Fertiliser industry passes price risk to supply chain

17 February 2012

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18 February 2012 | Adam Leach

Fertiliser manufacturers and wholesalers are dealing with price volatility by passing the risk down the supply chain to farmers.

The price of the commodity rose by more than a third in the final three months of 2012, and the response from the sector has been very different to the similar price spike witnessed in 2007-2008 which led to ‘panic-buying’ of supplies.

According to Finding Fertile Ground, published this week by Rabobank, argued more transparency is needed in the fertiliser supply chain to enable buyers, farmers and traders to service each other more effectively.

The report explained when commodity prices rose rapidly in 2007-2008 buyers responded by panic buying to ensure they had enough in stock. However, having bought too much they were left with excessive inventories that were difficult to run down. In contrast, the sector has adopted a more just-in-time approach during the recent volatility.

During the current crisis manufacturers have been operating inventory cycles of around 45 days compared with a 60-day cycle during the previous price hike period. According to the report: “When manufacturers and wholesale traders keep fertiliser inventories low, they push the fertiliser price risk and inventory decisions through to the farming end of the supply chain.”

More openness between all parties would reduce volatility, it claimed. “Increased transparency and better market guidance across the supply chain is essential for all players, as they will enable retailers to effectively communicate trend information to farmers and upstream fertiliser players,” the report said.

The report proposed farmers and buyers work more closely to fit their needs in the long-term, thus reducing the effect of short-term price hikes which lead to panic buying.

 

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