Wednesday, 9 October 2013

The urea business

Before the Maui gas field was discovered, NZ farmers mostly got nitrogen into their pastures by using legumes such as clover to suck it out of the air, which is 78% nitrogen.

Maui was such a large gas field that new industry was needed to make it financially viable. That need was fed into a "think big" programme and out popped a new ammonia-urea plant in 1983.


I'm not sure what happened to all the urea initially (maybe some was exported?), but eventually the push to sell urea started winning over farmers and sales grew very strongly through the 90s, as the graph shows.
My hypothesis is that a surge in paid research into the benefits of urea pre-dated the surge in usage. Sometime I'll dredge NZ's agricultural science literature to properly test this, but meantime here is some anecdotal evidence from the NZ Journal of Agricultural Research. In its first year of publication (1958) it looked like a biological farmer's dream, with eleven separate papers on "biological studies of some tussock grasslands", work on honey bees including the effect of defoliants on bees, a fair bit on trace elements and phosphatic fertilisers, but nothing on nitrogen. Scroll through to 1983 and there are three papers evaluating nitrogen as a fertiliser.  

It seems pretty obvious that the huge change in grass-growing methods through the 90s was pushed by the suppliers. We had an embarrassing volume of gas so a urea plant seemed like a good idea. That led to an embarrassing volume of urea. So work started on explaining to farmers the benefits of urea. And that work has never stopped, which is why on the DairyNZ website there are now 65 references to urea for every reference to legume.

So the profits available from urea are a major reason reason we use so much. How profitable is it? Well, today's price is $640/tonne (well down from a year ago). The energy data file reports the price of gas to industrial users as being around $8/GJ. Using this calculator and converting $NZ/US at 83c, we can deduce that the production cost of urea is $264/Tonne. That's a pretty fat margin and a great incentive for urea sellers.

Meanwhile, internationally, it has been argued that a cartel has been operating in the fertiliser industry, but has recently been disrupted by China and India using single buyer policies. NZ is connected to world prices for urea because we use more than our plant can produce. Ballance owns the plant, but Ravensdown is a big importer of urea. Imports have allowed Ballance to keep earning massive margins: their price just needs to stay at a level that can't be undercut too much by importers. But they need to allow some scope for imports to avoid regulatory attention.

The bottom line is that kiwi farmers have been sold a different way of farming because it is profitable for fertiliser sellers. That's the reason we use so much urea, and the reason that alternative and apparently much cheaper methods like promoting legumes and soil biology are not being researched.


2 comments:

  1. Nice blog. I like the cut of your jib.
    Glen

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  2. Cheers for that Glen. Some good stuff at your place too! http://milkingonthemoove.blogspot.co.nz/

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