Fertilizer industry in developing countries by bxk16778

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                Fertilizer industry in developing countries*

         Fertilizer consumption had, over the past          given based on findings regarding the impact of
few decades increasingly shifted towards                    environmental      regulation    on  industrial
developing regions.        The main forces held             restructuring and competitiveness.
responsible for this shift were the introduction of
environmental legislation restricting the use of            Environmental regulation                and     the
fertilizers in many developed countries, and a              Chinese fertilizer industry
significant growth in fertilizer demand in
developing regions as a result of an                               Although there are many general
unprecedented growth in population in most of               environmental laws in China, environmental
these regions, particularly Asia. While fertilizer          management is mainly based on the regulations
production began to move towards developing                 issued by the State Environmental Protection
countries, export-oriented production also gained           Administration (SEPA).           Compared to
in increasing importance.        Resource-oriented          environmental laws with general provisions,
producers are found in those regions endowed                SEPA      regulations    give   guidelines    on
with large reserves of natural phosphates, such             implementation.     A series of environmental
as North Africa and the Middle East. Countries in           policies and regulations suited to the country's
those regions are developing downstream                     national conditions, such as Environmental
phosphate production capacity near their                    Impact Assessment and the Pollution Levy/
phosphate mines, responding to the potential to             Charge system, have been implemented, across
exploit their abundant reserves of natural                  the country.    China has many environmental
phosphates by adding value to their processed               laws, regulations and standards.        However,
phosphates. This trend is likely to continue as             enforcement is the essential problem.
the integration of mining and phosphate                     Environmental regulation will become stricter in
processing, practised in these countries, offers            the future, owing to the worsening environmental
obvious advantages as a result of reduced                   conditions and the increasing environmental
transport costs by shipping highly concentrated             awareness of the population.
processed fertilizers instead of phosphate rock,
and economies of scale in processing, as a                         Since 1991, all provinces, autonomous
result of vertically integrating the manufacturing          regions and municipalities directly under the
process allowing for large-scale, export -oriented          Central Government (NEPA) have carried out a
production.                                                 pollution charge system.          The government
                                                            introduced a fine, standardized across the
       The main findings of case studies on                 country, based on the volume and concentration
environmental regulation and fertilizer production          of pollutants discharged. The pollution permit
in two developing countries (China and Turkey)              system is based on control of the volume of
with large fertilizer industry, that are undergoing a       pollutants discharged, taking the improvement of
restructuring process driven by import penetration          environmental quality as its target. It specifies the
and market liberalization are presented here.[1]            category, quantity and the discharge course of
A detailed examination is also made of Morocco,             the pollutants discharged by enterprises, which
one of the leading producers of phosphate rock              then receive verified 'permits' for pollutants. The
and the main supplier of the European fertilizer            registration of the pollutant discharge is the base
industry.[2] Finally, some policy conclusions are           of the implementation of the pollutant discharge
                                                            'permit' system.     The system epitomizes the
                                                            quantitative specification for the pollutant
                                                            discharge of factories according to existing
                                                            regulations and the local situation.             The
*/ Adapted from paper "Technological change and             registration for pollutant discharge is universal,
corporate strategies in the fertilizer industry" by         and it must be implemented by all pollutant
Anthony Bartzokas, October 2001, United Nations             discharge factories. . The pollution permits
University, Institute for New Technologies, Keizer          system for air pollution control and other areas
Karelplein 19, 6211 TC Maastricht, The Netherlands          are under trial. Indeed, a new policy on Total

                                                        9                               Agro-Chemicals Report
                                                                                 Vol. II, No. 2, April-June 2002

Emissions Amount Control is being prepared by                        Chemical fertilizer companies in China are
SEPA, which is actually an extension of the                 mainly small-scale nitrogen chemical plants. In
pollution permit system.[3]                                 every one or two countries, a small nitrogen
                                                            fertilizer plant operates for the needs of local
        The main pollutants of the chemical                 agriculture (see also Table 1).         Small-scale
fertilizer industry in China are described mainly as        chemical fertilizer plants contribute 64.5 per cent
wastewater and air emissions.          Limited solid        of total production. In the past, the small-scale
waste is being produced.[4]           Normally, the         plants only produced NH4HCO3 as well as a
affected polluted areas are around the                      limited amount of urea. In recent years, the
manufacturing plants. Most of the air emissions             Government of China has invested in small-scale
could be re-used by adding new equipment,                   urea and ammonia phosphate plants. Up until
except for dust. Coal-based plants have some                1996, 77 small-scale urea and ammonium
additional TSP and SO2 emission problems.                   phosphate plants were set up with a total capacity
Natural gas and other resource-based plants                 of 3.2 million tons urea and 2.47 million tons of
have smaller problems, compared with coal-                  ammonium phosphate.
based factories. Wastewater results in extensive
organic pollution of water.                                        Small-scale factories produce low-grade
                                                            nitrogen and phosphates using locally developed
        The indirect environmental consequences             technologies.     The use of ammonia for the
of fertilizer products, that is the consequences of         production of nitrogen fertilizers involves a simple
using chemical fertilizer, are also significant. The        technology based on anthracite coal deposits.
impact is very wide, including aquatic body                 This production process has been widely adopted
pollution,     decreasing soil fertility, land              in small plants. However, it is highly polluting and
degradation, soil erosion, deforestation, wetland           energy inefficient.[6] Although China ranked first
disappearance and others. The use of chemicals              in the world in volume of production, the
has contributed largely to the aquatic body                 productivity of Chinese fertilizer plants is very low.
eutrophication in rural China.         According to         The overall labour productivity is only half that of
researchers, the contribution of fertilizer                 the developed world, but energy consumption is
application to eutrophication in lake Taihu and             almost double that of developed countries.
lake Dianchi, for example, is over 50 per cent of           Equipment for small-scale chemical fertilizer
the total pollution effect. According to FAO,               plants is made mainly in China, but equipment
chemical fertilizer application per hectare in China        required for large and medium plants is imported.
was 2.6 times more than the world average, and              Equipment manufacturing dates varied, some
3.4 times the average for developing countries.[5]          were made in the 1990s with new technologies,

                            Table 1: Size of China's chemical fertilizer plants

Size         Production              Number of              Percentage of total            Estimated proportion
             capacity of plants      enterprises            chemical fertilizer industry   of total production
             (thousand tons)                                enterprises %

Large        About and over 300      22                     1.59                           1/4

Medium       Mainly 40-80            55                     4.78                           1/4

Small        Less 25                 1057                   93.63                          1/2
                                                            Of which, over 70% are
                                                            very small plants with
                                                            capacity below 15,000

Source: Ministry of Chemical Industry (1998)

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Vol. II, No. 2, April-June 2002

but some dated back to the 1960s. The details                'demonstration effect' to other managers in rural
are given in Table 2.                                        areas.[7]

                                                                    The Chinese fertilizer industry has been
       Equipment for large-scale fertilizer plants is        facing pressures since the introduction of
mainly imported from the United States and                   environmental regulations and is required to
Europe.      The following chemical fertilizer               improve its environmental performance. Clean
production technologies are already widely                   technologies would also improve the efficiency of
diffused in China: US Kellogg with lower energy              energy and materials consumption at the farm
consumption, US Brown with deep cooling and                  level.     The State Economic and Trade
energy saving, UK ICI-AMV and the German                     Commission (SETC) is considering the
Wood-AMV technology.          The role of local              introduction of incentives to encourage the
equipment suppliers before the 1990s was limited             adoption of environmental technologies.       As
to the support of imported equipment. Use of                 environmental problems become the focus of
Chinese equipment and technology in the early                attention, clean technology has a big
1990s, was very limited. The motives behind                  development potential in the coming years.
management decisions for the adoption of                     Among the clean technologies, energy-saving
cleaner technologies needs further clarification.            applications is the most important.
In the case of simple pollution abatement
equipment, demand was initially created by the                     In order to promote cleaner production,
introduction of regulation, but the combination of           SETC is also issuing certain policies to
simple recycling and reuse as well as energy                 encourage firms to shift to cleaner production.
saving had yielded significant economic benefits             Large fertilizer plants will be encouraged to adopt
that created additional demand through the                   new technology, especially when it implies low

                            Table 2: Chemical fertilizer production equipment

                         Locally-produced equipment                            Imported equipment

                  Total       Made in   Made in Pre-1980s            Total      Made in   Made in   Pre-1980s
               number of       1990s    1980s                     number of     1990s      1980s
               production                                         production
                  units                                              units

Urea               133        68.4%     15.8%       15.8%             23        17.4%      21.7%      60.9%

Nitramines         45          8.9%     17.8%       73.3%              1           0         0           1

Phosphate         1,966       23.9%     56.5%       19.6%              0           0         0           0

Potash             75          65%       34%            ..             4           4         0           0

Source: Ministry of Chemical Industry (1998), The Statistical Bulletin of Chemical Industry 1997,
China's Chemical Industry Press

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cost and high-efficiency.        Some of these               China is implementing a policy for structural
technologies will be produced domestically. In               change in the sector, - to shift from small to larger
the case of new plants, production capacity                  sized plants, and from the specialization in
should be larger than 20,000-30,000 tons of                  nitrogen to a diversified production base, which
ammonia to reach economies of scale, according               will include phosphate and potash fertilizers. The
to SETC's estimates.           More and more                 performance of most chemical fertilizer producers
technological innovations will be focused on small           is not good enough. Ownership is one of the
and medium chemical fertilizer plants, particularly          main reasons. The government, through the
in an attempt to increase the installed capacity of          central or provincial government, owns all of the
small plants from 40,000 to 60,000 tons and from             chemical fertilizer manufacturers. At present,
60,000 to 80,000 tons of ammonia. The capacity               small-scale fertilizer plants are in a very difficult
of 110,000 to130,000 tons of urea per plant is               position. In the fertilizer market, imported high-
also a direction of development.                             quality fertilizers have challenged large-sale
                                                             domestic plants, bankrupting some. These plants
        Pollution abatement equipment in small               are also facing pressures from the introduction of
plants is not as widely diffused as compared with            stricter environmental regulations due to
large fertilizer plants, mainly because almost all           increasing environmental concerns.[10]
small plants are located in counties where
environmental awareness of local residents is not            Environmental regulation and the
as strong as in urban areas, and enforcement                 Turkish fertilizer industry
capacity of environmental regulations is relatively
low. Pollution abatement equipment installed in                     Turkey has a well-developed fertilizer
small fertilizer plants are simple devices for               industry. At present, there are six major fertilizer-
recycling and reuse of water and air emissions as            producers on the local market, including two
well as certain equipment for noise control,                 private manufacturers. Owing to high domestic
required by the labour protection laws.[8]                   demand and export possibilities to neighbouring
Following the adoption of cleaner technologies to            countries, Turkey still requires new investment in
improve the productivity of small chemical                   the fertilizer industry. Local demand is expected
fertilizer plants, average consumption of coal as            to increase in the next five to ten years,
input material, coal as fuel and electricity totalled        particularly following the South-East Anatolia
1,245 kg, 298 kg and 1,300 kWh respectively, an              Project (SAP), which is expected to boost
improvement of 48 kg, 43 kg and 12kWh                        demand by 25 per cent. When the project is
respectively. For small nitrogen fertilizer plants,          completed, arable land in Turkey is expected to
energy consumption per ton of ammonia                        increase by 1.7 million hectares. Fifty-five per
registered 14.48 million Kcal and 0.48 million Kcal          cent of the project is expected to be completed by
less than previous.[9]                                       2005 adding 894,000 hectares of land to
                                                             agricultural production.[11]
       According to the State Development
Planning Commission (SDPC) and former                               In terms of consumption, nitrogen totalled
Ministry of Chemical Industry, the policy for the            631,000 tons or 53 per cent of all fertilizer
development of the fertilizer industry fell into two         consumed in 1976, which increased to 1.148
categories: policy for new projects and policy for           million tons in 1996, corresponding to 64 per cent
existing projects.     The policies focused on               of all consumption . P consumption increased
establishing new large and medium scale fertilizer           marginally from 522,000 tons in 1976 to 578,000
plant projects as well as the introduction of                tons in 1996. The consumption of K is supplied
incremental technological innovations for small              by imports.      Although the consumption of K
and medium-scale fertilizer plants.        Fertilizer        increased 255 per cent in terms of volume, its
imports selling at lower prices and higher quality           1996 level was only 74,000 tons, representing
are challenging existing chemical plants.                    only 0.04 per cent of total fertilizer consumed.[12]
Managers are faced with the problems of finding
solutions to improve the quality of locally                        The volume of imported fertilizers showed
produced fertilizers as well as to reduce                    steady increase, especially in the area of
production costs of existing plants. Technological           compound fertilizers.       An analysis of import
innovation is an important factor in any attempt to          trends at the four-digit SITC 3 level pointed out to
solve these problems. China is also expected to              an increasing market penetration by European
adjust its structure of chemical fertilizer                  exports in the area of fertilizers.[13]
manufacture towards large-scale plants.
                                                                   The Turkish fertilizer industry is highly
      Overall, nitrogen fertilizers produced in              dependent on imported raw materials and energy,
small-scale plants dominate the structure of the             one of the main handicaps to its competitiveness.
chemical fertilizer industry. The Government of              Many domestic resources, however, could be

Agro-Chemicals Report
Vol. II, No. 2, April-June 2002

utilized. The State Planning Organization tries to                   Although the fertilizer market was
supply incentives for fertilizer manufacturers to            liberalized in 1987, giving private manufacturers
invest in these areas. The imported energy cost              the right to trade fertilizers, the government still
is very high in Turkey compared to many                      controls the marketing and distribution
developed countries.             Local fertilizer            organization. This organization is an intermediary
manufacturers have been pressing the                         between farmers and fertilizer producers. Its
government for cheaper energy prices. Energy                 members comprise 40 per cent of all farmers in
prices are undermining the competitiveness and               Turkey. The government first buys fertilizers from
any potential for exports by Turkish fertilizer              producers on open bids, it then adds charges on
producers. In fact, energy savings appeared to               top of that price, and then adds a 40 per cent
be one of the main considerations for new                    subsidy on the final price. The fertilizers are then
technological investment by the Turkish fertilizer           sold to members through an intermediary
industry.                                                    organization.     This system appears to be
                                                             problematic, as having an intermediary
        The overall analysis of management                   organization determine price increases .
practices reveals that these fertilizers plants have
formal environmental policy at the company level.                     Despite exaggeration by private companies
More importantly, many of them do not plan to                of the difficulties created by state intervention,
have environmental policies either. As Turkish               it is true that government intervention as a
fertilizer manufacturers tend to respond only to             fertilizer producer and distributor, prevents the
regulations, the starting point for any policy               healthy development of the industry, particularly
should be to transform this management culture.              its technological development.          Government
This would require not only training of                      interventions enhance state-owned manufacturers
management on environmental issues, but also                 irrational operation, and as these firms constitute
ensuring increased customer pressure to demand               the major segment of the market, their behaviour
environmentally-friendly products. In the case of            affects the whole industry.      First, state-owned
fertilizers, farmers who have limited resources              fertilizer producers are not allowed to invest for
and low levels of education could pose a                     political reasons, although many would want to.
problem. Government agricultural policy would                To cite an example, a state-owned fertilizer
have to play a crucial role in ensuring that                 manufacturer was looking to invest US$150
fertilizer manufacturers adhere to regulations in            million for a new ammonia plant in the Izmit
addition to meeting farmer demands.                          region with a capacity of 550,000 tons of
                                                             ammonia. It was estimated that this increased
        At the government level, there is significant        production capacity would save US$40 million
work being done in regulating the environmental              each year on otherwise imported ammonia. The
impact of the fertilizer industry, except for the            Government of Turkey, however, did not approve
solid waste issue - the disposal of                          this investment due to privatization discussions.
phosphogypsum. Although there is considerable                Not only long-term and short -term plans but even
success in terms of preparing regulations, as                urgently needed investments are not approved,
indicated by the authorities at the Ministry of              since none of the political parties want to commit
Environment (ME), there are problems regarding               resources to the industry.
their enforcement. Both government institutes as
well as the fertilizer industry complained of                       Observations show that although
application irregularities.    On the one hand,              environmental issues are new in Turkey, a few
private manufacturers argued that state                      very professional institutions are active in the
companies often did not pay fines for pollution,             area. While government institutions are creating
because of inadequate financial resources or else            the legal framework for environmental regulations
political power, and the logic is that it is the same        and standards, non-governmental organizations
budget anyway. On the other hand, state-owned                (NGOs) are focusing more on the organization of
producers argued that private manufacturers had              interest groups around the issue of increasing
more flexibility in being able to avoid fines by             environmental awareness.       Both streams of
securing the support of local officials, or by               developments are new, but promising.         The
buying the land of complaining farmers, to solve             Turkish case study provides some illuminating
disputes. As the aim is to change the attitude of            insights on the links between environmental
the fertilizer industry towards the environment,             regulation and fertilizer manufacturing in
the ME should make it clear that manufacturers               developing countries.          The impact of
could not get away with polluting the environment            environmental regulation on production cost and
and would have to pay the consequences.                      investment decisions is still rather limited to

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investment incentives and small additions of end-           transformed into viable projects for fertilizer
of-pipe equipment in existing plants. However,              production in these countries. An alternative way
the regulatory framework and the existing                   of stimulating domestic fertilizer production was to
distribution network are the main inertia for new           attract foreign direct investment in the form of
investment in the local fertilizer industry.[14]            joint ventures.        Although investments by
                                                            transnational corporations in fertilizer production
Phosphate        fertilizer       production     in         in developing countries has been quite limited, it
Morocco                                                     has been important in some countries with
                                                            sufficient resource endowments to support a
        Phosphate fertilizer production has, for            substantial export oriented industry.[17]
many years, been concentrated in developed
countries, mainly in the United States and                         Because Morocco owns about two-thirds of
Western Europe. This has been justified not only            the world's reserves of phosphate rock, its
by their level of industrial development, but also          chemical industry is dominated by downstream
by the large scale of domestic demand.                      phosphate chemicals.         The main products
However, while the phosphate fertilizer industry in         manufactured are phosphoric acids and
the United States was using domestic phosphate              phosphate-based fertilizers. Morocco is Africa's
rock deposits, the European industry was                    leading producer, and the world's largest exporter
dependent on imports of phosphate rock. These               of phosphate rock and phosphoric acid. In the
imports initially came from the United States, as it        1960s, Morocco began to locally process an
was the only country exploiting its phosphate rock          increasing quantity of its phosphate rock in order
reserves on a large scale. Over the past three              to satisfy both domestic and export market
decades, though, the United States has been                 demand for fertilizers. The Office Cherifienne des
losing market shares in Western Europe to                   Phosphates (OCP) implemented a series of
emerging suppliers from developing countries.               projects in phosphate rock processing and
This trend marks the beginning of an increasing             became one of the leading world exporters of
involvement of developing countries in the global           phosphoric acid. In 1997, OCP's share of the
phosphate industry. Initially this involvement was          world export market amounted to 37 per cent,
restricted to exports of phosphate rock, but they           while Mexico and the United States together
eventually expanded into the production of                  accounted for over 30 per cent, as did Western
processed phosphates.[15]                                   Europe.      OCP is currently undertaking an
                                                            ambitious investment programme worth more
      The emergence of phosphate fertilizer                 than US$1.39 billion, which will strengthen its
production in developing countries has changed              phosphate processing capacity with the
the geographical pattern of trade in basic                  expansion of existing mines, through the
materials, intermediates and finished phosphate             'debottlenecking' of existing units at Safi and Jorf
products. For many years, phosphate rock was                Lasfar and the development of new plants as new
the main item that was being exported to                    joint-ventures with foreign partners.
processing plants in major consuming countries.
Over the last two decades, however, trade in                       OCP began a joint venture in 1996, known
processed phosphates has increasingly replaced              as EMAPHOS (Euro-Moroc-Phosphore) with
phosphate rock trade and the processing of                  Prayon-Rupel and Germany's               phosphate
natural phosphates is being reallocated near                company, Chemische Fabrik Budenheim. Based
mining sites.       The main destinations for               on Prayon technology, the plant is one of the
phosphoric acid exports is Western Europe,                  largest of its kind worldwide. A production unit
where most phosphoric acid plants were closed               was also constructed at Jorf Lasfar for pure
down for economic and environmental reasons,                phosphoric acid, with a capacity of 130,000 tons/
and India, which uses phosphoric acid for its               annum P2O5. OCP is supplying the phosphoric
phosphate fertilizer plants. The main exporters of          acid for the plant from its Jorf Lasfar facilities.
phosphoric acid are Morocco, Tunisia and the                Budenheim takes two-thirds of the output, while
United States.[16]                                          Prayon and the US company, Solutia, take most
                                                            of the remaining tonnage. Within the context of
       An important feature of export-oriented                                         s
                                                            this joint venture, OCP i also looking into the
production in developing countries has been the             possibility    of   establishing      a     sodium
growth of state-owned enterprises (e.g. OCP in              tripolyphosphate plant at Jorf Lasfaar.[18]
Morocco and JPMC in Jordan),            due to the
strategic importance of the industry and the large                Another joint venture between OCP and
capital outlays required for fertilizer production,         the Indian company Chambal Fertilizers was
which often called for considerable government              scheduled to start up in July 1999. The joint
assistance.      Without this active support,               venture is a 50:50 split between OCP and
investment opportunities could fail to be                   Chambal and involves the construction of a

Agro-Chemicals Report
Vol. II, No. 2, April-June 2002

330,000 tons per annum P2O5 merchant grade                the industry instead of a command-and-control
phosphoric acid plant, using Prayon technology,           strategy. Norms will be executed at a sectoral
with associated sulphuric acid production                 level and determined after consultation with the
facilities, using Monsanto's double absorption            mediators in the sector concerned. In the case of
technology at a design capacity of 3,200 tons/            the phosphate industry, the commission will
day. The sulphuric acid unit will be the largest          comprise represent atives from the Department of
Monsanto unit in existence. Two-thirds of the             Environment and those acting on behalf of OCP.
acid produced by the plant will be taken up by
Chambal.[19]                                                      The environment has a high priority for
                                                          OCP, especially when it comes to technical
         OCP employs 27,235 people including 700          standards of new investment. In setting up its
engineers and other professionals. OCP has                mining and processing operations, including
invested in the debottlenecking of the complex's          choice of technology and equipment, OCP always
eight 500 tons/day P2O5 lines, which are based            takes into account the protection of the
on Rhone Poulenc's single dehydrate process               environment. As such, a great deal of the current
with a double gas scrubbing system. Two of                investment made at Safi is aimed at reducing
them have already been completed and by the               emissions, particularly in relation to primary
end of 2000, a further two will also be completed.        filtration and effluent washing.             The
The increased output resulting from the                   phosphogypsum produced at Safi and Jorf Lasfar
debottlenecking will be used to support                   complexes is washed before it is carried to
downstream production at Jorf Lasfar, both in             disposal points into the sea which have been
already operational plants and in the new joint-          chosen to take advantage of the best currents in
venture plants. Once the debottlenecking of the           order to ensure material is carried away from the
remaining phosphoric acid lines is completed,             shoreline. There is however, no limit of the
OCP p    lans to revamp the six existing sulphuric        cadmium per ton of phosphogypsum disposed
acid units in order to meet increasing demand.            into the sea. With regard to cadmium, OCP's
[20] Some of the sulphuric acid demand may well           R&D subsidiary has also developed a
be met by the imported product, as OCP has                decadmiation process, which it is improving with
recently constructed receiving and storage                support of the World Phosphate Institute and the
facilities for sulphuric acid at the port of Jorf         European Union. In early 2001, OCP signed a
Lasfar, as part of its new strategy to further            partnership agreement with the government of
diversify sulphur procurement options.        The         Morocco aimed at further reducing emissions at
company has also begun to import liquid sulphur           phosphate operations. The construction of an air
for the first time. OCP's current annual sulphur          quality laboratory was begun at Jorf Lasfar.
requirements amount to more than 2.7 million
tons/annum, which was traditionally met from                      In the long run, the phosphate industry in
imports of solid sulphur.       Jorf Lasfar alone         Morocco would have to adjust to internationally
accounts for 1.4 million tons/annum, and demand           evolving norms and standards through the
has been increasing with increasing phosphoric            introduction of new technologies. OCP is being
acid production.                                          confronted with an evolution of European
                                                          legislation towards increasingly restrictive
       The state of environmental regulation in           specifications in terms of product quality.
Morocco is in sharp contrast to the situation in          Examples include norms regarding heavy metals
Europe. In Morocco, there are numerous valid              (like cadmium), natural radioactivity and
laws that are being applied. However, these laws          phosphates in detergents. If this development is
only refer to products and none of these norms            going to spread among all the countries of the
belong to the category of what could be called            European Union, it could seriously destabilize the
environmental regulation of the production                market for phosphates and its downstream
process. In short, besides hygienic norms and             products, as well as the economies of a large
those related to products, which are of direct            number of countries including Morocco. One
consequence to the environment, there is a                other consequence is that Morocco and other
definite lack of any environmental regulation. The        phosphate exporters from developing countries
technical resources to monitor compliance with            trying to comply with regulations on product
these norms are limited.           A number of            quality could shift the cadmium content from
environmental laws are in the process of being            fertilizer products to phosphogypsum wastes
promulgated.        These concern air quality,            ('pollution shift'). While clean phosphoric acid
effluents, solid wastes and environmental impact          with little cadmium content would be exported to
assessments.         The ministerial department           Europe, phosphogypsum with most of the
responsible for the environment established in            cadmium originally contained in phosphate rock
1994, has chosen a strategy of consultation with          would be dumped in the exporting countries.

                                                     15                              Agro-Chemicals Report
                                                                              Vol. II, No. 2, April-June 2002

        This perspective has led to two different            sectoral niches where their competitive
responses among export-oriented phosphate                    advantage could remain unchallenged.        This
fertilizer producers. One response is research               essentially implied that regional production of
into decadmiation technologies for phosphoric                phosphoric acid was increasingly confined to
acid. Although several processes are technically             those producers that still enjoyed exceptionally
applicable,    cost appears to be the primary                favourable unit costs or managed to secure long-
constraint. A project jointly financed by OCP and            term preferential agreements with phosphate rock
the European Union is currently under                        suppliers (for example the OCP -Grande Paroisse
development. However, due to the increase in                 joint venture). At the same time, OCP and other
operational costs involved in decadmiation, a                North African phosphate rock producers had their
shortage of phosphate rock with a low cadmium                own interest in ensuring that a downstream P2O5
content and a subsequent price increase is                   sector survive in Western Europe.
regarded as a requirement, before any
commercial decadmiation could take place on a                Policy implications and conclusions
large scale. The other response is to discontinue
exports to those countries in which cadmium                          The findings of the paper have a number of
limits are prohibitive and look for other markets            implications for the policy debates on trade and
with less restrictive or even no cadmium                     environment. As far as trade policy is concerned,
regulation, for example, in Asia. This has already           the research suggests that it is often the fertilizer
led to the formation of many joint ventures                  companies and fertilizer industries that are under
between newly emerging export -oriented                      considerable competitive pressures for other
producers such as Morocco and Jordan, and                    reasons, that find it most difficult to deal with
Asian countries such as India, Pakistan and                  stricter environmental regulation.      The world
Japan.      Some Asian countries either supply               fertilizer industry has gone through major
themselves with finished fertilizers, as in the case         changes. It began with the emergence of a
of Japan, or they secure their supply of                     significant fertilizer production capacity in
phosphoric acid to feed their domestic production            developing regions. For some of these regions,
base, as in the case of India.                               particularly Asia, this was pure necessity, as the
                                                             region was under pressure to meet increasing
       OCP's intentions for the marketing of                 domestic demand for fertilizers, resulting from an
downstream products after its inauguration of                unprecedented growth in population in these
further downstream phosphate capacity at Jorf                countries. The main conclusion of the Chinese
Lasfar, which enhanced its ability to supply key             and Turkish case studies in this report showed
markets at a favourable price, complicated the               that the development of fertilizer production in
outlook for P O5 production in Western Europe.
                 2                                           these countries was primarily targeting the
Morocco is endowed with over three-quarters of               domestic market. Other regions endowed with
the world's known phosphate reserves. This is an             substantial phosphate rock reserves, such as
important source of the country's wealth. When               North Africa and the Middle East, r   esponded to
Morocco began to develop its downstream                      the potential benefits of export-oriented
capability, initially in the form of phosphoric acid,        production of phosphates. Initially these exports
OCP was careful not to provoke any hostile                   were limited to phosphate rock, but as these
reaction from the established Western European               developing regions created the required
P2O5 producers, which could have jeopardized                 technological capability, they also moved
the Moroccan move into higher added-value                    downstream into the production of processed
markets.      OCP continued supplying several                phosphates. Exportable surpluses of phosphate
Western European phosphoric acid producers                   rock from these regions decreased in favour of
which had under-utilised capacity. By choosing               processed phosphate exports.
not to undercut the Western European phosphate
manufacturers in their home market, OCP                              However, the increasing importance of
acknowledged that its long-term interests would              resource-processing fertilizer producers from
be better served by working in close collaboration           developing countries is evolving in parallel with
with European phosphate manufacturers. Also                  further specialization of producers in advanced
on the side of the Western European phosphate                countries in specific segments of the industry
manufacturers, there was a continuing preference             (nitrogen products and high value-added
for close contacts with raw material suppliers who           products).       Individual firms have also
could potentially be strong competitors in the               demonstrated an increasing focus in further
downstream markets.[21]                                      developing their links with the farmers. These
                                                             factors provide the explanation for the survival
     These developments suggest that Western                 and indeed, in some cases, further expansion of
European producers, instead of trying to preserve            fertilizer manufacturers from advanced countries.
market share at all costs, chose to specialize in            Developed countries have implemented long-term

Agro-Chemicals Report
Vol. II, No. 2, April-June 2002

restructuring strategies based on the technical             turn environmental issues to their business
characteristics of the production process of                advantage.
specific segments in the fertilizer industry that
provided opportunities for capital enhancing and                    The competitiveness of developing
for the introduction of energy -efficient                   countries in the fertilizer industry depends on a
environmental technologies.      This investment            different set of factors, availability of resources/
process was supported with product innovation in            raw materials, labour costs, protected markets
better quality fertilizers and organizational               and distribution networks and environmental
innovation with the improvement of customers'               regulation. It is evident from the case studies
support.     The introduction of environmental              undertaken in China and Turkey, that all the
concerns was an integral part of the design of              above factors need to be considered in the
new products because, apart from the                        assessment of market trends and the evolution of
enforcement of environmental regulations, these             fertilizer production in developing countries. The
products were targeting a market with increasing            role of government-owned distribution networks,
concerns about the environment.                             for example, are extremely important in these
                                                            countries because they effectively determine
        Facing stagnating demands for fertilizers           access to the local market.[22]
and increasing pressures from cheap imports, the
European fertilizer industry has been going                         Environmental regulation is only one factor
through a significant restructuring process. At the         in this process, and in many cases its contribution
same time, five major environmental issues have             is smaller than other factors. This observation
influenced technologies in the industry. These              has some broader policy implications when it
are improvement in energy consumption in                    comes to the role of international institutions and
ammonia production, reduction in nitrogen oxide             other initiatives for the enforcement of
emissions from nitric acid production, disposal of          environmental regulation. It is very difficult for
phosphogypsum, cadmium content in fertilizers               these initiatives to exercise significant influence
and leaching of nitrates from agricultural fields.          on the production processes of polluting
Given the circumstances of rising competition               industries in developing countries, when these
from abroad and stagnating demand in the                    industries are targeting the domestic market. The
European fertilizer industry, there has already             distinction is very clear in the case studies.
been an increasing focus towards the                        Morocco, with its export -oriented production
downstream segments of the sector. Overall, it              capacity, is trying to respond to the stringent
appears that       environmental regulations have           environmental regulations, which are being
influenced some companies in ways in which the              introduced in the European Union. In contrast,
pursuit of their corporate strategies have been             fertilizer firms in China and Turkey are much
reinforced and strengthened.        The increasing          more reluctant to take any initiative for the
difficulties of the disposal of phosphogysum have           introduction of cleaner technologies because they
induced fertilizer producers to withdraw from               don't foresee any risk in the domestic market,
phosphoric acid production. At the same time,               which is their main market.
the requirement to limit the leaching of nitrates to
waters has encouraged fertilizer companies to                     Finally, the issue of challenges regarding
pay particular attention to product quality and             the introduction of cleaner technologies in
differentiation and to seek closer ties with                developing countries is brought up. One of the
farmers. In particular, environmental regulations           main conclusions of the fieldwork points two
on fertilizer products and their application have           problem areas and, consequently, policies to
created close producer-user relationships                   respond to these challenges. The first set of
between        farmers     and    local   fertilizer        issues refers to existing production capacity.
manufacturers, which is becoming an effective               Usually these are old and heavily polluting plants,
'mobility barrier' against new entrants to the              without efficient environmental management,
European fertilizer market.       Producers in the          producing for the domestic market (in most cases
European fertilizer industry are pursuing different         for the regional market). The introduction of
corporate strategies. Several have already exited           cleaner technologies is limited to 'end-of-pipe'
from this bulk chemical sector and shifted their            technical equipment and some improvements in
focus to high value-added, fine and speciality              energy efficiency.    At the same time, better
chemical segments.             Some others are              housekeeping and other organizational changes
concentrating on local markets, while there are             provide opportunities for significant improvement
also companies that are actively expanding their            of environmental standards. The potential for
business globally. The firms that have remained             more radical improvement is in the second area
in the fertilizer industry are pursuing corporate           of problems, which is new investment in fertilizer
strategies of moving from the upstream to                   production capacity.      The case studies in
downstream segments of this sector, trying to               developing countries indicated that they are

                                                       17                               Agro-Chemicals Report
                                                                                 Vol. II, No. 2, April-June 2002

building up their production capacity in the                 competitiveness of industry in advanced and
fertilizer industry.         The introduction of             developing countries.         However, additional
environmental regulations and the adoption of                comparative research is needed to examine how
specific requirements for cleaner technologies in            'sustainable development' can be achieved by
investment grants or subsidies, especially when              analyzing the incentives to introduce cleaner
they come from international financial institutions,                                           f
                                                             technologies and the behaviour o industry at the
have influenced the decision-making process                  micro and sectoral levels. By considering the
during the implementation of new investment                  feasibility of incremental improvements in existing
projects in the fertilizer industry in Turkey and, to        production processes, it would be possible to
some extent, in China.                                       ascertain the duration of continuing to use
                                                             already established production processes, and
       The characteristics and sources of                    where, further modifications with more radical
pollution, and consequently the environmental                innovations are required. This is an important
technologies to deal with it, are very much sector-          consideration for the design of a realistic policy,
dependent. Sectoral studies undertaken provide               which could facilitate the improvement of existing
detailed information about what kinds of                     production capacity and the introduction of
environmental technologies are actually used and             environmentally-sound technologies in the
what implications their introduction has for the             fertilizer industry.

References and notes
[1] For detailed reports, see HuTao, Tom,                    [7] Ding, Z., "Current Situation and Development
    Environmental Regulation, Globalisation of                   Trends of Large Size Chemical Fertilizer
    Production and Technological Change in the                   Industry (Part I)", Chemical Industry 22 (3),
    Fertiliser Industry: a case Study of China,                  1995a, 3-57 and Ding, Z. "   Current Situation
    1999, UNU/INTECH Background Report No.                       and Development Trends of Large Size
    24, October 1999 and Cetindamar, Delik, The                  Chemical Fertilizer Industry (Part II)'',
    Impact of Environmental Regulations on the                   Chemical Industry 22 (4), 1995b, 7-13.
    Turkish Fertiliser Industry, UNU/INTECH,
    Background Report No. 16, April 1999.                    [8] Wang, H., "Basic Situation and Strategy of
                                                                 Small Size Nitrogen Chemical Industry",
[2] Demandt, Ivo, The World Phosphate Fertiliser                 Chemical Fertilizer Design 36 (1), 1998, 5-7.
    Industry, 1999, UNU/INTECH Background
    Report No. 10, July 1999.                                [9] Data from the Dafeng Chemical Fertilizer
                                                                 Plant, see HuTao, Tom, Environmental
[3] There are many regulations relevant to the                   Regulation, Globalization of Production and
    fertilizer industry.   Direct regulations are                Technological Change in the Fertilizer
    NEPA and State Technical Supervision                         Industry: A Case Study of China, UNU/
    Bureau (1992), Water Emission Standards for                  INTECH Background Report No. 24, October
    Synthesis Ammonia Industry (GB13458-92)                      1999.
    and NEPA and State Technical Supervision
    Bureau (1995), Water Emission Standards for              [10]Qin, P., "Promoting Cleaner Production and
    Phosphate Fertiliser Industry GB15580-95)].                  Sustainable Development of Nitrogen
                                                                 Fertilizer Industry" Chemical Industry 23 (4),
[4] PRCEE, Development Policy for Promoting                      1996, 3-6.
    Cleaner Production in China, WB/NEPA
    reports, 1997.                                           [11] Kazgan, G., "Current Trends and Prospects
                                                                  in Turkish Agriculture", METU Studies in
[5] FAO, Yearbook of Fertilizer 1996, FAO                         Development, 19 (3), 1992, 337-360.
    Publication and HuTao, Tom, Environmental
    Impacts of China's Agriculture Policy: An                [12] Eyüpoolu, F., Türkiyede Kullanylan Ticaret
    Overview, Processed paper, 1999a.                             Gübrelerinin Fiziksel ve Kimyasal Özellikleri
                                                                  (Physical and Chemical Characteristics of
[6] World Bank, At China's Table: Food Security                   Fertilisers Used in Turkey), Ankara: Ministry
    Options, The World Bank, Washington D.C.,                     of Agriculture, 1992.

Agro-Chemicals Report
Vol. II, No. 2, April-June 2002

[13] The market share of European companies                    the Middle East. The intentions of these joint
     when it comes to compound fertilizer imports              ventures are of a complete different nature.
     in Turkey has increased from 70 per cent in               Unlike the aims of joint ventures by Asian
     1993 to 85 per cent in 1998 (own                          countries, the output of joint ventures by
     calculations, UNCTAD COMTRADE Data                        traditional phosphate producers has no
     Base).                                                    guaranteed markets and is marketed on
                                                               world export markets. As such these joint
[14] Çetindamar,    Delik,   The Impact of                     ventures are a way of relocating the
     Environmental Regulations on the Turkish                  production process to regions in which
     Fertiliser   Industry,    UNU/INTECH,                     production is more cost efficient.
     Background Report No. 16, April, 1999.
                                                           [19] Lin, I.J. and Michael S., "A challenge for the
[15] See, among others, Gregory, D.I., Global                   phosphate industry: cadmium removal",
     Structure of the Phosphate Industry,                       Phosphorus & Potassium, (208), 1997, 27-
     presented at Phosphates and the                            32.
     Environment, Tampa, Florida 1992, Bumb, B.
     L., Global Fertilizer Perspective, 1980-2000;         [20] In 1997, a shortage of phosphoric acid due to
     The Challenges in Structural Transformation,               the very high demand for acid in the
     International Fertilizer Development Center,               company's export markets, particularly India,
     Muscle Shoals, Alabama: 1995-6535 and                      led to the company running its TSP facilities
     USITC      (U.S.      International    Trade               at reduced capacity.
     Commission) (1998), Industry & Trade
     Summary: Fertilizers, Washington, DC:                 [21] An interesting example along these lines is
     USITC, Publication No. 3082.                               the case of the Dutch group DSM, which
                                                                wanted to form a 50:50 joint venture with
[16] Louis, P.L., Fertilizers and Raw Materials                 OCP in September 1987. The cooperative
     Supply and Supply/Demand Balances,                         arrangement centred on DSM's complex at
     presented at 65th IFA Annual Conference,                   Pernis, where OCP would supply phosphate
     Beijing, 1997.                                             rock and DSM ammonia for the production of
                                                                APs, which would have been marketed by
[17] United Nations Centre on Transnational                     the joint-venture company. The problem of
     Corporations, Transnational Corporations in                dumping phosphogypsum with high cadmium
     the Fertilizer Industry, ST/CTC/25, New York,              content delayed the implementation of the
     1982.                                                      scheme. By the time a compromise was
                                                                reached with the Dutch Government, the
[18] Lin, I.J. and Michael S., "A challenge for the             Kemira proposal involving a sale to Kemira of
     phosphate industry: cadmium removal",                      DSM/s Dutch and UK phosphate facilities, in
     Phosphorus & Potassium, (208), 1997, 27-                   exchange for Kemira's stake in the DSM
     32.     For a general discussion on these                  Geleen ammonia plant, proved more
     trends, see Heerings, H., "The Role of                     attractive [based on field work interviews,
     Environmental Policies in Influencing Pattern              see Demandt, Ivo (1999), The World
     of     Investments       of   Transnational                Phosphate Fertilizer Industry, UNU/INTECH
     Corporations: Case Study of the Phosphate                  Background Report No. 10, July 1999].
     Fertiliser Industry", in OECD, Environmental
     Policies and Industrial Competitiveness,              (22) Narayan Pratap and B.L. Bumb "Policy
     1993, pp. 113-119. Traditional phosphate                   environment conducive to the growth of the
     producers, e.g. Norsk Hydro, have been                     fertilizer industry in the developing countries",
     engaging in joint ventures in North Africa and             UNIDO Discussion paper, ITPD 18, 1995.

                                                      19                                Agro-Chemicals Report
                                                                                 Vol. II, No. 2, April-June 2002

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