NFUS chief hits out as Yara profits soar nearly 200%

FARMERS may be receiving appreciably more for most products than 12 months ago, but costs have shot up – especially for fertilisers, fuel and feed – placing pressure on margins.

One of the biggest increases has been for fertilisers, with most products costing around double compared with 18 months ago. Availability is also a problem and orders placed now are unlikely to be delivered before late autumn due to increased global demand.

However, while margins are coming under pressure – the break-even point for wheat is reckoned to be close to £130 a tonne – the profits of the Norwegian-based fertiliser giant Yara jumped by almost 200 per cent in the last quarter to 15 July. Net income in the second quarter is reported at 4,415 million Norwegian krona (£434m) against NOK1,422m in the same period last year.

Thorleif Enger, the president and chief executive of Yara International, said: "It is with great pleasure that I report Yara's strongest quarterly earnings so far. Since March 2004, the company has delivered ten consecutive quarters with earnings above capital cost.

"The improvement this quarter is mainly driven by strong demand giving higher fertiliser prices, only partly offset by increased raw material costs."

A spokesperson for Yara in Olso declined to comment further, but in his report Enger explains that the substantial margin expansion achieved in the first quarter of 2008 has continued, reflecting a tight market and a strong focus on central price-management combined with timing effects on raw material and product positions.

Enger's comments have not gone down well with Jim McLaren, the president of NFU Scotland. He said: "The genie is well and truly out of the bottle as far as the reasons for the increase in fertiliser costs at farm level are concerned.

"Farmers had been led to believe that the main reasons for the huge increases were twofold: an increase in the price of gas needed to make the fertiliser and a surge in cost of key ingredients, phosphate and potash."

Yara has acknowledged that the huge increase in profits was largely due to world demand and that those profits were only partly affected by increased manufacturing costs.

McLaren said: "The reality is that the fertiliser manufacturers are profiteering from a dramatic imbalance in the global supply and demand situation.

"This is evident from the near 200 per cent increased profitability announced by Yara against a backdrop of a 19 per cent increase in sales by volume."

Yara is the dominant manufacturer in both the UK and Europe and increasingly so in global terms, having strengthened its position earlier this year with the acquisition of Kemira, which was one of its major competitors.

This, claims McLaren, should "set alarm bells ringing" with the competition authorities.

However, the fact is that there is a lack of capacity in the fertiliser industry. New facilities are due to come on stream in 2010, but that will do nothing to ease the pain of farmers in the remainder of this year and throughout 2009.

In the past, farmers would order their requirements and take delivery over several months. This practice was encouraged by the manufacturers, which offered favourable payment terms as this allowed the expensive fertiliser production process, particularly of nitrogen, to be carried out in the summer – when gas prices were traditionally lower.

The tables have been turned, says McLaren, and the manufacturers are now in the position of dictating the terms of sale at much higher prices.

Enger's report makes no bones about the power his company can exercise: "Going forward, strong grain prices suggest solid farm profitability and fertiliser demand in the coming season. The new season for nitrates in Europe has started strongly, enabling early price increases."