improving its own performance, the fertilizer industry has a lot to give its partners in food and biomass production, as well as to the rest of society. In recent years we have paid a lot of attention and devoted a considerable amount of time to the life-cycle assessment (LCA) of our fertilizers, as well as to agricultural products and production processes. In our mind, sustainability and environmental performance should always be assessed based on the whole nitrogen life-cycle.

Secure and affordable natural gas The fertilizer industry is very dependent on a secure supply and competitive pricing of natural gas as it is the key raw material for nitrogen fertilizers. There are positive signs of better gas supply conditions. Short term, the oversupply of natural gas and weakening oil prices have assisted a moderation in gas costs. Medium term, there is the prospect

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

of gaining positive results from further deregulation and unbundling, improved access to pipelines, better cross border trade, and increased imports of LNG and a better LNG infrastructure.

The EU and governments of the respective Member States are now set on a new course with the 3rd Gas Market Directive to establish a true Single European gas market. The increased role of shale gas globally and its potential in Europe could also benefit the European fertilizer industry and increases our optimism for further improvement in the natural gas market for heavy industrial users.

is very positive. With the help of efficient fertilization in the production of biomass crops for energy, six times more energy can be captured than consumed in the production, transport and application of the fertilizers.

In an ideal world, less natural gas should be used for direct generation of heat and power. This natural gas could be used to manufacture fertilizers to help transform the maximum amount of climate-friendly solar energy into biomass!

The dual pricing of natural gas in gas exporting countries with fertilizer production remains the major threat for European manufacturers. Controlled, subsidised prices favouring the industry in these countries represent unfair trade and continue to justify the application of specific EU trade defence measures.

2009 was an incomparable year for the European fertilizer industry.

The emissions trading challenge ETS III, the Emission Trading Scheme 2013-2020, is a major challenge for the European fertilizer industry.

We are committed to the 20% reduction of greenhouse gases by 2020 – although not at any price, and we cannot deliver more! We estimate that around 95% of European fertilizer plants will have to buy emissions allowances from 2013. Apart from the necessary onetime investment costs to cut emissions, this represents an extra annual cost to the industry of more than €200 million. Our competitors outside the EU do not have these costs as their countries have less stringent environmental policies. The European Union must therefore do its utmost to apply ETS III in a smooth, gradual way which provides fair operating conditions for the fertilizer industry, as well as other energyintensive industries in Europe.

While the carbon footprint of nitrogen fertilizer production is relatively large, the impact of mineral fertilizers on the greenhouse gas balance as a whole

Industry competitiveness We live in a global world. The competitiveness of European industries – and the whole of society – is tested every day in an open, international consumption environment. Despite its strategic importance as a provider of products essential to human life, the fertilizer industry is no exception. We all have reasons to be worried about the future of the industry and of the whole European manufacturing sector. Countries such as Brazil, Russia, India and China, as well as many others, have clear targets to raise the standard of living and employment in their countries by improving the competitiveness of their manufacturing sectors. They implement direct economic policies to achieve this, with other policies and social goals secondary to them.

In Europe, both the situation and the policy are different.

In spite of rising unemployment and deep economic problems in many countries, public and political attention is strongly focused on other matters, much to the detriment of Europe’s economic competitiveness.

As a result, the European manufacturing sector is constantly burdened by costs and obligations that do not exist in other countries. Nobody wants to stop the overall improvement in European society and no one says that only the economy is important. But neglecting the economic interests and competitiveness of European industry will lead to an overall weakening in the quality of life for ordinary Europeans. We should hurry to reverse this trend. annual report 2009

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From the Director General There were great expectations for the Copenhagen Climate Change Conference (COP15) in December 2009. Unfortunately, these were not met. From the fertilizer industry’s point-of-view the international playing field is no more level than before. On the contrary, Europe’s unilateral commitment to decrease greenhouse gas emissions by 20% by 2020 widens the gap between Europe and the rest the world, as other countries seem unwilling to follow its lead.

Perhaps even more worrying than the failure of the conference was the failure of the European Union’s strategy in the international climate change negotiations. The EU was excluded from the final stage of negotiations in Copenhagen – Europe was politically marginalised! EU leaders should understand that, if they present demands that are not considered politically or economically realistic, this sort of reaction may be expected.

The international climate negotiations can be saved if the EU takes a more realistic approach in the future.

The European fertilizer industry is committed to reduce its greenhouse gas emissions by 20% during this decade.

But any reductions beyond this figure could have dramatic consequences, both for the industry and for Europe’s selfreliance in fertilizer and food production” Esa Härmälä Director General, Fertilizers Europe

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The biggest mistake during 2010 would be to raise its unilateral commitment to GHG reduction to an even higher figure than the present 20%. It would be a signal to other countries that the EU does not wish to work together with them to mitigate climate change, but is only trying desperately to prove its own “environmental cleanliness”. Besides, any increase in the EU’s reduction commitment would speed up carbon leakage and Europe’s de-industrialisation.

Overview of the agriculture and fertilizer season After a very good 2007/2008 season, Europe experienced one of its worst in 2008/2009, with the economic crisis and collapsing agricultural prices.

Total cereal production decreased by 9% from the previous year. Yields were down by 5.8%, partly due to a lower use of agricultural inputs, and the sown area for cereals decreased by 3.5%. The oil seed area, however, increased by 5% mainly due to positive developments

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

in biofuel projects. After many years of decline, the sown area for sugar beet stabilised and production was only marginally down.

Demand increased in only two regions: South Asia, and Eastern Europe & Central Asia. Consumption was relatively stable in Africa but declined in all other regions. The largest positive change in volume occurred in South Asia (+2.1 million tonnes) and on the negative side in Western & Central Europe (-4.3 million tonnes), North America (-3.4 million tonnes), East Asia (-3.0 million tonnes) and Latin America (-2.4 million tonnes).

Fertilizers Europe’s “Forecast on food, farming and fertilizer use in the European Union 2009-2019” predicts an overall annual growth in N consumption of 4.1% over this period. The nitrogen fertilizer market seems to be recovering.

Percentage decrease

A similar development was seen in the global market.

After many years of strong growth, world fertilizer consumption was greatly impacted by the economic and financial downturn. Overall consumption is estimated to be down by 6.7% to 156.4 million tons of nutrients.

Consumption decreased much more strongly for P and K fertilizers (-10.5% and -19.8%) than for N (-1.5%).

EU-27

World

0 -10

0 -5

-13

-20

-1.5 -10.5

-10

-30

-15 -40 -41.8

-40

-19.8

-20

-50

-25

■ N (Nitrogen) ■ P (Phosphorus) ■ K (Potassium)

Fertilizer consumption change by region 2008/2009

-30

Percentage increase/decrease

Total fertilizer consumption in the EU-27 dropped dramatically by 23.5% compared to the previous year.

The consumption of N decreased by “only” 13% but the consumption of P (P2O5 -40%) and K (K2O -41,8%) collapsed.

Fertilizer consumption evolution by nutrient 2008/2009

-20

-10

0

10

-13.6 -22.9 11.5 -4.7 7.4 -14.4 -15.1 0.5 -11.0

20

Latin America Western & Central Europe Eastern Europe & Central Asia East Asia South Asia Oceania North America Africa West Asia

Fertilizers Europe activities There have been a number of membership changes in 2009. During the year our Portuguese member, CUF Adubos de Portugal, merged with Spanish member, Fertiberia. In addition, one of our Polish members, Zaklady Chemiczne Police, decided to leave the association, at least for the time being. On the other hand, S.C. Donau Chem S.R.L. from Romania was accepted as a new member.

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In January, we launched our new Fertilizers Europe name and identity to increase our immediate recognition as the official, dedicated source of information on mineral fertilizers. This is particularly important because of the vital role they play in feeding the world. The new identity expresses our function in a more direct way and facilitates the exchange of information. In addition, our new website (www.fertilizerseurope.com) provides information for all those interested in fertilizers and their contribution to human life.

Sabrina Tawfik, our beloved Trade & Business analyst, was tragically killed in an aircraft accident during the year. Sabrina was only 27 years old and had a very promising career ahead of her. We miss her greatly and our deepest thoughts are with her family.

Sabrina Tawfik

annual report 2009

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Mineral fertilizers provide the only means to keep pace with the global demand for food.

8

Without fertilizers‌ Europe will lose its self-sufficiency in food and be less able to contribute to world needs.

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

Fertilizers & food A higher global demand for food calls for greater agricultural productivity and improved crop nutrition.

Experts forecast an increasing global food crisis. Since 1992, when the World Food Summit pledged to halve hunger and poverty by 2015, the number of hungry people around the world today has actually risen to approximately 1 billion. By 2050, it is estimated that there will be 3 billion new mouths to feed.

The only practical means of reducing hunger globally is by increasing agricultural growth. But, according to the FAO, growth in global agricultural productivity is expected to fall to 1.5% between now and 2030 and to 0.9% between 2030 and 2050. In developing countries, the growth in yields of wheat, rice and maize have all declined since 1980.

The amount of productive agricultural land around the world is also decreasing due to urbanisation, soil erosion and nutrient exhaustion. In 1998, there were approximately 0.28 hectares of arable land per person but this is projected to drop to less than 0.22 hectares by 2030. Water availability is also set to decline, particularly in light of trends in climate change.

At the same time, the world population is set to reach almost 8.5 billion people by 2030 and 9.2 billion by 2050. Consequently, the FAO estimates that agricultural demand will be between 50-80% more than the level of production today.

Arable land and population growth World population (Bn)

Arable area (ha per person)

0.30

8.5

0.26

7.5

0.22

6.5

0.18

5.5 1998 ■ Arable area

2030 ■ World population

Mineral fertilizers can help increase the productivity of land already under cultivation.

Increasing the rate of agricultural growth can be accomplished in two ways: by devoting more land to agriculture or by increasing the productivity of the land currently being cultivated. The first option has major implications for climate change, releasing large quantities of CO2 into the atmosphere and having an immediate detrimental effect on the natural water cycle and the planet’s biodiversity. The better option involves encouraging the adoption of modern farming practice, including the use of mineral fertilizers and crop species more resistant to disease and pests.

Today, almost half of the world population is fed thanks to mineral fertilizers. Without them, many would starve from a lack of food containing the nitrogen-based protein they need.

 annual report 2009

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ďƒ’

Fertilizers provide the essential nutrients for predictable crop growth.

Without them agricultural productivity suffers.

All plants require the major nutrients nitrogen (N), phosphorus (P) and potassium (K), as well as other secondary nutrients, to grow. When possible, they take up sufficient of these to meet their needs for healthy, optimal growth.

The essential role of mineral fertilizers is to ensure that the soil contains an ample supply of the vital nutrients and to replace those removed from it as successive crops are harvested. Typically they provide about half of the nutrients required, with the remainder coming from organic matter, crop residues and other organic sources in the top layer of the soil.

Mineral fertilizers replace the nutrients that are exported with the harvest

CO2

Without these nutrients, the soil becomes depleted and agricultural productivity decreases. The underlying principle as far as fertilization programmes are concerned is to closely match the nutrient inputs with the requirements of a specific crop over the growing cycle and maximise nutrient use efficiency.

Today, European agriculture produces more crops with less nitrogen fertilizer than 20 years ago and its nitrogen use efficiency is the highest in the world.

Europe is in the enviable position of being self-reliant in food production due to its favourable climate, a readily available supply of agricultural land and sophisticated agricultural practice.

Mineral fertilizers are currently applied to 135.3 million hectares, of which 69% is devoted to cereals, fodders, oil seeds and other crops, such as potatoes and sugar beet, 3% to permanent crops – fruit and vineyards, and 23% to grassland.

emissions mineral fertilizers nutrients

N soil mineralisation

10

Mineral fertilizers are made from naturally occurring raw materials which have been transformed to provide N, P, K and other secondary elements in the form that can be readily and naturally assimilated by plants. Nitrogen is an essential component of plant proteins. Phosphorus is a component of the nucleic acids and lipids that are key to energy transfer and potassium has an important role in plant metabolism, photosynthesis, activation of enzymes, regulation of osmosis and other functions.

P

K

The European agricultural industry has developed advanced soil and crop management techniques and fertilizer application strategies to optimise crop yields, as well as to ensure environmental and financial sustainability. Education of the farming community in the dosing and timing of fertilizer application is extensive and, as a result, the yields achieved with appropriate fertilizers are very high. Furthermore, the extent of any environmental impact on the soil and water supply is increasingly well managed.

In addition to basic allowances made for factors such as soil type and crop rotation, advanced agricultural techniques, such as reflective light measurement and soil mapping linked to GPS, are increasingly being used to establish precise nutrient demand. Best practice also takes into account the timing and dosing of fertilizers for individual fields and crops, as well as the specific weather conditions.

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

This has enabled Europe to boost its crop yields to a point where the land it currently uses for agriculture is sufficient to meet its future food demand. Uncultivated or set-aside land is therefore free for cultivating bioenergy crops or for reforestation to provide CO2 sequestration sinks, recreational areas and natural habitats supporting wildlife.

Europe must maximise Good Agricultural Practice to continue its support for global food needs.

Although Europe is currently self-sufficient in food production, its position must be viewed within a global context as far as securing the long-term food supply is concerned. Its moral obligation to respond to the increasing global demand for food means that the European agricultural industry must continue its efforts to ensure maximum productivity through the adoption of the best agricultural practice.

An efficient European mineral fertilizer industry will ensure that European agriculture can continue to make a major contribution to global food production.

ďƒ’

Without fertilizers‌ agricultural yield would drop between 30 and 85% across the different regions of the world.

Agricultural land use in EU-27 countries Idled land 5% Grassland non-fertilized 21%

Grassland fertilized 17% Perm. Crops (fruit, vineyard, forest) 6%

Wheat 14% Coarse grains 19% Potato 1% Sugar beet 1% Oilseeds 6% Other crops 3% Fodder crops 7%

annual report 2009

11



Natural gas: an essential raw material Europe must not endanger its own food production by being dependent on an uncertain supply of natural gas.

Natural gas is a fundamental raw material for modern fertilizer production and the industry is the EU’s biggest single industrial user. When combined with nitrogen from the air it forms ammonia, the principal building block of nitrogen fertilizers.

Alternative production methods involving oil or coal are generally less competitive and carry environmental disadvantages. The European fertilizer industry depends on a freely available supply of natural gas at a competitive price.

Although Europe is surrounded by gas, a number of key suppliers – Russia, Algeria, Egypt – dominate the market. Europe’s gas prices are among the highest in the world and seasonal, cyclical and crisis factors – such as the Ukraine-Russia gas disputes in 2006 and 2009 – can have a major impact on the security of Europe’s gas supply.

Furthermore, Russia and a number of other countries operate a “dual pricing” policy, where the gas price for domestic customers is heavily subsidised. In contrast, export prices are set at a premium. As natural gas represents 50-70% of the European fertilizer industry’s total production costs, this puts it at a cost disadvantage in the market and has a major impact on the industry’s long-term viability and, in turn, the security of Europe’s food supply.

Sources of gas available to Europe

Skanled

ALTI

Nordstream

Nabucco

Turkmenistan China pipeline South Stream

Production area Main gas pipeline Planned gas pipeline Existing LNG terminal Planned LNG terminal

12

Galsi

Tap ITGI

Nabucco

Medgas AGP

Trans-Caspian options Turkmenistan Iran pipeline Tapi

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

The fertilizer industry can also suffer at times from the volatile nature of the spot market or from the indexation of gas contracts fixed to oil. Freedom of choice is the solution. Fertilizers Europe is urging the EU and the governments of the respective Member States to work decisively for deregulation of their markets, investing in infrastructure and diversifying their sources of supply.

As a whole, the increased role of shale gas globally and even in Europe makes the industry feel more positive about further improvements in the natural gas market.

One of the industry’s challenges is to restore a constructive dialogue with its suppliers, based on compliance with the principles of a “free market economy”, and encourage the further development by the WTO of a legal framework to correct unfair pricing of energy and natural resources – Trade Related Rules for Energy Supply (TRES).

Inter-connection, storage and transparency across the whole pan-European gas market is essential and will benefit consumers across Europe.

There are a number of practical measures that can improve the security of the gas supply as well as lower gas costs in Europe. There is an obvious need for new gas pipelines – Fertilizers Europe supports the expansion of the EU Trans European Network - Energy Budget – as well as the development of a stronger LNG infrastructure to provide greater diversification of gas sources and routes. A gas market based on strategic physical and market hubs will further ensure the development of market-based practices leading to greater market integration.

In addition, a number of EU gas reforms are aimed at improving gas supplies and lowering costs.

Fertilizers Europe supports the EC’s Security of Gas Supply proposals, especially the need for national, and even European, preventive and emergency planning, but believes that cross-border integration and interconnectivity is the most practical solution to securing Europe’s gas supply.

It is imperative that the EU’S 3rd Gas Market Directive is implemented on time.

Any unfinished business should be dealt with by a 4th Directive to further promote a transparent and efficiently integrated gas market.

The 3rd Gas Market Directive covers ownership unbundling within Europe through the separation of gas generation/supply and its transmission or the creation of Independent System and Transmission Operators.

Other aspects of the Directive address support for development low-carbon technologies, opening of gas storage to market players, transparent tariffs for use of transmission networks and gas storage, and quality standards.

The establishment of new distribution companies, stronger independent national regulators, and a European agency, along the lines of a US-type Energy Intelligence Agency, to champion and control competitive conditions with reinforced powers including sanctions, will encourage a more competitive gas market throughout Europe and benefit the European fertilizer industry, as well as European agriculture.

Without affordable natural gas… fertilizer production will be prohibitively expensive and food production will suffer. annual report 2009

13

12%

of global greenhouse gas emissions come from changes in land use.

14

With more efficient use of existing land and greater crop yields, agriculture can minimise its effect on the environment.

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

Fertilizers & the environment The challenge facing the global agricultural industry is to reconcile increased agricultural production with the need to reduce emissions of the greenhouse gases that contribute to climate change.

The industry itself is the most threatened by climate change as agriculture is fully dependant on climatic conditions. Extreme weather and the increasing variability of seasonality could bring new plant and animal diseases and lead to a contraction of global food production.

The continued expansion of farmland has a major environmental impact. Apart from decreasing biodiversity through the destruction of ecologically valuable natural environments, deforestation and depletion of the humus releases large quantities of CO2 from the carbon bound in trees and in the soil’s organic matter. Furthermore, deforestation has an immediate impact on the natural water cycle, resulting in a greater likelihood of flooding or drought – an ever more common occurrence in many regions of the world.

Of the 25.5% of global GHG emissions that can be currently attributed to agriculture, 12% are due to change in land use. With a more extensive agricultural area to meet food needs, this percentage would rise considerably. The further expansion of agricultural land must therefore be carefully monitored.

Greenhouse gas emissions from agriculture Global: 49 bn t CO2 eq.

EU-27: 5 bn t CO2 eq.

(agriculture contributes 25.5%)

(agriculture contributes 9.2%) 1.0%* 1.2%* 3.9% 4.1%

0.8%* 1.3%* 3.8%

Energy Waste Industry etc. (74%)

Based on IPCC (2007), Bellarby et al (2008), *FE calculation n Production of mineral N fertiliser

n N2O from mineral N fertiliser use

8.4%

12%

Energy Waste Industry etc. (90%)

Based on UNFCCC (2008), *FE calculation n N2O from organic N sources

Other GHGs n Change in from agriculture land use mainly CH4

n

Reducing GHG emissions is an important driver of the EU’s environmental, industrial and energy policies. Emissions of N2O, both from soil-applied nitrogen and fertilizer production, are diminishing.

Following the lack of agreement at the Copenhagen Climate Change summit, current EU environmental targets remain 20-20-20 – a 20% reduction in GHGs, a 20% improvement in energy efficiency and a 20% share for renewable energy by 2020.

European agriculture (EU-27) currently contributes 9.2% of Europe’s total GHG emissions but the percentage is declining due to better farm practice and fertilizer production techniques. CO2 emissions from direct changes in land use are not large in Europe.

 annual report 2009

15

Promotion of good fertilizer management practices by agricultural research bodies, European legislators and the European fertilizer industry has increased this significantly over the past 25 years and the fertilizer industry is committed to even further improvement.

In addition to its efforts to reduce emissions from fertilizer manufacture, where new cleaning technology enables N2O emissions to be reduced by some 7090%, it is playing a fundamental role in helping farmers to reduce their emissions per unit of production.

ďƒ’

The European fertilizer industry is heavily engaged in promoting good agricultural practice (GAP) so farmers can reduce GHGs.

The most relevant GHGs are methane (CH4) from cattle and nitrous oxide (N2O) from soil applied nitrogen and fertilizer production.

N2O emitted from the soil represents some 50% of total agricultural emissions. Even when it is not farmed, the soil naturally releases N2O as a by-product of microbiological activities that convert ammonium into nitrate (nitrification) or nitrate into nitrogen gas (dinitrification). Both processes are controlled by environmental conditions and independent of the origin of the nitrogen.

The sustainability of EU agriculture is closely linked to developing GAP and promoting it to all the players in the agricultural chain, including official bodies and policy-makers. Since fertilizer industry agronomists have developed recommendations for the application of new ‘tailor-made’ nitrogen fertilizers, the main focus of future mitigation efforts is on the emissions resulting from farming practice.

Good fertilizer management has increased nitrogen use efficiency in Europe by 45% since 1985.

GAP is designed to maximise the efficient use of inputs through soil, crop and nutrient management programmes. It can also make a significant contribution at low cost to increasing soil carbon sinks, reducing direct GHG emissions and providing biomass feedstock for energy use.

Most agricultural activity increases soil N2O emissions, partly as a result of the nitrogen input from manure and mineral fertilizers or the cultivation of legumes which fix nitrogen from the air. As these emissions are the consequence of natural processes, the best way for agriculture to reduce them is by increasing the efficiency of nitrogen use.

Potential emissions reduction in agriculture

There is no universally applicable list of mitigation practices, so these need to be evaluated for individual agricultural systems and settings. Further investment is therefore required to develop suitable practices throughout the whole EU farming community and associated industries.

Comparative emissions - urea vs. CAN

16

production & soil application

400 4 300 n From soil

200

n Fertilizer transport & spreading

100 0

n Nitric acid production n Ammonia production

Traditional agriculture & technology

Modern agriculture & technology

kg CO2 eq/kg N

kg CO2 eq. per ton of grain

production

12 10

3

8

2

6 4

1

2

0 Urea

CAN*

0

Urea

*CAN production includes N2O abatement catalyst

CAN*

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

The complete life-cycle of different fertilizers must be considered when looking at their environmental impact. Both the EU and UN have initiated important projects which consider the whole nitrogen lifecycle.

The EU has already applied a life-cycle approach to evaluate sustainability criteria for biofuels and, more generally, the EC has launched its Life Cycle Assessment database, which offers detailed data on energy consumption and GHG emissions for all the main industrial sectors. The mineral fertilizer industry has voluntarily submitted data for the past five years.

Different types of fertilizer have different environmental impacts, as can be seen from the comparison between the production and use of urea and CAN (Calcium Ammonium Nitrate) below.

Urea is the most important straight nitrogen fertilizer globally and its use is increasing in Europe. Most of the increase in world consumption of nitrogen over the past 30 years has been in the form of urea, whose higher nitrogen concentration can reduce distribution, storage and handling costs per unit of nutrient. Its share in developing countries represents 67% of total nitrogen consumption, compared with only 16% in Western Europe.

The dominance of urea in many countries, however, is often due more to economics rather than to agronomic suitability and environmental impact. Although urea production has a lower environmental footprint than that of nitrate fertilizers, when soil emissions related to its application and use are included, the picture is reversed.

Without mineral fertilizers‌ an additional 1,100 million hectares of land would be required for global agriculture.

This translates into 1,600 million tons of CO2 or equivalent GHGs. annual report 2009

17

Life-cycle perspective Fertilizers & food Security of supply

Distribution networks

Fertilizer selection

Pricing policy

Safety

Fertilizer type

Raw materials: Natural gas Energy and mineral ore

distribution

Resource selection

Best available technology (BAT)

Energy use

Energy efficiency

Fertilizers & the environment 18

Fertilizer production

GHG reduction

Transport costs

shipping

Transport GHGs

Consideration of all the issues within the fertilizer life-cycle/value chain is important in evaluating the vital role that mineral fertilizers play in achieving the agricultural productivity necessary for long-term human sustainability. These include the economics of the industry, which must be protected against excessive environmental charges and unfair raw materials costs.

Good agricultural practice (GAP)

Crop type food/fuel

Nitrogen use efficiency

Crop yield

Fertilizer application

Cropping

Nutritional value

Food/Feed production

Human nutrition

Food consumption

Bio-energy

Good agricultural practice (GAP)

Energy balance

GHG reduction

GHG reduction

Land use optimisation

CO2 sequestration

annual report 2009

19

Renewable energy



Half the amount of fossil energy is needed to produce bioethanol compared to petrol and a third as much to produce biodiesel compared to gasoil.

Mineral fertilizers play a key role in meeting the EU’s ambitious targets for renewable energy.

By increasing crop yield and the intrinsic energy content of bio-energy crops, they help optimise land use and maximise energy return.

The need for GHG savings in transport is particularly pressing, because emissions are expected to grow substantially between now and 2020 – three times as much as any other sector. For the immediate future, biofuels represent the only viable direct substitute for fossil fuels that can be produced relatively simply and on a large scale.

As the EU’s transport system is almost wholly dependent on imported oil, much of it from politically unstable parts of the world, changing the fuel mix is particularly important. Other non-fossil fuel based technologies such as electric batteries and hydrogen cells have enormous potential. Both technologies, however, will involve major changes to existing fuel distribution systems.

The use of biomass crops as renewable energy sources has become an important output for EU agricultural production as the development of bio-energy and biofuels are key elements in substituting fossil fuels. The EU’s current targets of 20% renewable energy by 2020 and a 10% share for biofuels are driving the process.

The EU’s biofuel policy needs to operate with a high degree of efficiency to create a framework which gives investors the confidence to invest in better, capitalintensive forms of production. The commercialisation of second-generation biofuel production techniques, using forestry products and other types of organic material, also promises more positive energy balances with substantial reductions in emissions.

Biomass already makes a substantial contribution to the generation of energy in both conventional and highly efficient combined heat and power plants in many countries within the EU. An increasing number of vehicles are being powered by fuels containing biocomponents and research continues to improve its efficiency. Use of mineral fertilizers increases the yield of bio-energy crops and their intrinsic energy value as a raw material.

240

Energy GJ

180 120 60 0 -30

Wheat 8.2 t/ha

Oil seed rape 4.0 t/ha

n Energy output n Energy input

20

Sugar beet 57.0 t/ha crop yield (fresh matter) Source: Field trials, Yara

Energy balance of different fuels Tonne of oil equivalent (toe)

Energy balance of bio-crop production 1.2 1.0 0.8 0.6 0.4 0.2 0

Petrol

n Usable energy

Bioethanol

Gasoil

Biodiesel

n Fossil energy used in the production process Source: PWC 2002

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

The food versus fuel debate continues in many countries and the final allocation of land for renewable energy remains under review.

As a result of amendment to CAP, the EU Common Agricultural Policy, crops destined for renewable energy in Europe are currently grown on 4 million hectares of idle or previous set-aside land. So far they have had no real impact on the overall amount of land used for agriculture or on food production.

It is expected that first generation biofuels will still dominate over the next decade, with cereal grains for bio-ethanol production increasing three-fold between 2008 and 2025. A reduction in cereal exports will provide a significant proportion of this grain with sugar beet being the other main feedstock. On the other hand, reduced expansion of the oil seed area for biodiesel is now foreseen.

Forest thinning and second generation biofuel feedstocks will probably become more significant over the same period but are unlikely to effect cropping areas and fertilizer use. Specific biomass crops grown for energy, such as miscanthus and willow, will have to compete with arable crops for land, but with the removal of set-aside and more competitive grain prices, these crops may not be as attractive an option as originally thought.

Without fertilizers‌ Europe will not meet its renewable energy targets and continue to rely heavily on fossil fuels, an unsustainable natural resource. ďƒ’ annual report 2009

21



ETS & carbon leakage The impact of proposed emission cost legislation will inevitably drive fertilizer production out of Europe and threaten its food security. It has been shown to be the most exposed of all European industries and highly vulnerable to carbon leakage.

The proposals for the EU’s Emission Trading Scheme (ETS III) for the period starting in 2013 mean that many more industries will face the direct cost of their emissions, including the European fertilizer industry. The industry has advocated the free allocation of emissions rights based on agreed industry benchmarks.

Cost pressure will be greatest among the European manufacturers of nitrogen fertilizers which have ammonia plants that are the most efficient in the world.

They will face significantly increased carbon costs on ammonia and nitric acid production, both of which are essential intermediates in the fertilizer manufacturing process.

In its detailed evaluations, the European Commission has calculated that out of 258 sectors evaluated the fertilizer industry was the most exposed of all sectors to carbon leakage.

Recent evidence shows that carbon leakage is already beginning to happen in Europe. In the absence of a binding global agreement on GHG reduction and carbon emissions, the industry is concerned that the current ETS III proposals will have a contradictory effect to that intended, putting the industry at a severe trading disadvantage to its less efficient global competitors and increasing overall GHG emissions.

Under current ETS III proposals, 95% of European plants will have to pay for so called “free emission rights”, adding an additional operating cost estimated at €1.3 billion.

The proposals call for free emission rights based on benchmarks calculated from the average performance of the best 10% of European ammonia and nitric acid plants. In reality this means that only 5% of the industry will be afforded “free emission rights”.

Currently, the benchmark for nitric acid plants also includes plants using NSCR (non-selective catalytic reduction) technology. Although these plants have reduced N2O emissions, they emit considerable amounts of other GHGs (CO2, CH4, NH3) so construction of new plants using NSCR technology is now forbidden in Europe. With the technology unavailable to the majority of European producers, the industry advocates that NSCR plants should not be included in the benchmark.

Global market supply and demand dictates fertilizer prices, so EU manufacturers are unlikely to be able to pass on the significant additional environmental costs and will lose out to competitors, typically from North Africa, Russia and Asia.

No longer being competitive, many European plants would have to close. This lost production capacity in Europe will result in the expansion of capacity in other regions of the world with less efficient plants and more polluting industries. Although the closures would reduce European CO2 emissions, they would lead to greater emissions elsewhere.

22

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

GHG emissions from fertiliser production

Effect of ETS on profitability

+100%

8

ETS

Global Price

Profit

+150%

7

Loss

Total Production Cost

t CO2 eqv. per t N

Total Production Cost + ETS

6 5

■ Ship transport to WE

4

■ From urea use

3

■ Fertiliser production

2

■ Nitric acid production

1 0

■ Ammonia production AN/BAT Europe

AN Russia

Urea/BAT Europe

Urea China

The global agricultural situation is critical.

European farmers are expected to produce more food and bio-energy crops to satisfy global demand, yet their input costs have increased significantly due to a tight supply/demand balance.

Increasing demand by European farmers for urea will therefore result in increased imports from producers in low-cost natural gas regions with higher GHG emissions. In addition, European agriculture (EU-27) would become highly dependent on the production and pricing policy of Eastern European and Central Asian countries. Its capacity to contribute to increased agricultural demand, and even Europe’s own food security, could be endangered.

The European fertilizer industry believes that free emissions rights should be based on achievable industry benchmarks. The ‘best average’ rule must therefore be implemented in such as way to minimise carbon leakage.

Without suitable benchmarks… ETS III will actually increase carbon emissions.

annual report 2009

23

Industry efficiency: benchmarks



Fertilizers Europe collects energy efficiency and emissions data annually from European fertilizer producers from which it publishes industry benchmarks.

These not only enable its members to compare their performance against others in the industry, but also form an industry point-of-reference in discussions with European and other legislative bodies.

The European fertilizer industry is amongst the world’s most efficient with modern ammonia and nitric acid plants using the best available technology.

Fertilizers Europe’s latest “Ammonia Energy Efficiency and CO2 Emissions” benchmark for the operating period 2007/2008 was published in 2009.

Europe has some of the world’s most modern ammonia and nitric acid plants. For ammonia production, the energy efficiency of steam reforming plants means that their performance is close to the theoretical technological limit. Their CO2 emissions are therefore extremely low. For nitric acid plants, modern N2O abatement technologies offer the potential for low levels of N2O emissions.

This benchmark is calculated by Fertilizers Europe on a regular basis. Fertilizers Europe also participates in the International Fertilizer Industry Association’s IFA Global Benchmark which is based on the principles developed by Fertilizers Europe. The emission data for CO2 plays a vital role in discussions about the ETS III Emission Trading Scheme as well as the Best Available Techniques Reference (BATREF) documents forming part of the EC’s IPPC (Integrated Pollution Prevention and Control) Directive.

MMBtu/tonne ammonia output

Gas efficiency in ammonia production

The Fertilizers Europe “Emissions” benchmark, which monitors emissions to air and water of a large number of substances including N2O, also plays its part in the ETS III proposals and in discussions on the IPPC Directive and its underlying EU BAT document “Ammonia, Acids and Fertilizers”. The benchmark was produced in 2007 and is due for revision in 2010.

40 36 32 28 24 20 EU-27

USA

Saudi Arabia

Ukraine

Egypt

Russia

Average net energy efficiency of European ammonia plants, 2007-2008 (39 plants)

N2O emissions from nitric acid installations in EU-27 + EEA, 2007-2008 16

50

14 12

kg N2O/t HNO3

GJ (LHV)/t NH3

45 40 35 30 25

8 6 4 2 0

20 2

4

6

8

10

12

14

Cumulative production (2 year total) Mt NH3

24

10

16

1

102

Number of plants

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

Industry benchmarks show that the European average is not far off the best available technology of existing plants. They provide a fair basis on which decisions affecting the industry can be based.

Fertilizers Europe members ammonia plants in Europe operate on natural gas and are highly energy efficient, with low CO2 emissions. Energy consumption based on Best Available Technology (EU BAT) for existing natural gas plants is 31.8 GJ per ton of ammonia, which generates 1.8 tons of CO2. Since these plants are among the most energy efficient worldwide, further improvements will only be incremental. Total CO2 emissions are approximately 18 million tons.

The industry’s nitric acid plants have total N2O emissions equivalent to approximately 33 million tons of CO2. Two proven N2O abatement technologies exist (catalytic decomposition of N2O immediately on formation in the burner or in the tail gas) with high reduction potential. However, taking into account the large variety of low, medium and high pressure nitric acid process technologies in use, not all of them will achieve the same level of benefit. Depending on the process technology, N2O emissions EU BAT is between 1.85 - 2.5 kg N2O per ton of nitric acid.

A significant reduction in emissions is technically feasible but will require significant investment.

The emission levels defined in the BAT documents for existing ammonia and nitric acid plants, indicate that, compared to 2005, a 9% reduction in CO2 emissions based on energy efficiency is technically feasible by 2020 in ammonia plants and a reduction of N2O emissions of approximately 70% in nitric acid plants.

Based on these figures, the European fertilizer industry could deliver more than a 20% reduction in its GHG emissions by this date. The necessary technical improvements, however, will require significant investment and time to implement. Fertilizers Europe therefore favours a stepwise reduction in emission allowances from 2013 onwards.

Without a phased reduction in emission allowances from 2013‌ the industry will be unwilling to make further environmental investments. annual report 2009

25

Looking ahead Fertilizer Consumption Forecast 2009 - 2019 Fertilizers Europe’s experts have carried out a thorough analysis of data in order to provide a considered outlook regarding the evolution of farming and fertilizer use over the next ten years in the EU-27 countries. While the main findings are set out below, the association also issues an annual publication, Forecast of food, farming and fertilizer use in the European Union 2009-2019, which provides further detail and highlights some of the major issues and figures.

As a starting point, Fertilizer Europe’s forecasting group carefully considers the agricultural trends identified by international organisations such as the FAO, the OECD agricultural department, the US Department of Agriculture (USDA) and the Food and Agricultural Policy Research Institute from Iowa State University (FAPRI), as well as the EC’s DG Agriculture and Rural Development with whom the association maintains a close and productive collaboration.

Fertiliser nutrient consumption in the eu-27 N

Nutrient (million tonnes)

P2O

K2O

16.000 14.000 +4.1%

12.000 10.000 8.000 6.000

+7.7% +3.9%

4.000 2.000

20 17

20 12

20 07

20 02

19 97

19 92

19 87

19 82

0

Agricultural production Implementation of the CAP ‘Health Check’ and the anticipated impact of the 2008 bio-energy development strategy will be the significant drivers of fertilizer consumption over the next 10 years. But recent tensions in the energy and food sectors and their related impact on food and fertilizer prices, as well as some of the consequences of the current economic crisis, have been key factors in inducing a drop in fertilizer consumption over the last two years.

This situation has created some significant changes in the expected evolution of the cropping pattern. There will be a stabilisation of the cereal area, with a small decrease of -1% (following a 3.4% increase forecast last year), of which -2%

26

is in the EU-12 countries but with no change in the EU-15.

The increase in the oilseed area is now limited to 12%, when it was foreseen at 16% last year. The drop is particularly important for rape seed in the EU-15, where the expected increase is limited to 9% against an expectation of 20% last year.

Fertilizer consumption In the EU-27 over the last three growing seasons, fertilizers containing 10.5 million tonnes of nitrogen (N), 2.7 million tonnes of phosphate (P2O5) and 3.1 million tonnes of potash (K2O) have been applied on average to 135.3 million hectares of farmland each season. 46.1 million farmable hectares are not fertilized, which include 36.5 million hectares of unfertilized grassland. By 2018/19, the forecasters expect fertilizer consumption figures to reach 11.0, 2.8 and 3.4 million tonnes respectively, applied to 133.6 million hectares of farmland.

The increase in N consumption is forecast to be 4.1% in the EU-27, against 3.8% last year, which considering the economic situation and the evolution of crop areas presented above appears to be surprising. Appearing to be even more remarkable are the foreseen changes for P2O5 and K2O. For the first time in several decades, an increase of 3.9% in P2O5, with significant growth in Sweden, Spain and the UK, is foreseen in the EU-27 over the next 10 years. K2O, which was just stable last year with -0.2% growth, suddenly is forecast to reach a record growth of 7.7% in 10 years.

However, these changes are in relation to the base year, which, due to the significant disruptions in supply and demand for both agricultural outputs and fertilizers, is very significantly different from earlier base years.

Base year considerations For the past seven growing seasons, the reference used to calculate the percentage changes forecast has been based on the average value of the last three seasons (for the current exercise from 2006/07 to 2008/09) to reduce the extent to which exceptional years (positive or negative) may impact the forecast.

This three-year buffer was not, however, sufficient for the current reference which includes two exceptional seasons between 2007 and 2009. When using the reference volumes used with 2007 as the base year, the expected changes in consumption become +3% for N, -9.7% for P2O5 and -4.4% for K2O. For P2O5 and K2O this is more or less double last year’s rate of decrease.

2009 Overview Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast

Serving the industry

Serving the needs of the industry Activities of the Fertilizers Europe committees & functions Committees Agriculture & Environment Technology, Environment & Safety Trade & Economic Policy Information Services

Functions Advocacy, Branding, Knowledge, Facilitation.

annual report 2009

27

Agriculture & Environment Climate change continued to be the main driver in 2009 with COP15 (UN Copenhagen Climate Summit in December 2009) becoming the target of many agendas in Brussels. It was the EU’s main environmental concern, surpassing all other environmental issues including agricultural policy and product regulation. The Fertilizers Europe A&E Committee has continued to closely follow this in parallel with the other issues below.

Climate change

Gilles Poidevin Vice President

4

Arunas Laurinaitis Chairman

4

This was the most important issue in 2009, both as an EU priority and as a main concern for Fertilizers Europe. The A&E Committee has successfully completed the ambitious programme it set out in April 2008: • The Fertilizers Europe “Feed the world, tackle climate change” conference/forum in February 2009 gathered more than 170 representatives from various European organisations, public and private. Keynote speakers from the FAO, the European Parliament and Commission, the scientific community and the fertilizer industry articulated their views, analysis and perspective. The forum clarified what is at stake in EU agriculture and contributed to a better understanding of the real impact of fertilizers and their potential role in mitigating climate change.

• Two publications supporting key messages on agriculture and climate change were published and circulated widely. Targeting a very large audience, the leaflet “Modern agriculture feeds the world …” puts in perspective the essential contribution of mineral fertilizers to mankind and their limited, yet unavoidable, impact on climate change.

• At global level, Fertilizers Europe contributed to the ICCA/McKinsey study “Innovations for Greenhouse Gas Reductions”, highlighting the impact and use of fertilizers as the second most important product category contributing to current GHG emission savings.

Sustainability Life-cycle assessment: LCA principles are increasingly being applied to address the environmental impact of manufactured products. In 2009, Fertilizers Europe made a significant contribution to the progress of the following projects: • In a project initiated in 2005, Fertilizers Europe is now entering the validation phase of the data set supplied to the EU LCA platform’s ILCD system.

• Two projects on the nitrogen cycle, initiated in 2006 and 2007, made significant progress:

28

• For the ENA (European Nitrogen Assessment) EUfunded project, we have significantly contributed to the final draft of the report.

• Within the UN Task Force on reactive nitrogen, in addition to the work initiated to revise the Gothenburg protocol, we have contributed to a detailed study of the nitrogen balance, including long-term scenarios.

Food chain In one of the most important projects for 2009 in the area of “Sustainable Use of Natural Resources”, Fertilizers Europe has actively contributed to the constitution and launch of the “Food Sustainable Consumption and Production Round Table”, a food chain industries initiative co-chaired by the EC, which aims to ensure that food production and consumption closely meet consumer needs and are also environmentally sustainable.

Good Agricultural Practice Fertilizers Europe’s involvement in developing and promoting Good Agricultural Practice continued at the same pace in 2009, with a particular focus on GHG emission and the publication of “Mind the… GAP”, the second of our publications relating to GHG emissions in agriculture. Targeted at the farming community, this more technical leaflet lists the main agronomic principles involved in helping mitigate GHG emissions and, especially, all the factors that improve nutrient use efficiency.

Agricultural markets and policies 2009 saw implementation of the CAP Health Check with the very first discussions on the future shape of CAP after 2013.

As every year, the main outcomes of the possible impact of CAP on crop production and fertilizer consumption have been included in our publication “Forecast for food, farming and fertilizer fse in the EU 2009/2019”.

Other areas of environmental protection 2009 has seen significant evolution in the areas of water protection and air pollution: • Water: For the Water Framework Directive, 2009 was the deadline for Member States to report their targets and action plan. The potential impact of these national measures are considered in our “Forecast for food, farming and fertilizer use in the EU 2009/2019”.

• Air: The revision of the Gothenburg protocol has been the main issue in 2009. Fertilizers Europe has contributed to the work process of the UN Task Force on reactive nitrogen and great progress has been made, especially on the introduction of quantified targets and criteria as mandated by the UN ECE. • Soil: New year, same situation: the Soil Framework Directive proposal, stopped by the EU Council at the end of 2007, is still blocked.

Technology, Environment & Safety The activities of the TESC Committee cover all aspects of production, transport, and storage of fertilizers. Dedicated task forces prepare detailed information and guidance for different Working Groups within the European Commission to ensure that new legislation takes into consideration factors that could affect the efficiency of the fertilizer industry.

Security The misuse of certain chemicals, including some fertilizers and their raw materials, for terrorist purposes has received the attention of the EC’s DG Justice, Freedom and Security.

Fertilizers Europe participated in the DG Justice work group precursors to discuss measures to restrict sales to the general public. Ammonium nitrate (AN) based products containing more than 16% N by mass in relation to AN may not now be supplied to the general public either as a product or in preparations. Fertilizers Europe is also actively involved in discussions to restrict several other precursors.

Safety The Seveso Directive (2003/105/EC) for storage of dangerous goods is currently being revised. In particular, Annexe 2 will be brought into line with the classifications of the Global Harmonized System. Fertilizers Europe is in discussion with DG Environment to ensure that ammonium nitrate entries in the Directive will not be changed to the disadvantage of the fertilizer industry. The committee has submitted a proposal for a revised text for these in order to provide a better understanding and interpretation of them.

• Safety Seminar The annual Fertilizers Europe Safety Seminar, hosted by Fertiberia, was organised in Valencia (Spain). More than 50 participants discussed issues related to recent industry accidents in order to exchange experiences and learn from them. The Safety Seminar ended with a visit to a CAN and a nitric acid plant in Segunto.

Transport regulation Much of the Classification task force’s efforts have been devoted to addressing classification issues for fertilizer transport by rail (RID), road (ADR), inland waterways (AND) and bulk transport by sea (IMO). These include temperature monitoring for bulk fertilizers in ships, start of revision to the classification guidance issued by Fertilizers Europe in 2006, transport of ammonia solution in intermediate bulk containers (IBCs), ammonia rail wagon inspection quality assurance, KNO3/NaNO3 classification, and the UN 2031 classification code of nitric acid.

Environment • Limit values In 2009, some agreement was reached with the EC and Member States on limit values for primary, secondary and micro-nutrients, above which declaration is obligatory.

Fertilizers Europe’s proposal for maximum levels of heavy metals in these nutrients was also well received.

Discussions with the EC and Member States on limit and maximum values of heavy metals will be reopened once discussions start on the “New approach” Directive.

• New Approach Directive In September 2009, the Commission decided that a complete recast of the existing EU fertilizer law (EC 2003/2003) was necessary. The so called “New Approach” Directive also includes organic fertilizers, organo-mineral fertilizers and soil improvers, as well as additives and process aids such as those for anti-cracking. Discussions on heavy metal content and limit values will start up again.

Since these have potentially major consequences for the industry, Fertilizers Europe has initiated a task force to prepare for the discussions.

4

The most noticeable work in this area, implemented in close collaboration with the Fertilizers Europe TESC Committee, is the EC project to completely reconsider existing fertilizer regulation.

• Fertilizers Europe Incident Database The association has a database of more than 800 fertilizer industry incidents from 1920 onwards. The database is updated once a year with information supplied by members. The information provides the basis for safety recommendations for members and the annual Safety Seminar.

Arend Werner Chairman

4

Product issues

Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

Tore Jenssen Vice President

• Cadmium After a very long period of discussion with stakeholders, the regulation of cadmium is expected soon. The latest EC proposal is based on a gradual decrease in the maximum content allowed in phosphate fertilizers from 60-40-20 mg Cd/kg P2O5. The Commission has based this on the supposed availability of decadmiation technology. But since this technology is neither technically nor economically available on a large scale, Fertilizers Europe has strongly opposed the proposal and advocated that a maximum of 60 mg Cd/kg P2O5 is the only figure acceptable to the industry.

 annual report 2009

29



BATREF

Product Stewardship

As part of the Integrated Pollution Prevention and Control (IPPC) Directive, Best Available Techniques Reference (BATREF) documents are developed by the EC as a tool for local authorities to set permits for production plants.

The relevant BATREF for the industry, Ammonia, Acids and Fertilizers, was produced in August 2007 and is about to be revised. In preparation for this, Fertilizers Europe has initiated task forces to discuss outstanding issues on the production of several fertilizers and their raw materials (ammonia, nitric acid, AN, urea, NPK, etc.)

Fertilizers Europe launched its Product Stewardship program in September 2003 and members have been audited twice since this date. Members who passed the 2008 audit received a certificate. The next audit is planned for early 2011. Preparation consists of updating the program every year around July, making the selfassessment manual available as an online tool, and training the Product Stewards. The latter, which is especially useful for new members, is planned for September 2010.

Guidance documents

Fertilizers Europe has devoted much of its time to the

During the year Fertilizers Europe developed guidance for the safe and secure storage of fertilizers on farms. The guidance document aims to raise awareness among the farming community of the need to ensure safe and secure storage and to recommend good practice. It covers all agricultural fertilizers but points out the particular care that needs to be taken when storing ammonium nitrate based fertilizers.

Benchmark studies

formation of the FARM consortium under REACH. In 2009 this consortium, initially only consisting of Fertilizers Europe members, opened up to members outside this community and lead companies have been appointed for the preparation of the substance dossiers. The companies are responsible for submitting the dossiers to the European Chemical Bureau – Fertilizers Europe’s role is only as the data owner.

An Exposure Scenario task force was initiated to help the Fertilizers Europe members of the consortium to prepare

Since 1996, Fertilizer Europe has undertaken a number of benchmark studies covering safety, the environment and energy. The results are used by members to benchmark their own performance and for discussions with the EC when it prepares new legislation

generic exposure scenarios for those who come into

• Safety Fertilizers Europe benchmarks the safety performance of members through the Lost Time Injury Rate (LTIR).

Although the 2009 LTIR for employees and contractors is still impressive, it has stagnated. This situation necessitates complete attention to safety. The committee has set 2010 LTIR targets and members have forwarded safety improvement plans. The association also provides a platform where safety gets full attention in its Safety Seminar.

throughout the supply chain. Fertilizers Europe has

• Emissions Fertilizers Europe benchmarks the main emissions from its members’ production plants, including N2O, CO2 and NOx, and follows their trends. The Emissions benchmark is not only used to rate the performance of members but also in discussions with the EC on BAT levels and emissions as part of the third phase of the ETS III Emission Trading Scheme 2012-2020.

• Ammonia Energy Efficiency and CO2 Emissions Fertilizers Europe has created an additional Energy Efficiency and CO2 Emissions benchmark for ammonia plants. This was necessary as the Commission requested data from 2007-2008 as the basis for setting its free emissions allowances. Fertilizers Europe has used these figures to provide a benchmark curve for ammonia. The methodology used is described in the so called “Rule Book” and is now subject to verification by an independent verification authority.

30

REACH

contact with their products (principally production plant operators and farmers). Use of each of the substances involved has been defined and will be discussed with other consortia, as well as other suppliers and users contacted several consortia, such as those for Boron and Cobalt, to exchange data.

Safety, health and environment Fertilizers Europe’s 2008 Safety, Health and Environment (SHE) Report was issued during the year.

It will issue its 2009 SHE report shortly.

Trade & Economic Policy

Trade defence

Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

On the import front, old pressures from the Former Soviet Union arose again while, at the same time, new import campaigns arrived from North Africa. Thus, for the first time in many years, trade defence activities were driven more by

Against a world agricultural economic background demonstrating an uncertain or slow recovery from the financial crash of late 2008, in 2009 the EU fertilizer industry found itself truly moving out of the positive, demand-driven world scene of 2007-2008.

Some fortunate relief on supply-side conditions, in the form of lower oil and gas costs, managed to deliver some profitability. But the level of returns over 2009 were again still far below the levels necessary to sustain such a capital-intensive industry.

economic than regulatory factors. The falling world demand for fertilizers, stops or regressive steps on gas price reform programmes and the strong payment credentials of EU customers all combined to contribute to import surges in urea and UAN solution and a peculiar but delicate situation for NPK fertilizers.

Two trade defence proceedings stood out. First, the EU opened sunset proceedings on AN imports from Ukraine.

Although gas prices there were set to rise to EU levels, the industry successfully proved that future price rises were still uncertain and unpredictable. Combined with the Ukrainian AN industry’s considerable export capacity and reduced export opportunities, this equated to a serious threat of injurious dumping.

Since conclusion of the extraordinary gas deal between

Russian prices to the EU, the EU has confirmed that it will

Committee (TEPC) continued to emphasise the imperative

continue to apply its €33/mt specific anti-dumping duty on

of achieving profit levels which facilitate the long term

AN from Ukraine.

existence of a European fertilizer industry.

Fertilizers

Europe continues to advocate that a 15% return on capital employed (ROCE) is necessary for its sustainability – economically and environmentally.

Level playing field More than any other year, the global goal of a level playing field for fertilizers, gas and climate change was extolled across EU institutions. Some success in this was certainly demonstrated by the confirmation into EU law of the 3rd Gas Directive. By promising a single European gas market, built on strong sub-regional integration with stricter controls to improve cross border interconnection and trade, there is no doubt that the EU has established a regulatory framework to promote a competitive gas supply in Europe. The real test now is whether more infrastructure projects can be supported and whether Member States can push on faster with their implementation of the Directive.

The second outstanding proceedings concern UAN

4

gas prices of up to US$100 per 1000 cubic metres below

climate change discussions, the Trade & Economic Policy

Paul Thompson Chairman

4

Russia and Ukraine in April, giving the latter concessionary In all its activities, and especially in trade defence and

Renata Auchimik Vice President

solutions from JSC Acron and its newcomer review. Here the Commission agreed to open proceedings on the grounds that Acron’s position as a new producer/exporter with a modern 300,000 mtpa plant at Novgorod should be recognised. A new investigation was therefore opened to establish the appropriateness of the existing €20/mt specific anti-dumping duty.

The investigation found that this new player was responsible for even higher rates of dumping than in the earlier general investigation. The EU, therefore, decided to maintain its existing anti-dumping measure. In reaction to this, JSC Acron launched a judicial challenge to the findings of the Commission’s investigation, in particular to the level of profit allocated to the Novgorod operation based on a normal gas price against a market gas price at Waidhaus, Germany.

Such judicial proceedings can take to up two years.

The Commission also introduced a proposal in mid-2009 to regulate gas supply security. Partly in response to yet another Russia-Ukraine gas dispute earlier in the year, Fertilizers Europe’s Gas Task Force was quick to support the Commission’s intent to create preventative measures and emergency gas supply systems. At an industry level, consensus again grew among members that more competition and a greater diversification of supplies are the best means to ensure gas security. This was addressed and explained in a special meeting held in Warsaw and in a new gas publication currently available on our website www.fertilizerseurope.com.

annual report 2009

31

Information Services

As a result of a Board decision, the ISC has stopped monitoring world trade statistics in order to focus solely on EU-27 fertilizer statistics. The ISC Quality Group, consisting of members’ experienced representatives, has also been formed to ensure the quality of the statistical reports. Moreover, actions have been taken to improve

Fertilizers Europe’s information systems are the responsibility of the Information, Statistics and Communications Committee, which ensures the quality, depth, reliability and accessibility of Fertilizers Europe’s statistics and its comprehensive database. They cover three main areas: statistics (database), AC Fiduciaire statistics and collection of anti-dumping data. All statistical and related activities strictly respect EU competition laws and their compliance is regularly checked by an independent law firm.

the functioning of the database and the distribution of ISC statistics, while maintaining the highest principles of confidentiality.

Fertilizer consumption In line with its ambition to provide horizontal support, the ISC has also supported the A&E Committee in producing Fertilizer Europe’s annual fertilizer consumption forecast (reported in the previous section) and supported the work of TESC by providing benchmarking exercises. In addition, it has provided regular support for the activities of TEPC,

The ISC Committee is the depositary of the Fertilizers Europe database and its yearly activities consist of collecting, customising and interpreting statistical data, as well as working on ad hoc projects. Its mandate is to supply the association with correct and verifiable data in a transparent manner, using consistent and clear definitions.

The objective is to provide a reliable picture of the current situation and expected developments within the fertilizer

Daniel Grasset Chairman

4

business.

especially with statistics for trade defence cases.

Production costs Fertilizers Europe produced its yearly survey of members’ (aggregated) production costs for the main fertilizer products. This survey identifies trends within the industry as a whole, as well as serving as a benchmarking tool.

Fertilizers Europe’s statistical database is available online for members and has now been fully expanded to provide data at the EU-27 level.

Industry statistics One year after finalisation of the move of the database from Zurich to Brussels and the training of new analysts, Information Services are now fully operational and creating horizontal synergies between Fertilizers Europe’s different activities and its staff. Industry statistics have been distributed to members throughout the year to support their forecasting and benchmarking exercises. Regular publications included the statistical handbook, figures relating to capacities, production, exports and imports,

Jean-Paul Beens Vice President

4

production costs, and product deliveries.

EU-27 nitrogen-containing fertilizers statistics (in ‘000 tons N)

2004/05 2005/06 2006/07 2007/08 2008/09

FE members deliveries Eurostat imports

8525 2464

8483 2395

8200 2495

8383 2550

7004 2580

- 16% +1%

FE members deliveries + imports Non FE deliveries + technical

Consumption Imports as % of consumption

10989 1809

10878 1705

10695 1833

10933 2451

9584 2320

-12% -5%

12798 19%

12583 19%

12528 20%

13384 19%

11904 22%

-11% +14%

% change

Provisional EU-27 import figures for all N-containing fertilizers from countries outside the EU show that these totalled 2,580,000 tons N in 2008/09 compared to 2,550,000 tons in 2007/2008, 30,000 tons more than the previous year. These accounted for 22% of consumption (including products used for technical purposes) compared to 19% in 2007/08.

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Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

Fertilizers Europe functions Fertilizers Europe’s four horizontal functions operate across its vertical committee structure to achieve internal synergy and to make the most efficient use of common information and ideas in addressing broad-based issues. Members of the Executive Committee of the Board are nominated as Vice President or Supporting Vice President for each function to ensure their effectiveness.

Advocacy

Facilitation

Advocacy involves the daily contact between Fertilizers Europe representatives and the European Commission. It is chaired by the President Renso Zwiers and Deputy President Tor Holba. This function has become increasingly necessary as the European Parliament faces food production and climate change issues and prepares guidelines and legislation of direct consequence to the fertilizer industry. A large part of Fertilizers Europe activity is conducted in close cooperation with CEFIC, the European Chemical Industry Council.

The Facilitation function, led by Director General Esa Härmälä, aims to increase the cohesion and cooperation between Fertilizers Europe members, involving the admission and integration of new members. It maximises the benefits of membership through the tasks Fertilizers Europe undertakes on their behalf and encourages members to participate actively in the work of the association. Allocation of extra resources and opportunities for increased efficiency is helping the distribution of information from the Fertilizers Europe secretariat to members.

Branding Jacek Glowacki Vice President

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Branding Javier Goñi del Cacho Chairman

KNOWLEDGE Daniel Grasset Chairman

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Advocacy Tor Holba Vice President

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Advocacy Renso Zwiers Chairman

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Fertilizers Europe Branding function, under the chairmanship of Javier Goñi del Gacho and supporting Vice-president Jacek Glowacki, gives the association increased visibility within European agricultural circles and helps promote productive agriculture as a response to the global food challenge. Its work is highly respected within the EC and Fertilizers Europe representatives are asked to make presentations in numerous seminars and conferences.

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Branding

KNOWLEDGE Jean-Paul Beens Vice President

The communications department has generated several publications to educate and influence specific target audiences and has upgraded the Fertilizers Europe website in both look and content.

Knowledge The Knowledge function, guided by Messrs Daniel Grasset and Jean Paul Beens, Vice President and Supporting Vice President respectively, is directed at the quality, depth, reliability and accessibility of Fertilizers Europe’s information, statistics and databases. All statistical and related activities are undertaken strictly adhering to EU competition laws and compliance is regularly checked by an independent law firm.

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Executive Committee of the Board Renso Zwiers President DSM Agro Tor Holba Deputy President Yara International Renata Auchimik Supporting Vice President to the Trade and Economic Policy Committee Zaklady Azotowe Pulawy Jean-Paul Beens Supporting Vice President to the Information Services Committee Yara International Jacek Glowacki Supporting Vice President to the Branding Function Anwil

Javier Goñi del Cacho Chairman of the Branding Function Vice President Fertiberia

Gilles Poidevin Supporting Vice President to the Agriculture and Environment Committee UNIFA

Daniel Grasset Chairman of the Information Services Committee Vice President GPN

Paul Thompson Chairman of the Trade and Economic Policy Committee Vice President GrowHow

Tore Jenssen Supporting Vice President to the Technology, Environment and Safety Committee Yara International

Arend Werner Chairman of the Technology, Environment and Safety Committee Vice President BASF

Arunas Laurinaitis Chairman of the Agriculture and Environment Committee Achema

Esa Härmälä Director General and Chairman of the Facilitation Function Fertilizers Europe

Fertilizers Europe staff

Christian Pallière Director, Agriculture & Environment

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Ermis Panagiotopoulos Agricultural Economist

Jurga Lenktaityte

Hans van Balken

Patricia Evraert

Esa Härmälä

Trade & Business Analyst

Director, Technology, Environment & Safety

Senior Secretary

Director General

Fertilizers & food Fertilizers & the environment Life-cycle perspective Fertilizer forecast Serving the industry

Members Corporate

Associations

AB Achema, Lithuania

AIC (Agricultural Industries Confederation), United Kingdom

Agropolychim, Bulgaria

ANFFE (Asociación Nacional de Fabricantes de Fertilizantes), Spain

Borealis Agrolinz Melamine GmbH, Austria

ASSOFERTILIZZANTI (Associazione Nazionale Fertilizzanti), Italy

Anwil SA, Poland

BELFERTIL, Belgium

Azomures, Romania

IVA (Industrieverband Agrar e.V.), Germany

BASF AG SE, Germany

PIPC (Polish Chamber of Chemical Industry), Poland

SC Donau Chem srl, Romania

UNIFA (Union des Industries de la Fertilisation), France

DSM Agro BV, The Netherlands

VKP (Vereniging van Kunstmest Producenten), The Netherlands

Fertiberia SA, Spain & Portugal GPN, France GrowHow UK Ltd, United Kingdom Lovochemie AS, Czech Republic Neochim, Bulgaria Nitrogénmüvek Zrt, Hungary Zaklady Azotowe Pulawy SA, Poland Yara International ASA, Belgium

Not in photo:

Marjolaine Jaquet Manager Administration & HR

Felipe Lemus Information Services Issue Manager

Michal Wendolowski

Mark Cryans

Melina Moleskis

Gabor Marton

Sean Mackle

Information Services Issue Manager

Head of Communications

Trade Analyst

Trade Analyst

Director, Trade & Economic Policy

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Avenue E. van Nieuwenhuyse 4/6 B-1160, Brussels, Belgium Tel: +32 2 675 3550 Fax: +32 2 675 3961 E-mail: main@efma.be twitter.com/FertilizersEuro

www.fertilizerseurope.com

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