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Virtual Fertilizer Research Center

A Blueprint for Global Food Security


Virtual Fertilizer Research Center: A Blueprint for Global Food Security The VFRC is an innovative, unconventional initiative that has been established under the auspices of IFDC. Specifically, the VFRC will help develop and commercialize innovative research into the 'next generation' of fertilizers and fertilizer technologies to assist smallholder farmers in developing regions. The VFRC will create the environment in which these products and processes will be developed by engaging the needed expertise globally in partnership for a common technology agenda. To accomplish this, the VFRC will serve as a catalyst, change-agent, stimulator and initiator. It will serve as a coordinator and intermediary among partners to ensure efficient, consistent and persistent processes in order to achieve the agenda.

Just like human beings, soil and plants need nourishment to be productive.

VFRC VISION The world’s smallholder farmers have ready access to sustainable, affordable, efficient and environmentally friendly fertilizers.

VFRC MISSION Through collaborative research and development, the VFRC will develop and introduce the next generation of the world’s fertilizer products and technologies necessary to benefit smallholder farmers in the developing world.

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“Farmers are paying way too much for fertilizer products because we are transporting millions of tons of material that is not nutrient and because much of the nutrients in applied fertilizers are never used by the crop. Nutrient losses to the environment are high with consequences for global warming and water pollution. “Work should begin now on the next generation of fertilizer products using advanced techniques such as nanotechnology and molecular biology, especially in conjunction with plant genetics research. 'Smart' fertilizer products that will release nutrients only at the time and in the amount needed should be developed.” (August 2008) Dr. Norman Borlaug Nobel Peace Prize Recipient IFDC Board of Directors (1994-2003)

Introduction Following sudden and significant global price hikes in food, fuel and fertilizer in 2007-2008, the IFDC Board of Directors met in early 2009 to discuss the challenges involved in ensuring "responsible, sustainable food security" for the world over the coming decades. In particular, there were three areas of greatest concern in the discussion about food security: the still sizable malnourished population (primarily smallholder farmers and their families in developing regions); the substantial increase projected for global food demand and subsequent higher prices, also primarily in developing regions; and the role of synthetic fertilizers in food security (over 75 percent of global fertilizer consumption is in developing regions). These fertilizers remain essentially and technically unchanged since their launch during the "Green Revolution," but now are being used in an era of scarcer arable land and water, uncertain climatic conditions and heightened environmental and economic sensitivity. In 2010, the U.S. Agency for International Development (USAID) provided financial support for IFDC to develop a 'proof of concept' to study these areas in greater depth and to identify opportunities for the application of technological advances. IFDC’s proof of concept resulted in the Virtual Fertilizer Research Center (VFRC), which was launched in May 2010. The VFRC is helping develop a new generation of 'intelligent' fertilizers to enable responsible, sustainable food security, particularly in the world’s developing regions. This document provides the essence of IFDC’s findings and the underpinnings for the VFRC in four chapters:

1. Food Demand and Smallholder Farms Commercial smallholder farmers play a vital role in the overall food supply chain in developing countries. These

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farmers’ roles will be even more critical as these countries prepare for the significant growth in food demand expected from continued population growth, urbanization and economic development. While global food demand is projected to increase by 70 percent, the vast majority of this increase is expected to occur in the developing regions, which could face a food demand increase approaching 90 percent by 2050. Accordingly: •

Commercial smallholder farmers must more fully adopt intensive farming practices (including agricultural best practices and the judicious use of fertilizers) to help achieve the yield increase required in the future (around 1.5 percent per year).

In addition, these farmers will need targeted policy interventions by their governments to overcome the economic and infrastructural challenges they face to access needed supplies and land, improve agricultural productivity and participate more fully in post-harvest markets.

2. Current Fertilizers – Challenges and Opportunities Due to increasing land and water scarcity, intensive farming (including the proper use of synthetic fertilizers) and improved supply chain infrastructures must help deliver the nearly 90 percent increase projected in developing regions' food demands. Additionally, these fertilizers must meet the special needs of commercial smallholder farmers who will continue to play a key role in future food supply chains. However: •

Current synthetic fertilizers are often not accessible nor affordable for smallholder farmers in developing countries, and the most commonly used fertilizers – nitrogen (N) and phosphorus (P) – have physical characteristics that lead to substantial economic waste and adverse environmental impact.


The industry’s response has focused on optimizing production and using highly mechanized application methods (attractive to intensive agriculture in the world's developed regions) for current fertilizers (which are largely unchanged since the 1980s). However, these fertilizers and application techniques are not as effective in the developing regions.

3. Next Generation Fertilizer Technology Priorities The following technological priorities will guide the development and commercialization of the next generation of intelligent fertilizers that must be more failsafe, adaptive, eco-sensitive and economical: •

Focus on N and P; improve nitrogen use efficiency by 25-50 percent.

Reduce the risk of crop failure for smallholder farmers.

Increase the convenience and accuracy of delivering secondary nutrients and micronutrients.

Improve or find alternatives to current sourcing and delivery processes that reduce cost, increase selfreliance and lessen environmental impact.

4. VFRC – Purpose and Organization

The VFRC is an innovative initiative established by IFDC specifically to advance and commercialize the technology development priorities for the next generation of fertilizers: •

The VFRC will create the environment and platform in which these fertilizer products and processes will be developed through global research efforts (including partnerships between scientists, governments and businesses) working on a common technology agenda. The VFRC will serve as catalyst, change-agent, stimulator and initiator. It will serve as a coordinator and intermediary among partners to ensure that efficient, consistent and persistent processes move through the technology agenda.

IFDC-trained fertilizer dealers in Kabul, Afghanistan.

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1. Future Food Demand and Smallholder Farms Commercial smallholder farmers play a vital role in the overall food supply chain in developing countries. Their role will be even more critical as these countries prepare for the significant growth in food demand expected from continued population growth, urbanization and economic development. Commercial smallholder farmers must more fully adopt intensive farming practices, including agricultural best practices and the judicious use of fertilizers, to help achieve the yield increases required by 2050. In addition, these farmers will need targeted policy interventions by governments to overcome the economic and infrastructure challenges they face to access needed supplies, land, water and energy, improve crop yields and participate more fully in post-harvest markets.

Figure 1

Global Population Billions Developed

Emerging Urban

Emerging Rural

9.2 6.9

2.6

3.1 5.3

2.6 1.2

1.3

2010

2050

Figure 2

Developing Regions Urban:Rural Population Ratio Total rural population

Tomorrow’s Population and Food Demand

Excluding subsistence rural population

While the global population is projected to grow by 33 percent by 2050 (United Nations [UN], 2009), food demand will increase by 70 percent over the same period as the emerging regions urbanize, develop economically and their populations consume a richer diet (Foresight, 2011). The absolute increase in food required to meet this demand over the next 40 years is expected to be at least as large as the increase since the Green Revolution was launched in the 1960s – as available arable land and water become scarcer. The UN estimates a major shift in the world’s population mix over the next 40 years. It is estimated that the total global population will grow from 6.9 billion in 2010 to at least 9.2 billion by 2050 (Figure 1). Within this growth: •

The population of developed regions will be largely unchanged at around 1.3 billion.

Urban populations in developing regions are projected to dominate the growth – more than doubling from the current 2.6 billion to an estimated 5.3 billion by 2050. This growth will be a result of intrinsic urban growth and a steady migration from rural areas (currently estimated at 20-25 million per year globally and projected to average 40-45 million annually through 2050). The percentage of total population in urbanized areas in developing regions will climb to nearly 70 percent, compared with less than 50 percent now.

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Rural populations in developing regions (currently 3.1 billion) are expected to peak in 2020 at 3.5 billion and then decline gradually as the urban migration

Developed Regions > 9:1

0.3

0.6

1960

0.8

2.0

2.4

1.2

2010

2050 IFDC est.

accelerates. However, these rural populations will still be sizable in 2050 (estimated at 2.6 billion). By 2050 farmers will be supporting the food needs of an urban population that is larger than the rural population for the first time (a ratio of more than 2:1 by 2050) (Figure 2).

IFDC coupled estimated population growth information from the UN with the Food and Agriculture Organization of the United Nations’ (FAO) estimates of regional per capita food consumption (kcal/day/capita) to gain insights into the nature and magnitude of the food demand challenge over the next 40 years in developing countries: •

Urbanization and robust economic development will undoubtedly lead to a demand for a richer and more diverse diet in developing countries, which IFDC estimates could lead to the need for an additional 20 percent in required food supply. As a result, food demand in developing regions could grow by as much as 90 percent by 2050 compared with a modest increase in developed regions (+/- 6 percent).


Urban demand for food in emerging markets is expected to more than double and will be responsible for almost the entire growth in global food demand (Figure 3). As a result, urban food demand is projected to exceed 60 percent of total global demand by 2050 (compared with nearly 40 percent today and only about 15 percent in 1960) (Figure 4). In contrast to the growth in urban food demand in developing countries, food demand by rural populations is likely to grow only modestly above current levels as the projected rural population decline begins to materialize after 2020.

Figure 3

Global Food Demand % Increase 2050 vs 2010

Total Emerging Rural

70%

9%

+88%

Emerging Urban

By 2050, developing regions will represent nearly 90 percent of global food demand, up from nearly 80 percent currently (Figure 4).

Developed

163% 6% IFDC est.

This profile of future population shifts and food demand poses important policy decisions for leaders in developing countries: •

Figure 4

Global Food Demand % by Region

How to allocate increasingly scarce land, water and energy resources between ongoing urbanization and economic development and a secure food supply chain and infrastructure.

Developed

How to ensure that a declining population of farmers will be able to meet the projected increase in food demand in an era of growing scarcity of land, water and energy resources.

79%

87%

40%

62%

21%

13%

2010

2050 IFDC est.

FigureFigure 5 6

Sub-Saharan Africa, with a history of nomadic herding and abundant available land per capita, pursued extensive farming (land-use expansion).

South Asia, already land-pressured in the 1960s, embraced the intensive farming techniques advocated by the Green Revolution, and dramatically increased yields using improved seed varieties and nutrients from newly available chemical fertilizers.

240

The difference in approaches is clearly evident in Africa’s noticeably lower crop yields per hectare and virtually non-existent fertilizer use compared with other developing regions of the world (Figures 6 and 7).

120

Cereal Production - 1961, 2009 (1961 = 100) Sub-Saharan Africa

Extensification vs. Intensification

2009 = 359

South Asia 2009 = 310 1961 = 100

AREA

But extensive farming can no longer be the primary method for Sub-Saharan Africa to meet its growing food needs. By 2025, the region is projected to no longer be 'land-advantaged' compared with other regions. And its practice of extensive farming with low rates of fertilizer usage has led to 'soil nutrient mining,' resulting in large tracts of nutrient-depleted land (a problem increasingly acknowledged by African leaders).

Emerging Rural

25%

39%

Extensive Farming Over the 50 years since the Green Revolution of the 1960s, Sub-Saharan Africa and South Asia achieved similar increases (2+ times) in total food output needed for their people but they relied on different farming approaches (Figure 5):

Emerging Urban

PRODUCTION (area x yield)

YIELD

150

260

5


294

Figure 6

Figure 7

Fertilizer Use by Region - 2009/10 (kg/ha) Developed Markets

Transitional Markets

World

Sub-Saharan Africa 208

Developing Markets

Source: Derived from FAO Data

155 117

110

World

82

91

2.51

South Asia

2.77 3.57

Latin America

66

76

105

136

Near East and North Africa

1.50

3.92

40

46

46 28

6

Africa

1.22

Cereal Yields per Hectare by Regions, 2010/11 (mt/ha) South Asia

Asia East Asia

SubSaharan Africa

South Africa Oceania West Asia North America North Africa Latin America World Central Europe

Eurasia Central America

Source: Derived from FAO Data

“To feed our people, we must feed the soil. The main reason for Africa’s food shortages is soil nutrient depletion. Africa loses about US $4 billion worth of plant nutrients from its soils each year due to continuous cultivation without nutrient replenishment.” – former Nigerian President Olusegun Obasanjo (2006)

More broadly, extensive farming faces two pressure points: •

The increasing scarcity of arable land and the competing demands of economic development versus food production on that land.

Studies indicate that the environmental impact of land conversion is responsible for 10-12 percent of all global greenhouse gas (GHG) emissions each year. Using these emission rates, IFDC estimates that agricultural land expansion in the current ratio of extensive and intensive farming to support the needed increases in food supply could double the current level of GHG emissions from land conversion. At recently declared GHG 'tax rates' ($25/mt CO2 equivalent), extensive farming would face a global tax bill of $150 billion annually.

Land conversion for new crop production is becoming increasingly problematic – there simply is little arable land

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remaining. Farmers in developing regions (particularly Africa) must embrace efficient intensive farming practices and fertilizers to help them achieve the yield improvements needed to double farm output.

Smallholder Farms – Their Role and Challenges Over 500 million smallholder farms – each with an average size of only 0.5 hectares – are at the heart of IFDC’s mission of "creating and sustaining food security in developing regions." IFDC estimates that these smallholder farms are home to nearly three billion people and comprise two broad segments, which have distinctly different implications for food security: Subsistence Smallholder Farmers About 35 percent of this population (approximately one billion people on some 200 million farms, located primarily in Sub-Saharan Africa and Asia) ekes out a subsistence existence – often from less than 0.2 hectares


of nutrient-deficient soil. With aid support, many engage in commercial farming, but this often remains marginal; most struggle to make even $2 a day with no reserves for unforeseen events.

Figure 8

Food Supply in Developing Regions % by Farm Type Large farms

Sadly, these farmers will play no meaningful role in their country’s national food supply chain unless they can move into sustainable commercial farming. Until that occurs, 'subsistence' smallholder farmers will continue to require development support to pull them out of their marginal existence. Encouragingly, with this support some 700 million people were able to become commercial farmers over the past 50 years; IFDC estimates this trend will continue and could lead to reducing by half (or more) the subsistence farming population by 2050.

Commercial SHFs

100%

Marginal SHFs

3%

12%

80% 60%

41%

35% 2.6

47%

5.362%

40% 20%

1.3

0% 2010

Commercial Smallholder Farmers

2050

Figure 9

The remaining smallholder farms, with nearly two billion people on 300+ million farms, comprise the segment that does participate in the food supply chain in developing countries. In IFDC’s experience, about 25-30 percent of the crop production from these farms is available for postharvest markets and is the source of income for these commercial smallholder farmers. They currently account for some 40 percent of the domestic food supply in developing regions (including their own needs) (Figure 8).

Yield in Developing Regions 2010 Large Farms = 100 Large farms

Overall

Commercial SHFs

53 2010

66

100

+1.47% per year

84

As rural populations decline, IFDC estimates that the number of commercial smallholder farms will also decline to around 225 million by 2050. Under a 'reasonable' scenario in which the amount of farmed land increases only modestly from current acreage and commercial smallholder farms increase the proportion of their crop production available for markets to 50 percent, these farms would continue to remain a substantial factor in domestic food supply (35 percent). To do so successfully, commercial smallholder farm yields must increase by some 60 percent by 2050 (+2.2 percent per year), and overall yield needs to increase by 80 percent (+1.5 percent per year) (Figure 9). In light of the expected pressures on land and water availability, fertilizers will have to play an increasing role in the achievement of higher yields, particularly in commercial smallholder farming. However, these farmers continue to face many challenges that not only hamper their ability to increase crop yields and deliver their output to markets, but often hinder their ability to remain viable: •

Proper market access remains problematic for most of these farmers as a result of either poor infrastructure (transportation, storage) that can lead to substantial spoilage or patchy contacts with buyers who otherwise would ensure a steady market. Together, these constraints rob many commercial smallholder farmers of the full economic potential of their crop output.

This economic challenge is further exacerbated by a lack of credit that could help these farmers in difficult periods (crop failure or crop spoilage) or, just as importantly, allow these farmers to take advantage of

IFDC est.

119 2050

171 IFDC est.

additional production opportunities that they cannot exploit because of a lack of financial resources.

In addition, policies established for national economic development (e.g. regarding land use and crop priorities) can often have inadvertent consequences that constrain smallholder farmers from reaching their economic potential and contributing fully to their country’s food supply chain.

Without a deliberate program combining effective intensive farming practices with supportive government policy interventions, smallholder farms (SHFs) will be constrained from playing a vital role in future food supply chains that must generate a doubled food supply in developing regions.

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2. Current Fertilizers – Challenges and Opportunities With the increasing scarcity of land, water and energy, intensive farming using agricultural best practices (including the proper use of synthetic fertilizers) will have to deliver the projected 90 percent increase in production to meet rising food demand in developing regions. Commercial smallholder farmers must continue to play a strong role in future food supply chains. However, today’s nitrogen- and phosphorusbased fertilizers fail to serve the special needs of smallholder farmers and have inherent flaws (N) and management issues (P) that lead to substantial economic waste and adverse environmental impact. The industry’s response has focused on optimizing production and application methods used for current fertilizers, which remain largely unchanged since the 1980s.

Introduction Expanded use of intensive farming practices with an increase in the use of synthetic fertilizers will be essential to deliver the food supply required by 2050 in developing regions. A continued emphasis on, and adoption of, balanced nutrient programs, integrated soil fertility management (ISFM) and other best agricultural practices must be encouraged. Realistically, however, the magnitude of crop yield increases required over the next 40 years in developing regions will depend heavily on the increased and proper use of synthetic fertilizers.

Global Industry (See additional information at chapter end.) A key feature of the fertilizer industry is the global supplydemand balancing that occurs – over 40 percent of global fertilizer tonnage is traded (imported/exported). This

global trading is inherent given the sourcing method necessary for each of these nutrients under current technology; while specifics differ, each nutrient requires capital-intensive production facilities located close to advantageous feedstock sources. Given the global inter-connectedness in the supply and demand of fertilizers, fertilizer pricing has to be global. The price level for fertilizers must follow the same microeconomic principles that govern the pricing of any similar commodity. In particular, in the short term, the market price of a commodity is invariably set near a level which is just below the operating cash cost of the next producer that could most efficiently meet a demand that exceeds the capacity of existing (more efficient) suppliers. Two important aspects of this principle in practice are: •

In industry sectors which have spare capacity, producers themselves are motivated to keep prices as low as needed to discourage more inefficient unused capacity from entering the supply chain.

While still following fundamental micro-economic principles, price levels can be influenced by government actions. In essence, governments influence either the industry’s cost structure or the capacity available to serve a market demand by regulating the price and/or availability of key feedstocks or end products that are sourced from their jurisdictions.

In developing regions, food security is a primary priority for governments. The global characteristics of the fertilizer industry clearly influence the ongoing policy interventions that national leaders deploy to ensure a secure supply and/ or price stability of key nutrients for their food supply chain while balancing their nation’s other priorities and interests.

Fertilizer Consumption Of the 17 nutrients required by plants, nitrogen (N), phosphorus (P) and potassium (K) are the most critical and are needed in the largest quantities. Global annual consumption of fertilizers delivering these three major

Figure Figure 1010 Global Nutrient Consumption 2009

΄000 mt

FOB Value $B

% Global

Source: FAOSTAT

Nutrient

IFDC Est.* Developing Developed

Nitrogen (N total nutrients)

105,022

144,406

76,517

28,505

73%

27%

Phosphate (P2O5 total nutrients)

37,898

61,584

29,061

8,837

77%

23%

Potash (K2O total nutrients)

21,498

17,915

14,420

7,078

67%

33%

164,418

223,905

119,998

44,420

73%

27%

Total Nutrients

* at 2010 prices

8

΄000 mt

Developing Developed


nutrients approached 165 million metric tons (mmt) in 2009, with a free on board (FOB) value of about $225 billion (at 2010 prices) (Figure 10). Developing regions already account for nearly 75 percent of current global NPK consumption (albeit less than their near 80 percent share of global food consumption), with one-half of this consumption driven by China (31 percent of global consumption), India (13 percent) and Brazil (six percent). Of note, the population of Africa is similar to that of China and India (each at around one billion people); however, Africa consumes only around three percent of the world’s fertilizer due to its historical practice of extensive farming. As added perspective, the United States, as one of the top-three global consumers (after China and India), accounts for 11 percent of total NPK consumption.

Smallholder Farmers Commercial smallholder farmers in developing regions will remain major consumers of these fertilizers in order to play their role efficiently and fully in future food supply chains. Smallholder farmers have their own specific needs, which must be addressed to enable their successful contribution to these future food supply chains. Importantly, smallholder farmers require support in two ways: •

Reduced risk of crop failure – fertilizers that perform (with seeds) in the event of drought/heavy rains and/ or high humidity/temperature.

More assured yield in commonly encountered conditions – fertilizers that can handle varying soil conditions (e.g. high P-fixation, spatial and temporal variability), improve the yield of desired crops (adoption of high-yield varieties, reduced weed growth), facilitate the use of locally available reactive phosphate rock and improve yield in soils exposed to alternate wet-dry (AWD) cycles.

However, smallholder farmers are cautious about 'investing' in current fertilizer products, based on their life experiences, including concerns related to the possibility of crop failure due to climatic events, limited access to other improved inputs (seeds, crop protection products), varying levels of soil fertility and crop response, etc. These concerns are most often not addressed by sanctioned fertilizer recommendations that may have been developed 30-50 years ago. In addition to their aversion to risk, smallholder farmers are also hampered by a lack of information on best management practices such as timing of fertilizer application, efficient fertilizer formulations and fertilizer placement.

Specific Shortcomings of N and P Fertilizers N, P and K fertilizers are the most widely used fertilizers, primarily because virtually all crops require significant amounts of these nutrients for optimum growth. The only exceptions are legume crops that have symbiotic bacterial colonies associated with their roots, and therefore have the

ability to meet plant N needs through biological N fixation. However, legumes do require large amounts of P and K. Of the primary nutrients, N and P fertilizers are subjected to more chemically and energy-intensive production processes, are available in a number of formulations and forms (solid blends and liquids) and often 'carry' much smaller (often minute) amounts of secondary and micronutrients that are essential for maximum economic yields and improved nutritional value. These N and P fertilizers, however, are largely unchanged from the formulations and forms that were manufactured in the 1970s and 1980s and, as such, have characteristics that in the absence of best management practices result in significant loss of nutrients to the ecosystem. These losses produce negative economic and environmental impacts. Both N and P fertilizers also require complex production processes that lock in high economic cost and exaggerate the supply and pricing uncertainties of being a globally traded commodity. N and P in Use – Economically and Environmentally Unsustainable The availability of fertilizer N to plants is largely controlled by soil microbial processes. The N cycle in soils is complex, and under certain conditions large amounts of plantavailable N can be lost from the soil to the atmosphere or in drainage water. The N lost to the atmosphere is in various forms of nitrous oxide gases (collectively referred to as NOx gases), whereas the N entering water bodies via run-off or leaching is in the form of nitrates. The majority of nitrates found in sub-surface and surface waters results from crop production. The other primary nutrients (P and K) are not readily lost from soils, although runoffs containing P nutrients from crop production and animal waste can be significant pollutants in some bodies of water (Figure 11). Figure 11

Source of runoffs % * N

P

20

40

60

80

100

Crops Pasture, range Atmospheric deposits Urban areas Natural land

* Gulf of Mexico Sources: U.S. Dept. of Interior, U.S. Geological Survey

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Figure 12

ANNUAL UREA CONSUMPTION = 125 mmt

Used by plant

60 mmt

40%

NOx emissions 360 mmt ˜ of CO2 equivalent GHG = $9 billion imputed tax 50% lost urea market value $40 billion ˜ $6 billion (including natural gas for NH3 synthesis)

Assume 50% lost

65 mmt

If remediation of 3% of runoffs, cost $6 billion

˜

10% IFDC est.

less mobile, easily recycled (K) or have residual nutrient benefits for subsequent crops. For P fertilizers, the NUE can reach 90 percent under best management practices in which applied P is made slowly available for a number of crops over a number of years. However, in most developing countries the NUE of P and K will be much lower, particularly if soil erosion is a problem or if sandy soils are being cropped. Using conservative assumptions for lost nutrients due to low NUE, IFDC estimates that the total economic cost of NPK nutrients lost/unused is as much as $91 billion per year. (Figure 13). There are also additional economic losses due to sub-optimal yields and topsoil erosion.

Importantly, the amount of applied nutrient that is taken up by plants (referred to as 'nutrient use efficiency' or NUE) is a function of how well a farmer is able to match the placement, timing and quantity of applied nutrients to the plant’s needs throughout its growing cycle. In well-managed intensive farming systems in developed countries, the NUE of N can be as high as 55-60 percent, whereas in the developing regions where the majority of fertilizer use occurs, farmers (especially smallholder farmers) struggle to achieve an N NUE of 25-30 percent. The economic impact of low NUE is significant. For example, assuming an annual urea consumption of 125 mmt and an N NUE of 50 percent, up to $40 billion of the total price paid by farmers is lost annually. In addition, consideration of imputed environmental costs associated with the losses could be as high as $15 billion per year if GHG taxes and water remediation costs were assessed (Figure 12).

Any recovery of these losses would significantly benefit farmers in the developing regions where the majority of the increase in food demand is expected to occur. For example, a 50 percent improvement in the average NUE (25-30 percent) of N fertilizers in developing regions would capture some $10 billion per year of the current loss and improve yield as well.

The other major fertilizers (P and K) typically have higher NUE efficiencies, because they are considerably

Figure 13 Figure 14

Lost purchase price/year

Fert mmt

Nitrogen (N total nutrients)

262,555

550

Phosphate (P2O5 total nutrients)

94,745

Potash (K2O total nutrients)

35,830

FOB $/mmt* Mkt Value $B

Est Loss %

Loss $B

144,406

50%

72,203

650

61,584

25%

15,396

500

17,915

20%

3,583

223,905

41%

91,182

Total nutrients * at 2010 prices

10


Figure 14

4 barrels energy

1-ton urea

25 MM BTU if

˜natural gas = energy in 4 barrels of oil

N Fertilizer Production: An Increasingly Problematic HaberBosch Dependency The contribution of the Haber-Bosch process to the survival of the human population is undeniable – an estimated 35-40 percent of the world’s population would not have any food without the Haber-Bosch process of ammonia synthesis that 'fixes' nitrogen from the air to make it usable as a nutrient for crops. Unfortunately, the process has two attributes that are increasingly problematic in light of the marked shift in future food demand towards developing regions and the continuing concerns about energy sufficiency and environmental sustainability: •

The process uses a fossil fuel-based source of hydrogen as feedstock (Figure 14). Ironically, the essential nutrient that is the focus of the 'fixation' process – nitrogen – is free and widely available. However, the process to

"fix" the nitrogen uses hydrogen which is currently most economically sourced from natural gas. Thus N fertilizer production is dependent on a feedstock that is location-centric (natural gas sources) and subject to global pricing and supply-driven by its alternative use (as an energy source). •

The process is operationally complex and requires robust production facilities that can withstand high process temperatures and pressures. As a result, individual production sites are capital-intensive, which also makes them location-centric and requires largescale markets to justify their cost.

Scientific and technical developments have been underway for some time to find alternatives to the current commercial process across several dimensions – alternative hydrogen sources, lower operating parameters and even

Burrup Fertilisers ammonia plant in Australia.

11


Figure 15

Figure 16 UNRECOVERED P2O5 P2O5 MMT

Conceptual world environmental footprint from phosphoric acid-based fertilizers - 2009

Mined

13 mmt P2O5 other sources 25 mmt P2O5

Sulfuric acid 560 mmt ore

76 mmt P2O5 ore

53 mmt P2O5

37 mmt P2O5

Mining

Beneficiation

Concentrate

Phos Acid

Ore content 30% P2O5 ~ 15% P O not recovered 2 5 ~ 8% mmt P O 2 5 loss (in mining) ~ 23 P2O5 loss Move ~ 5601,700 mmt overburden

Other uses 10 mmt

Fertilizer

10-15% P2O5 Other uses not recovered 12 mmt

185 mmt gypsum ~ 4-9 mmt P O loss 2 5 ~

Fine waste Waste piles

To Beneficiation

Use 38 mmt

Unlike N, P fertilizers are produced from a finite resource – phosphate rock. Of note, P is a vital ingredient for the survival of all plants and animals. While the known sources (P 'resources') are vast, the economically accessible supply (P 'reserves') accounts for approximately 25 percent of the resources. The higher-grade, lower-cost reserves are the primary targets of mining operations. As demand for P fertilizers grows and mining and processing become more costly, the cost of phosphate rock and P fertilizers will increase. Converting high-grade mined phosphate rock ore to phosphoric acid is the prevalent method for the

Figure 17

46.0

38.0

84

4.4

3.6

8

41.7

34.3

76

12.6

10.4

23

Concentrate

29.1

23.9

53

Other use Conc for Conversion

Soil erosion, runoffs

10.0

10

29.1

13.9

43

4.1

1.9

6

25.0

12.0

37

Unrecovered Phosphoric acid Other use

12.0

Fertilizer use

25.0

Non phos acid source

12.9

Tot P2O5 fertilizer

37.9

Unrecovered

P Fertilizer Production: A Wasteful Nutrient Capture Process

Total

Unrecovered

IFDC est.

new methods to synthesize NH3 (electro-chemical). If successful, these could result in future manufacturing facilities that would be 'lighter' and more easily distributed throughout the developing regions (closer to future markets), thereby reducing capital and logistics costs and decoupling the feedstock sourcing from the global markets.

Other

Unrecovered

Stacks Ocean disposal

Surrounding production facilities

Fertilizer

Value

Locked up

MMT

$/MMT

$ Billion

21.0

1,100

manufacture of P fertilizer (around 72 percent of total P nutrient) and requires a two-step process, starting with beneficiation to remove unwanted materials followed by chemical conversion using primarily sulfuric acid. The process, however, creates large amounts of waste, which includes substantial amounts of unrecovered P2O5 and sulfur in the form of phosphogypsum. IFDC estimates that between 30 and 50 percent of the P2O5 equivalents in the mined ore is unrecovered and is contained in waste ponds and piles (Figure 15). At current P consumption levels and prices, the P2O5 equivalents unrecovered globally could supply nearly $25 billion of P fertilizer each year (Figure 16). In addition, these waste ponds, piles and stacks require large areas of land and resultant run-off poses an environmental risk.

Missing Micronutrients Long-term studies in India have shown that, while crop yields have increased with increased fertilizer usage (specifically N but also P and K), efficiency per unit of fertilizer applied has fallen (Figures 17 and 18). In other soil studies in India, there is evidence of the gradual reduction

90

1,600

800

80

Total Fertilizer Use 400

40

0

0

1966/67

1971/72

1976/77

1981/82

1986/87

1991/92

1996/97

2001/02

2006/07

N Fertilizer Use in Cereals (Million tons per year)

1,200

Cereal Production

80 8

N Use

70

6

60 50

4

N Efficiency

2

40 30

0 1970

1975

1980

1985

1990

1995

2000

2005

20 2010

Partial Fertilizer Productivity (kg grain per kg N applied)

120

Cereal Production (million mt)

Fertilizer Use (million mt N+P2O5+K2O)

10

12

23

Figure 18

160

1961/62

12 25


Figure 19 Figure 19

Elements deficient

Foodgrain production (mt)

400 350

N 1950

Fe N 1960

K P Zn Fe N 1970

Mn S K P Zn Fe N 1980

B Mn S K P Zn Fe N 1990

B Mn S K P Zn Fe N 2000

Mb B Mn S K P Zn Fe N

Mb B Mn S K P Zn Fe N 2010

2025

300 250 200 150 100 50 0

Emerging deficiencies of plant nutrients in relation to increased foodgrain production

of essential secondary and micronutrients required by plants (Figure 19), suggesting that these essential elements may now be limiting yields and reducing the efficiency of generally applied primary fertilizers. An additional concern is that the lack of sufficient secondary and micronutrients results in crops with reduced nutritional value which contributes to poorer diets and health in plants and humans. In IFDC’s view, these unintended nutrient deficiencies are a result of imbalanced fertilization programs, often caused by a misapplication of well-intended policies. An

example is India’s past policy of heavily subsidizing urea compared with other fertilizers. This policy, combined with farmers’ financial constraints, led to a gradual reduction in the use of P, K and other nutrients and an overuse of the cheaper urea. A companion program supporting the use of compound fertilizers with at least minimum levels of other nutrients failed to fill the gap due to higher prices and generally poor availability of these products. India has recently moved to a nutrient-based subsidy program to rectify this situation.

Workers inspecting a large-scale fertilizer drum granulator before beginning operation.

13


Figure Figure 2020 NUTRIENTS: Technology Focus Over Time Nutrient Delivery

In-Use Optimization

Problem Mitigation

R&D <0.1% of sales

SEEDS: Technology Focus Over Time Yield Enhancement

Environmental Resistance

Genetic Optimization

Industry Response

product (e.g. diammonium phosphate [DAP]) or physical addition and/or mixing (micronutrients sprayed on major nutrient granules, blended fertilizers with multiple nutrients of equal-sized granules bagged together). Most of this evolution occurred by the 1980s. As a result, current research and development spending by the fertilizer industry is negligible (less than 0.1 percent of sales).

The fertilizer industry has addressed these concerns with both educational support and improvements in production processes and application methods (seeking essentially to improve sub-optimal yield from, and mitigate problems associated with, current fertilizers). Factors shaping the industry response include: •

Significant economic and environmental issues attributed to current fertilizer use became much more pressing beginning in the 1990s when several factors took on greater prominence concurrently. These included: global environmental and land and water scarcity concerns; persistent and large cost increases of commodities; and the economic development surge in major developing countries (such as China, India and Brazil).

With large up-front capital costs for mining and production and the need to meet sharply rising fertilizer demand in the developing regions, the industry’s response has been understandable – manage for tonnage throughput to meet demand, and subsequently follow up with in-plant and in-field yield optimization and problem mitigation.

In IFDC’s view, the magnitude of the demand for fertilizers in the future now requires a more fundamental response – technology needs to be applied again to the industry to develop a new generation of intelligent fertilizers that minimize the economic and environmental drawbacks of current fertilizers and ensure maximum crop production to meet future food demand.

A comparison to the fertilizer industry’s 'companion' industry (seeds) shows an informative difference in the development paths followed by the two industries (Figure 20): •

14

R&D 9% of sales

Technically, today’s fertilizers are essentially unchanged from those introduced at the advent of the Green Revolution in the 1960s and 1970s. The evolution from those fertilizers focused on the development of compound fertilizers that simultaneously deliver several nutrients in one

In contrast, the seed industry – with fundamentally different economics and environmental considerations – has followed a path of technical innovation: continued development of higher-yielding varieties; the addition of new features such as resistance to pests and adverse climatic conditions; and most recently the use of genetic optimization to further yield and 'hardiness.' Companies in the seed industry spend about nine percent of sales on research and development.

Fertilizers – A Global Industry A key feature of the fertilizer industry is the global supplydemand balancing that occurs – over 40 percent of global fertilizer tonnage is traded (imported/exported) (Figure 21). The traded proportion and supply points differ markedly by nutrient, most notably for K (traded in the form of potash). While about one-third of N and P tonnage is traded, virtually all potash is traded; and the proportion


Figure 21 Figure 21

N

P

K

NPK

16%

100%

95%

42%

37%

100%

88%

65%

% OF GLOBAL NPK CONSUMPTION (100%=170 mmt in 2010 by Nutrient) 61%

23%

% OF GLOBAL NPK CONSUMPTION IMPORTED/EXPORTED 30% 35% % of Global NPK imported/exported 44% 19% TOP 5 EXPORTING COUNTRIES - % OF GLOBAL EXPORTS 43%

72% Largest reserves, lowest cost natural gas (or coal gas) 20

Russia China Ukraine Saudi Arabia US

Largest deposits, most efficient mines

40

20

15 12

US

7

Russia Morocco Tunisia

40

20

22 19

China

5 5

17

Belarus

8 6

Germany Israel

15 10 7

Accordingly, decisions for new plant investment ($1$1.5 billion, two to three years of construction) and location usually involve a combination of feedstock and logistics costs to meet market demand most economically. However, once plants are in operation, producers with the lowest feedstock and energy costs (gas-rich countries) can become competitive in off-shore markets when their gas cost advantage overcomes market-delivery costs (causing home market producers to mothball their operations). •

Nitrogen is most widely produced by the HaberBosch process using natural gas as both feedstock and energy needed for the process (although China also uses coal gas because of abundant coal reserves).

N

35 20

Russia

This global trading is inherent given the sourcing method necessary for each of these primary nutrients under current technology; while specifics differ, each nutrient requires capital-intensive production facilities located close to advantageous feedstock sources (Figure 22).

Figure 22

40

Canada

of exported tonnage handled by the top five exporting countries increases from 40 to 45 percent for N to nearly 75 percent for P and 90 percent for K. Notably, while only 30 percent of urea – the most widely used N fertilizer in most developing regions – is traded, that trade represents nearly 45 percent of total traded nutrient tonnage and value.

Largest deposits, most efficient mines

Phosphate rock for P is more widely distributed than K and is mostly found/mined in shallow marine fossil beds. Mines and production facilities are expensive (also $1-$1.5 billion, three to four years commissioning time). Phosphate rock characteristics vary widely and can result in significant yield losses during mining and

P

K

INVESTMENT 2500 TPD plant: US $1-1.5 billion Time: 3 years

New mine: US $1-1.5 billion Time: 3-4 years

New mine: US $6-10 billion Time: 5-7 years

Mine/ore characteristics Energy, water, labor costs Sulfur cost, NH3 cost (DAP) Environmental costs

Mine/ore characteristics Energy, water, labor costs Environmental costs

PRODUCTION COST DRIVERS Natural gas cost : 85-90% of operating cash cost of NH3

PRICE DRIVERS Base price set by production costs + post-plant FOB costs + transportation and tariffs/fees + profit margin ' Spot' price floor set by operating cash cost of next most efficient supply source, plus: Change in natural gas price

Change in NH3 , sulfur prices

(Plants often mothballed if lower gas cost producers enter)

View of future supply-demand balance

View of future supply-demand balance

15


entering the supply chain. Conversely, in industry sectors where capacity is tight, customers are motivated to go at least to, and often above, this next most-efficient producer’s cash cost in order to encourage more suppliers into the supply chain or to get more favorable supply arrangements from existing suppliers.

beneficiation. The economics of mining and postmining logistics costs determine the viability of supply sources, both for long-term investment decisions and for determining which operating mines will enter or leave the supply chain as demand fluctuates. •

Potassium ore for potash is located in deep ancient sea beds in a few countries and mines are extremely expensive ($6-$10 billion, five to seven years commissioning time). Five countries account for nearly 90 percent of the world’s potassium supply, with Canada accounting for 35 percent of the total. Economic decisions are similar to those of P, although because of the highly concentrated nature of the K resource base, these decisions are often elevated to national policy levels.

Given the global inter-connectedness in the supply and demand of fertilizers, fertilizer pricing has to be global. The price level for fertilizers must follow the same microeconomic principles that govern the pricing of any similar commodity (longer-term price levels reflect basic cost structure, the industry’s competitive and capacity situation and the demand profile of the industry’s customers [the value various customers/customer segments put on the commodity]). In the short term, a commodity's market price is set at a level which is just below the operating cash cost of the next producer who could most efficiently meet a demand that exceeds the capacity of existing (more efficient) suppliers. Two important aspects of this principle in practice are: •

In industry sectors which have spare capacity, producers are motivated to keep prices as low as needed to discourage more inefficient unused capacity from

N, P and K fertilizer products.

16

While still following fundamental micro-economic principles, price levels can be influenced by governments. Governments influence either the industry’s cost structure or the capacity available to serve a market demand by regulating the price and/or availability of key feedstocks or end products that are sourced from their jurisdictions. This influence can be applied to both global and local markets, and is usually reflected in policies that involve export/import tariffs, royalty fees, subsidies, quotas, etc. This influence, when exercised, must be in concert with the multiplicity of trade agreements that govern today’s world economy.

In developing regions, food security is a priority for governments. The global characteristics of the fertilizer industry influence the ongoing policy interventions deployed to ensure secure supply and/or price stability of key nutrients for their food supply chain, while balancing their other national priorities and interests. For example: •

India, which has a supply-home demand deficit in N (and other nutrients), regulates domestic urea prices depending on whether it can afford to allow the use of scarce imported natural gas for the domestic production of ammonia for urea versus its value as an energy source for other development. If not, India will import urea at lower-than-regulated domestic price.


Figure 23 12

$/MMBtu

Global climate upheavals Recession uncertainties Speculation?

$700

Nymex

10

$600

8

$500

6

$400

4

$300

TTF

2005

2006

2007

2008

Concerns about cost implications for future capacity additions

Sulfur formed fob Iran

$200 $100

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct

2 0

Concerns about inflationary pressures on operating costs

Sulfur (formed) $/mt spot fob Iran

15

2009

$0

2010 Source: ICIS Heren

2000 2001 2002

2003 2004 2005 2006 2007 2008

2009 2010 2011

1400

China shuts down its export tonnage

1200

Sulfur price rises DAP, U.S. Gulf

US $/mt

1000

MOP, Vancouver 2

Major pressure on government fertilizer price supports

800

Demand restarts

1

Russia starts price cuts as demand drops

New concern about staple food price inflation and public reaction

600 400 200

Urea, Arab Gulf, prilled 2 0 Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

China negotiates longterm K supply contract at favorable price

World fertilizer prices doubled in 2007 and reached all-time highs in April 2008. But prices began dropping dramatically in October and November, 2008. FOB = free on board (average price, with buyer paying freight and insurance, to destination). DAP = diammonium phosphate. MOP = muriate of potash. Graph by IFDC

Source: 1. Derived from Green Markets. 2. Derived from FMB Weekly.

In contrast, China has deliberately built supply surfeit to export N using its coal reserves, yet China opportunistically imports N for some of its southeastern coastal regions if delivered costs from off-shore supply sources have lower delivered costs compared with domestic supply points.

During and following the fertilizer price hikes in 2008, several actions were observed, precipitated initially by the sharp rise in natural gas and sulfur prices that followed a series of climatic disasters as the worldwide economic situation was worsening; these actions reflected the inherent global dynamics of the industry (Figure 23). For example: •

In late 2007, natural gas and other energy prices (especially oil) rose in the wake of speculation about supply shortages following climatic disasters and uncertainties about the growing global economic slowdown.

In 2008, producers raised urea prices in direct correlation to natural gas price increases; muriate of potash (MOP) and DAP prices rose as suppliers and consumers entertained concerns about potential implications for future capacity addition costs. Notably, the price for DAP rose more than MOP because DAP had to absorb the additional impact of the natural gas price increase on ammonia production and an excessive price increase in sulfur.

The price spikes in fertilizers added to an already occurring price inflation of basic foods (which sparked widespread public protest) and increased pressure on developing countries’ budgets in those situations in which a fertilizer price-support subsidy program

was in place. That is why the Bangladesh government embraces IFDC’s urea deep placement (UDP) initiative as an effective method to decrease fertilizer imports. •

As economic concerns abated in early 2009, prices for energy and fertilizers returned to pre-spike levels, with potash lagging behind urea and DAP until Russian producers forced a global price reduction in response to falling demand.

In early 2010, natural gas prices rose again (driven by oil price increases) and re-introduced a 'milder' version of the 2008 speculative concerns about fertilizer supply; notably, DAP prices rose more than urea and MOP prices, but this time because China (an important supplier) stopped its exports, sulfur prices increased, and demand recovered (particularly in North and South America) from the demand destruction caused by the high prices in 2007/2008.

Concurrently, China attempted to negotiate long-term supply contracts for MOP (which it 'has' to import for its growing food demand).

In 2011, China publicly expressed concerns about the concentration of potash suppliers (and therefore control of prices), especially in Canada; concurrently, a major Australian mining company launched an acquisition bid for the world’s largest potash company but was rejected by the Canadian government on the grounds of "no net benefit to Canada."

In 2011, China also extended periods of DAP and urea export tariffs, reducing the global supply of both products in the international market.

17


3. Next Generation Fertilizer Technology Priorities Priority Outcomes Reflecting (1) the magnitude of the future food supply challenge in the face of increasing land and water scarcity and uncertain climatic conditions, (2) the continued role that smallholder farmers will have to play in future food supply chains and (3) the inherent flaws in current fertilizers, advanced technologies must be applied to introduce new fertilizers and improved production and sourcing methods that deliver the following priority outcomes: New Fertilizers Introduce a new generation of intelligent N and P fertilizers in developing regions which will be more failsafe, adaptive, eco-sensitive and economical, with the following goals for improved performance: •

Reduced environmental impact of fertilizer application.

Improved yield and yield efficiency (improved yield/ monetary cost of applied fertilizer).

Reduced risk of crop failure in adverse climatic conditions (critical for smallholder farmers).

Increased ease and assurance of proper nutrient application (including improved micronutrient delivery, convenient and simple applicators and lowcost fertilizer quality [nutrient content] detection kits).

self-sufficiency, costs and environmental impact of fertilizer sourcing for developing regions: •

Maximize use of untapped locally available nutrient sources (e.g. lower grade or smaller phosphate rock deposits, waste streams containing nutrients).

Reduce dependency on imported feedstock sources (particularly natural gas for ammonia synthesis).

Significantly lower the capital intensity of production, particularly for nitrogen fertilizers (e.g. Haber-Bosch at lower temperatures and pressures, novel approaches to ammonia synthesis or urea sourcing).

Technology Strategy The following guidelines will be used to harness technology to deliver the priority outcomes: •

Focus on N and P fertilizers: These fertilizers have the most significant shortcomings and represent the greatest source of future benefit – economic, environmental and food security – for developing regions.

Drive for improved NUE as the primary mechanism to achieve performance improvements. NUE improvement simultaneously addresses the economic waste and environmental impact of current fertilizers. Importantly, NUE improvement will be targeted to the needs of smallholder farmers who require an acceptable cost and have specific needs; accordingly, new fertilizers should deliver:

o

25-50 percent increase in NUE.

Production Processes

o

25 percent improvement in fertilizer yield-efficiency.

Introduce improvements or alternatives to current production methods in three areas that will enhance the

o

Two to three 'variants' to specifically address the needs of smallholder farmers – lower risk of crop

Renewing the Green Revolution.

18


failure, suitability to most difficult but common growing environments, ease and accuracy of proper micronutrient delivery. •

o

Use multi-disciplinary sciences to achieve improvements: The three foundational sciences for crop production (plant, soil, nutrient) will be combined with other advanced technologies (e.g. molecular biology, nanotechnology, coatings sciences, genetic modification) to deliver the targeted outcomes. An initial view of the areas likely to benefit most from the application of multi-disciplinary know-how include the following: o

Developing improved approaches that more conveniently, accurately and/or economically deliver micronutrients and allow field-level nutrient quality detection to provide greater nutrient assurance to smallholder farmers. During its proof of concept work, IFDC identified some innovative approaches to deliver this assurance: core seed technology that incorporates micronutrients more accurately and conveniently with major fertilizers than currently used production methods (Figure 26); and 'solid state' electronic detection of the composition of fertilizers to ascertain the level of desired nutrients and unwanted substances (Figure 27).

Manipulating the fundamental mechanisms that govern N and P NUE behavior and reducing the cost of controllers and inhibitors to improve yield and economics and environmental impact (Figure 24): Initial developments for N fertilizers might focus on off-patent coatings and proprietary versions might be considered for later developments for higher NUE performance or to widen the performance spectrum versus earlier coatings. Longer-term developments for both N and P fertilizers might benefit from the application of plant sciences to influence nutrient release and availability by plant-generated signals (Figure 25).

o

Tapping unconventional locally available nutrient sources to enhance nutrient self-reliance, economics and provide easier access for smallholder farmers. Two specific opportunities include nutrient recovery from waste streams and the utilization of locally available phosphate rock (present in several developing regions but often too low-grade [e.g. deposit size, reactivity of the phosphate rock] and/ or too remote for use in prevalent production processes).

Figure 24 FUNDAMENTAL NUE MECHANISMS

N – Control release

RELEASE CONTROLLERS

Facilitate timely release

Timed

Triggered

P – Increase availability

INHIBITORS

BRIQUETTES

BINDERS

MODIFIERS

SIGNAL AGENTS

Prevent early release During crop Post-crop

Facilitate more uptake

Prevent fixing

Improve solubility

Increase proximity

Chemical

Biological

Placed

Soil-related

Plant-related

Figure 25 Plant exudates triggered coatings

3. Plant Modifications

N biofixation in nonlegumes

Offpatent coatings

N NUE NUE genes in crops

Supergranules

Cheaper polymer/ material coatings

Offpatent inhibitors

New cheaper inhibitors

2. Controlled Release Fertilizers

P NUE SOIL MODIFICATION Organic Matter P Solubilization, Mycorrhiza Balanced Fertigation Anionic Polymer Binders PLANT GENOME MODIFICATION Root Distribution/Uptake Root Acidulation/Solubilization

1. Right Placement

19


Figure 26

Figure 27

Micronutrient Delivery Current approach Spray or Mix

Future approach 'Core Seed'

Post-production addition of micronutrients

In-production addition of micronutrients

Difficult accuracy control Inconsistency

Accuracy Consistency Convenience Versatility

Seeking fundamental breakthroughs to address the inefficiencies and unfavorable economic factors in the Haber-Bosch process for N fertilizer manufacture; priorities for these breakthroughs include alternative hydrogen sources to replace natural gas as the primary feedstock, reduced temperatures and pressures during conversion and synthesis and alternative methods (e.g. electro-chemical) of ammonia synthesis.

Implementation Considerations Development and commercialization of a new generation of intelligent fertilizers with improved sourcing are expected to span a 10- to 15-year period reflecting the following: •

Improvements and innovations will be pursued across several facets of fertilizer performance and

Primary nutrient

Electronic device Checks fertilizer in solid form

Micronutrient core seed

The application of bio-sciences and nanotechnology could be potentially fruitful. o

Low-Cost Field-Level Detection Kit

sourcing approaches, which collectively will represent a coordinated 'technology agenda' needed to deliver sustainable food security to developing regions. •

The development and commercialization of individual improvements will occur over varying timeframes influenced by the existence and/or commercial applicability of potential technology solutions; these timeframes will range from within five years to over 10 years.

Implementation of the technology agenda will be guided by a philosophy of delivering the earliest possible commercialization of first-generation improvements followed by progressive improvements that build on earlier advancements in technology.

These implementation considerations are reflected below in a preliminary phasing of the commercial delivery of the technology agenda (Figure 28):

Figure 28 New intelligent fertilizers - three-phased development agenda

Phase 1 3-5 years Higher N NUE fertilizers with known technologies 1-2 variations for SHF crop failure mitigation Alternative delivery of micronutrients Nutrient detection kit Nutrients sourced from waste recovery

20

Phase 2 6-10 years Further improved N fertilizer with wider performance spectrum and lower costs 2-3 variations for SHFs’ varied conditions Nutrients sourced from waste recovery Direct application of local phosphate rock Alternative hydrogen feedstock source for Haber-Bosch process

Phase 3 10+ years Intelligent N fertilizers incorporating plant modifications (NUE genes, N bio-fixation in non-legumes) Lower cost Haber-Bosch process with lower operating temperatures and pressures Alternative processes for ammonia synthesis


Fertilizers are key to improving the worldâ&#x20AC;&#x2122;s food security; however, current technologies are deficient in many ways.

21


4. VFRC – Purpose and Organization

locations. Their interactions will be facilitated by the most appropriate communications and information networking technology (e.g. secure intranet) that is being established and will be maintained by the VFRC Program Office.

Organizing Concept In essence, the VFRC is a comprehensive multi-year development and commercialization 'program' of IFDC, anchored to its technology agenda and comprising several concurrent projects undertaken over a period of up to 15 years. Key elements of the organizing concept to oversee and manage this program are as follows (Figure 29): 1. Governance While the VFRC will legally operate as an initiative of IFDC and will ultimately be the fiduciary responsibility of the Board of Directors (BoD) of IFDC, the VFRC will operate with significant autonomy with its own Charter which will have the legal force of an IFDC Bylaw. The VFRC has its own Board of Advisors (BoA) (Figure 30) – established in May 2010 – which is supported by three committees – Executive, Science and Commercialization (Figure 31). The Executive Committee has seven members; the Science and Commercialization Committees have four BoA members (with subject matter experts added on a project-by-project basis). The committees are the critical 'gatekeepers' for project definition, team selection, progress and completion. 2. Global Network of Virtual 'Partners' Individual projects will be staffed by specifically selected experts (and/or teams) with multi-disciplinary skills and experiences, working primarily from their current

It is anticipated that 50-75 experts will be networked at any point in time, with as many as 300 experts engaged over a five-year period and potentially available for further developments and follow-on support. 3. Central Program Office A small core staff team, led by the Executive Director, is located in Washington, D.C. to coordinate development efforts, monitor and report on results and accept legal accountability. The Executive Director reports to the President and CEO of IFDC and is responsible for the dayto-day operations of the VFRC and overall program and project management. Staffing (for program management, functional expertise and administrative support) will consist of 10-12 individuals initially, increasing to a maximum of 18-20, depending on project volume. 4. Funding The VFRC will generate its own funding base, distinct from IFDC (but legally reflected in IFDC’s accounts), to cover the VFRC operating budget and for project grants. A preliminary funding target of $75 million has been established for the first five-year period, with $10 million for Year 1. Individual project grants could range from $1 million to $10 million for longer timeframe projects.

Figure 29

Funding (via IFDC)

Science Committee

Board of Advisors

VFRC Board of Advisors Commercialization Committee

Executive Director

Commercialization projects

Development projects

Global virtual partner network

Development partners

22

Commercialization partners

Membership: Based on experience, industry and geography Responsibilities: Provide overall guidance to the VFRC Help determine and prioritize the most pressing unsolved problems and their potential to improve global food security Develop the research agenda in broad terms Assist in recruiting project partners, securing needed resources Meetings: Timing and frequency determined by BoA


Figure 30

VFRC Board of Advisors Dr. Jimmy G. Cheek – Chairman Chancellor University of Tennessee Knoxville, TN, USA

Dr. Roelof (Rudy) Rabbinge Chair, Science Council and Partnerships Consultative Group on International Agricultural Research (CGIAR) Wageningen, The Netherlands

Dr. Marco Ferroni Executive Director Syngenta Foundation for Sustainable Agriculture Basel, Switzerland

Dr. Amit Roy President and Chief Executive Officer IFDC Muscle Shoals, AL, USA

Mark Huisenga Agriculture Programs Advisor U.S. Agency for International Development (USAID) Washington, D.C., USA

Dr. Renfang Shen Director General Institute of Soil Science, Chinese Academy of Sciences (ISSCAS) Director, State Key Laboratory of Soil and Sustainable Agriculture Nanjing, China

Assétou Kanouté Assistant Professor Polytechnic Institute for Rural and Applied Research University of Mali Katibougou, Mali

Dr. A.K. Singh Deputy Director General, Natural Resource Management Division Indian Council of Agricultural Research New Delhi, India

Luc Maene Director General International Fertilizer Industry Association (IFA) Paris, France

Ajay Vashee President International Federation of Agricultural Producers (IFAP) Ndola, Zambia

M. Peter McPherson President Association of Public and Land-Grant Universities (APLU) Washington, D.C., USA

Dr. Juergen Voegele Director Agricultural and Rural Development The World Bank Washington, D.C., USA

Honorable Prof. Ruth Oniang’o Chairperson, Sasakawa Africa Association (SAA) Founder and Editor-in-Chief African Journal of Food, Agriculture, Nutrition and Development Founder and Leader Rural Outreach Programme Nairobi, Kenya

Dr. Prem Warrior Senior Program Officer Agricultural Development Group (Science and Technology Team) Bill & Melinda Gates Foundation Seattle, WA, USA

Figure 31 Executive Committee Dr. Jimmy Cheek (Chair) Dr. Rudy Rabbinge (Vice Chair) Mark Huisenga Peter McPherson

Prof. Ruth Oniang’o Dr. Juergen Voegele Dr. Prem Warrior

Executive Director Sanjib Choudhuri

Science Committee Dr. Rudy Rabbinge (Chair) Dr. Marco Ferroni

Dr. Renfang Shen Ajay Vashee

Commercialization Committee Dr. Prem Warrior (Chair) Mark Huisenga

Assétou Kanouté Luc Maene as of October 2011

23


Links to IFDC As previously noted, the VFRC will operate with significant autonomy while legally categorized as an initiative of IFDC. In addition, the VFRC will have other links to IFDC that offer meaningful benefits either to the VFRCâ&#x20AC;&#x2122;s operations or to its new fertilizer technology development and commercialization agenda. â&#x20AC;˘

The accounts and financial activities of the VFRC will be subject to all IFDC internal and external

Figure 32

Figure 33 IFDC BoD

VFRC BoA President & CEO Executive Director Director of Operations

VFRC Financial Accounts

Separate financial statements Consolidated with other IFDC accounts for public auditing and reporting purposes To include any support services provided by IFDC and funded by VFRC To include all reasonable expenses for BoA travel and VFRC interaction

Accounting Manager

Urea supergranules shown on a demonstration site in Kenya.

24

audit requirements and procedures; IFDC will assign an Accounting Manager to the VFRC to aid in this responsibility and to assist the Executive Director in the execution of budgetary and financial management responsibilities (Figure 32). A summary of the financial control arrangements is shown in the diagram below (Figure 33).

VFRC Accounting Manager

Assigned from IFDC, reports to IFDC Director of Operations Located in VFRC Program Office Assists VFRC Executive Director in execution of budgetary and financial management responsibilities Provides VFRC program and financial status reports at each BoA meeting


Figure 34 VFRC Project Management Process Board of Advisors

Likely benefits and realization timeframe High-level 1development priorities

Skill sets and funding requirements

Science Committee

Adaptive or applied research Specific 2development projects

Competition or sole source

BoA and both Committees Market benefits delivered Viable 3 commercialization projects

Implementation and adoption requirements

Commercialization Committee Market success targets

Industry players

non-industry 4 Local parties

VFRC implementation partners

Go-to-market, financial qualifications

BoA, Executive Director: Incentive structure

Project Management Process The VFRC Project Management Process (PMP) is the core 'engine' that will be deployed by the VFRC to move its technology agenda into commercial reality (Figure 34). It will be the primary tool for the VFRC BoA, its committees and the Executive Director to initiate priority projects; to select project teams; to allocate funds; to ensure the proper balance between development and commercialization; and to manage, monitor and report progress. Important considerations to be reflected and balanced in initial project selection by the BoA will include: •

Primary market benefit and likely timeframe for development and follow-on commercialization. High-level commercialization implications (e.g. accessibility and affordability by developing markets and smallholder farmers, likely interest by established industry players) will need to be considered. Know-how required – i.e., applied versus adaptive research, few versus several disciplines, available intellectual property (IP) (open innovation sourcing) versus project-generated IP (collaborative innovation sourcing). A corollary consideration will be the nature, extent and sequencing of interactions required between multiple disciplines and skill sets. Available 'expert' community (skills, resources, locations, likely availability), and accordingly the pros and cons of competitive, invited or sole sourcing of project partners. Note: A major donor may desire a specific 'cooperating partner' to be considered for a project; it will be the BoA’s decision whether to accept. Likely funding required and its timing, in absolute terms and in relation to the VFRC’s overall funding base.

Projects selected for development will be converted into detailed requests for proposals (RFPs) with guidance from the Science Committee, which will include the

merits of adaptive versus applied research and the most likely 'expert' communities to be targeted (usually for competitive bidding but occasionally for invited or sole sourcing), and the funding available. Final proposals and team selection(s) for development projects will be made by the Science Committee and approved by the BoA. Development projects which are successfully completed and ready for commercialization will be reviewed and prioritized jointly by the Science and Commercialization Committees. •

Key criteria for selecting projects for commercialization will be market benefits delivered by the project (particularly to smallholder farmers) and the requirements/challenges for adoption and implementation, including the availability and readiness of likely commercialization partners.

Projects prioritized for commercialization will be converted into RFPs with guidance from the Commercialization Committee on market success targets (e.g. farmers served, tonnage used) and minimum go-to-market and financial qualifications needed of potential commercialization partners. Projects selected will be ratified by the BoA.

Depending on the situation, projects prioritized for commercialization will be offered simultaneously to a number of 'qualified' invited partners (for widespread early adoption) or to potential partners for competitive bidding. These commercialization partners will likely include: •

Global or pan-regional industry players committed to smallholder farmers.

Local industry players or entrepreneurs with good corporate social responsibility (CSR) standing and financial capability.

VFRC-identified 'implementation partners' with unique relationships with smallholder farmers but who will require funding (e.g. from venture capitalists).

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Intellectual Property The VFRC will pursue both open (i.e., using sourced IP) and collaborative (i.e., using VFRC project-developed IP) innovation to maximize the value from the multidisciplinary sciences that will be tapped and to facilitate early commercialization. Additionally, projects may have a single major donor or multiple/general donors. VFRC IP Principles As an over-arching principle, any IP involved in a VFRC project (i.e., sourced or developed) should reach developing regions on 'advantageous' commercial terms. This principle is depicted in the exhibit below (Figure 35). In essence: •

Any VFRC-developed IP (whether single, multi- or general donor funded) will be available openly for developing markets.

Any sourced IP will be 'paid for' by commercialization partners benefiting from the IP (e.g. royalties or fees) and will be offered at a discounted price to farmers in developing regions.

In all instances, VFRC will act to ensure that there are no encumbrances to open and advantageous access to VFRC IP in developing regions.

Applying urea supergranules in Bangladesh.

In practical terms, VFRC will have 'template' IP agreements reflecting these principles that will be used with every VFRC project, with final IP arrangements established on a case-by-case basis.

Figure 35 VFRC Intellectual Property Principles INNOVATION IP SITUATION

Developed by project (collaborative innovation)

Donor/co-op partner can have IP rights for developed markets; otherwise VFRC has rights VFRC will have IP rights for developing markets

Sourced for project (open innovation)

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Multiple or general project donors

Single project donor

VFRC has IP rights for all markets, for open public use VFRC may sometimes seek IP patent for subsequent licensing

Commercialization partner will be responsible for all sourced IP licensing fees VFRC will seek a 'price discount' from a commercialization partner for a product sold in developing markets


Key Supporting Programs

Figure 37

Communications and Marketing

VFRC Fundraising Program

A guiding framework has been established for two activities essential to the successful continuation of the VFRC-marketing and fundraising programs. Actively marketing and promoting the VFRC will be targeted initially to help expand the VFRC's programs and subsequently will encourage adoption as new fertilizers are available for commercialization (Figure 36). In the initial stages, donors/supporters and potential project partners will be important audiences (and will remain so). The broader agricultural community (farmers, extension agents, rural community leaders, supply chain participants, governments, etc.) will become important for commercialization. Vehicles used will match the audiences and will comprise a combination of public and targeted speaking engagements and discussions forums, the support of influential individuals as spokespeople and targeted media outreach through multiple channels.

'Vision for a decade' Leadership funders Donor considerations: Responsiveness Reporting accuracy, transparency VFRC institutional quality VFRC term commitment, integrity, expertise

General contributions are those offered in support of the program as a whole and offer maximum flexibility to program management. Alternatively, contributions may be directed to support specific projects.

In-kind contributions will generally be of the type whereby a donor provides funding directly to a 'cooperating partner' to cover its cost of participating in a project (e.g. when a national government agrees to support the participation of a national research organization).

A Challenge Fund is also being considered as a mechanism to provide competitive grants for projects that further the VFRC’s research and development or commercialization agendas.

Launch and nurture VFRC

Key Messages

Vehicles Public Engagements

Audiences Donors

Need for urgent action, support VFRC Today’s fertilizer cannot meet tomorrow’s daunting global challenges VFRC has tapped the best minds to bring the new generation of 'smart' fertilizers that are also ecoand smallholder farmsensitive

Targeted Engagements Mission Caliber Agenda Progress

'Expert' Community Influential 'Spokespeople'

We must act together

Media Coverage

Crop Production Stakeholders

Direct to donor: Targeted Open (grant writing) Corporate (in-kind contributions) Implementation partners follow-on Third parties (selectively)

Accordingly, flexibility in fundraising may be a key to achieving the VFRC’s mission and the matching of resources to objectives. Contributions to support the activities of the VFRC may be of several types – general or directed, cash or in-kind.

VFRC Marketing Program

Encourage new fertilizer adoption

Supporting funders, channels

Lead fundraisers

Central database and communication management system

Figure 36 Goals

Campaign model

Conclusion The VFRC will be the coordinating body to deliver the next generation of fertilizers and fertilizer technologies to the world's smallholder farmers – 'global research to nourish the world.'

Donor Support Equally important, donor support will be needed to fund the VFRC for an extended period of time and will require a 'campaign model,' which in essence promotes 'a vision for a decade.' The donor base will comprise a select group of leadership donors that will provide an important foundation that the VFRC can build upon. Additional donors may represent particular priorities and interests (Figure 37).

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Global food security is a critical issue to be faced and solved.

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Copyright

Š 2012, VFRC/IFDC. All rights reserved.

January 2012


“There are no miracles in agricultural production. This is a basic problem, to feed 6.6 billion people. Without fertilizer, forget it. The game is over.” (August 2008) – Dr. Norman Borlaug Nobel Peace Prize Recipient IFDC Board of Directors (1994-2003)

1331 H Street, NW 11th Floor Washington, D.C. 20005 U.S.A. +1 (202) 827-2800 www.vfrc.org


A Blueprint for Global Food Security