CAIRO: As food price hikes push agricultural yields, the fertilizer industry is getting a boost from fresh investment and increased demand from local and foreign players. A grouping of local and foreign companies recently announced the building of a new phosphate fertilizers complex in Aswan, Upper Egypt. The local companies taking part in the venture are Polyserve, Egyptian Financial and Industrial Company (EFIC), Abou Kir Fertilizers, Helwan Fertilizers and El-Nasr Mining Company. Greece's Indagro and US-based Agirfos will also have stakes in the new production facility. Each of the Egyptian companies will have an 18 percent stake in the project, equal to $300 million, while both foreign investors will have a 5 percent share each, local media reported. The new complex is expected to start production in early 2011 and cost $2 billion. A reflection of the demand driving the expansion came in June, when China Agritech, a liquid organic fertilizer manufacturer in China, announced the shipping of $75,000 worth of liquid organic fertilizer, the equivalent of 10,000 liters, to be distributed in the country, local media reported. Several factors are attracting fertilizer producers to the country. In addition to the growing demand from Egypt's agricultural industry, the country's geographical position is encouraging international players to build fertilizer production units and use the country as a convenient export base. The availability of cheap gas is also proving attractive. "The cost advantages here in Egypt are very significant, Shrouk Diab, an analyst at Beltone Financial, told OBG. Despite the gradual reduction of subsidies as part as the government's economic program of liberalization - the government has been steadily raising the price of natural gas and aims to have it at $2.65 per MBtu in 2009-10 - this is still cheap by international standards. In the US for example, the price of natural gas currently stands at $11 MBtu, so Egypt is very attractive for foreign companies, she said. On the back of cheaper energy and good logistic connections, exports of Egyptian fertilizers have been rising. The country sold over LE 6 billion ($1.1 billion) worth of fertilizers onto the international market in 2005, and that figure jumped to LE 13,4 billion ($2.5 billion) in 2007, according to the Ministry of Trade and Industry. Figures to June this year indicate an export value of LE 8.5 billion ($1.6 billion). Traditional export markets for Egyptian fertilizers have been Europe and Latin American countries such as Argentina and Brazil. These two agricultural giants could prove a good option for further expansion of the industry. "Egypt is now becoming one of the great exporters of fertilizers. This may be one of the areas for cooperation between both nations, said Egyptian Minister of Trade and Industry Rachid Mohamed Rachid, speaking in Sao Paulo, Brazil, during a visit to the South American powerhouse earlier last week. Rising world demand for fertilizer products is also welcome news for Egypt. As several governments are looking to enhance agricultural production to offset recent increases in food prices, world fertilizer prices have been rising fast. Diammonium phosphate fertilizer, for example, sold for $250 per ton in January 2007. It is now valued at around $1,230 per ton; Nitrogen-based fertilizers have risen from $277 to over $450 per ton during the same period. Nonetheless, prices on the Egyptian market are still below the international average. This is partly due to the fact that the fertilizer market in Egypt is subsidized by the government, costing the budget around LE 1.3 billion every year, according to local media. Indeed, farmers can have access to subsidized fertilizers through the state-owned Bank for Development and Agricultural Credit. Furthermore, producers can only legally sell in the domestic market through the governmental distribution scheme. This situation has created market distortions on the domestic front, as a proportion of the subsidized low-cost product is resold on the black market at higher prices. One bag of fertilizer costs around LE 90 ($16.7) through the government system. Farmers are allowed an average of two bags of subsidized fertilizer per fedan (acre), depending on the governorate. But if they need more, they must turn to the black market, where a bag can cost up to LE 180 ($33.5). This, in turn, has led the government to raise the price of fertilizers in the first quarter of 2008 in a bid to rein in illegal trade. The Ministry of Trade and Industry decided to increase the price of azotic fertilizer by 90 percent, bringing the official domestic price to LE 1,500 ($280) per ton, closer to international prices, which stand at around LE 2,100 ($390) per ton, according to local media reports. The government plans to gradually eradicate subsidies, to eventually bridge the gap between prices in the official and unofficial markets. Meanwhile, international demand is expected to grow further, thus fuelling exports by Egyptian fertilizer producers. "Prices have been rising, which is good for the industry, as there is world demand for our fertilizers, Adel Attia, marketing manager at Egyptian Fertilizers, told OBG. However, while the industry is reaping the benefits of inflated prices, it is not immune to rising costs. "There is a lot of pressure from the input side, Diab told OBG. "The price and supply of fertilizer products will be determined by the availability of mineral resources. For Egyptian fertilizer producers, this might mean that with growing business there will be a need for more efficiency as well.
