Letter to Ag Committee Requesting Fertilizer Investigation

Dear Chairperson Blois and members of the Committee:

The NFU is again requesting that the Committee undertake a thorough review of fertilizer pricing, the structure of the sector, and the conduct of its largest corporations. Though this letter focuses on nitrogen fertilizer, the record profits and questionable pricing detailed below are observable for all three primary fertilizer types: nitrogen, phosphorus, and potassium.

As Committee members may know, Canadian nitrogen fertilizer production is dominated by four firms: Nutrien Ltd., CF Industries, Yara International, and Koch Fertilizer. According to data from Nutrien, these four corporations control 95% of Canadian ammonia production capacity and 100% of urea capacity. (https://bit.ly/3QhVGdp) On a North American basis, these same four companies control 74%of ammonia capacity and 84% for urea. The sector is highly concentrated—what economists call an “oligopoly.” Competition is inadequate to discipline prices and restrain profit levels and there is real potential for companies to price according to what the market will bear: potential to raise fertilizer prices whenever grain prices rise. We ask the Committee to investigate whether this is happening.

Company statements and financial reports add to concerns. Nutrien Ltd. is Canada’s largest producer of nitrogen fertilizer and the largest producer of fertilizer in the world. The corporation announced its second quarter financial results on August 4th. The company told shareholders that:

“Nutrien deliver[ed] record first half earnings and expects strong second half. …Nutrien generated net earnings of $5.0 billion and adjusted EBITDA of $7.6 billion in the first half of 2022 due to higher realized prices and strong Retail performance, more than offsetting a reduction in fertilizer sales volumes. … Nitrogen second quarter and first half adjusted EBITDA increased compared to the prior year due to higher net realized selling prices that more than offset higher natural gas costs and lower sales volumes”. (https://bit.ly/3AapGSS)

Nutrien reveals two things. First, higher fertilizer prices “more than offset higher natural gas costs.” The record-high fertilizer prices farmers faced went far beyond what was needed to make up for higher production costs. Second, Nutrien notes “a reduction in fertilizer sales volumes.” Other companies have noted lower sales tonnage (see below). This makes it hard for companies to explain soaring fertilizer prices by pointing to high demand: consumption was down. CF Industries is the second-largest nitrogen producer in Canada and the largest in North America. Similar to Nutrien, CF Industries reports “record results” with net sales income twice as high in the first half of 2022 as in the first half of 2021 and net earnings five times as high. CF Industries also notes lower sales volumes (first half of 2022 vs. first half of 2021) pointing to “weather delaying spring application and reducing planted acres.” They are saying demand was down. (https://bit.ly/3BUn90r)

Yara International, the third-largest nitrogen producer in Canada, tells a similar tale: “Improved margins as higher prices more than offset increased energy cost and lower deliveries.” Yara’s net income for the first half of 2022 was twice as high as for the first half of 2021. (https://bit.ly/3QsNyHj)

Koch Fertilizer, the fourth-largest nitrogen producer in Canada, does not release financial information.

Across North America, farm organizations and economists are warning that fertilizer companies may be manipulating prices in response to farmers’ higher crop prices. In a joint letter, twenty-four US farm organizations wrote to the US Department of Agriculture raising concerns over:

“record price spikes that are not reflective of increased production costs, but instead indicative of industry-wide collusive pricing behaviors and profiteering. … Recent record-breaking fertilizer prices coincided suspiciously with an increase in income farmers were earning from commodity crops. While fertilizer corporations claimed these prices were the result of shortages and high natural gas prices, their own annual and quarterly reports refuted these claims.” (https://bit.ly/3vNuc7e)

The preceding is a sample from a large quantity of evidence. We ask that the House of Commons Standing Committee on Agriculture and Agri-Food investigate fertilizer pricing, company profits, and the lack of competition in the sector; report to Parliament and farmers; and, if warranted, initiate enforcement of relevant laws and regulations in order to protect farmers and our net incomes.

Finally, and most important for many Canadians, this issue—potential fertilizer company profiteering at farmers’ expense—goes far beyond farmers and these firms. When net farm incomes are low, taxpayers help make up the difference. Over the past 36 years (1985-2021), for realized net farm income, two dollars out of three came from taxpayers. High fertilizer prices have cut deep into farmers’ net incomes. If companies are manipulating prices and inflating their profit margins they are taking money away, not just from farmers, but from all taxpayers. Parliamentarians have a responsibility to protect taxpayers’ dollars and ensure their proper management. Parliamentarians have a responsibility to investigate.

Further to our request to the Committee in writing on January 13th, which was reiterated by NFU President Katie Ward during her testimony to your Committee on February 17th, the NFU once again requests an immediate investigation by your Committee and immediate action to protect farmers and taxpayers from any price manipulation that may be occurring. We look forward to the rapid production of public documents that can shine a light on the structure and conduct of this powerful and highly concentrated sector.

Thank you,

Katie Ward, NFU President

Stewart Wells, NFU Vice-President for Operations

cc : Members of the House of Commons Standing Committee on Agriculture and Agri-Food Mister of Agriculture, Provincial Ministers of Agriculture