Fertilizer Requeriments in 2015 and 2030 Revisited PDF

INTERNAL WORKING DOCUMENT
Fertilizer requirements in
2015 and 2030 revisited
Fertilizer requirements in
2015 and 2030 revisited
Land and Plant Nutrition Management Service

Land and Water Development Division
FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

Rome, 2004
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Contents
EXECUTIVE SUMMARY v
ACKNOWLEDGEMENTS viii
GLOSSARY ix
1. INTRODUCTION 1
2. CATEGORIZING COUNTRIES BY ADOPTION LEVEL 3

Sub-Saharan Africa 7
North Africa and the Middle East 7
West Europe, Central Europe and FSU 8
North America, Latin America and the Caribbean 9
Asia 9
Oceania 10
Conclusion 10
3. PROPOSED FERTILIZER DEMAND FORECASTING METHODS 11
Fertilizer Demand Studies 13
Three different approaches 14
4. CONCLUSIONS AND NEXT STEPS 23
REFERENCES AND BACKGROUND READING 27
APPENDICES 39
A. OVERVIEW OF ANALYSIS OF DATA WITH SPATIAL STRUCTURE 39
B. LIST OF FERTILIZER CONSUMING COUNTRIES BY NEW CATEGORIES 41
iv
List of figures
1. Projected fertilizer use efficiency in selected countries for

wheat yields < 3 t/ha 4
2. Projected fertilizer use efficiency for selected countries with
a wheat yield > 3 t/ha 5
List of tables
1. Average fertilizer application rate and paired t-test statistics

for the regional categories 6
2. Summary of past fertilizer demand studies 12
v
Executive Summary
Fertilizer has been a key element in the growth of agricultural productivity in

the last century and it will continue to be important in meeting the demand for
food, feed, fibre and other crop products. The general objective of this study
was to propose improved methodologies for FAO forecasting of fertilizer
demand that are consistent with FAO projections of agricultural production in
2015 and 2030. These forecasts are needed for public and private planning. The
specific objectives were to: i) review the literature on the adoption of fertilizer
technologies worldwide; ii) categorize countries according to their position on
the adoption curve; and iii) suggest up to three different methodologies.
RECATEGORIZATION
The observed pattern in fertilizer consumption suggests re-categorization of
countries. For instance the changing structure of the EU, the economic growth
of Mexico and its proximity to the United States, and South Africaʼs atypical
consumption in Africa, are a few examples that testify to this. The following
categories have been suggested:
1. SSA (excluding South Africa and Sudan)
2. Oceania (including South Africa)
3. East Asia (all East Asian countries)
4. Rest of Asia (RoA), (excluding East Asian countries).
5. North America (including Mexico)
6. Latin America and the Caribbean (excluding Mexico)
7. EUR (West Europe, Bulgaria, Czech Republic, Hungary, Poland, and
Romania)
8. Rest of Europe (RoE) Central Europe and FSU (excluding Bulgaria, Czech
Republic, Hungary, Poland, and Romania)
9. Near East – all North African and Middle East countries.
Appendix B provides a list of all countries in each category.

vi
THREE METHODOLOGIES FOR FERTILIZER DEMAND FORECASTING

Long term forecasting is at best an inexact science, which must make the best
of both formal estimation methods and the informal observations of those in
the fertilizer and related industries. The three formal methodologies proposed
are: a) simple structural econometric models (SEM) based on modification of
past fertilizer demand methodologies; b) time series modelling with Vector
Autoregression (VAR); and c) causal production economics approach models
(PEA) based on economic duality theory.
The current FAO fertilizer demand model is a starting point for the development
of the simple structural econometric model. Fertilizer use in the current period
is explained by cropland, crop production, the change in crop production, the
change in fertilizer use over the previous period (essentially lagged fertilizer use)
and a trend variable. The yield change variable captures the effect of technical
improvements in fertilizer use on fertilizer demand. The trend variable combines
both technology and environmental quality effects. The coefficients of this model
would be estimated on cross section time series data for each macronutrient
using econometric techniques to deal with the temporal and spatial correlation.
The model directly reflects the effects of cropland change, technology and
environmental concern. It indirectly reflects the build up or depletion of soil
fertility through the crop production variable.
The suggested VAR approach uses past observations of the variable in question
and crop production. Past observations of other variables could be included if
the historical data are available for estimation and the projections are available
for the period up to 2030. The estimate does not depend on economic theory
and as such, it is easy to model. Cropland, technology and environmental trend
effects are embodied in the lagged values of the fertilizer demand and crop
production variables. Depletion or build up of soil fertility can be analysed
by comparing the estimated coefficient of crop production to crop removal
parameters. Researchers have found that VAR models produce more accurate
forecasts than other econometric estimates. The VAR can be estimated with a
spatial error structure if diagnostic tests show that this is needed. The forecast
is generated by repeatedly estimating one period ahead out to 2015 and 2030.
The PEA model is based on duality theory. It is suggested to estimate a system

of the cost function and macronutrient demand equation as a function of input
prices and other factors. A cost minimizing approach is used to provide a direct
mechanism for incorporating the estimated FAO 2015 and 2030 crop production
vii
into the model; the target production level is a parameter in the cost function.
Because of the theoretical base, it requires strict assumptions, but its results
tend to provide more insight into the mechanism of the fertilizer market than the
other two approaches. The cropland can be included as an independent variable.
The trend variable captures technology change and growth in environmental
concern. Depletion or build up of soil fertility can be analysed by comparing the
estimated coefficient of crop production to crop removal parameters, as in the
VAR model. The forecasts are generated by inserting projected fertilizer prices
and crop production into the macronutrient demand equations.
viii
Acknowledgements
This study is based on the work of F. Tenkorang, Department of Agricultural

Economics, Purdue University, United States of America.
The study benefited from the contribution of J. Lowenberg-DeBoer (Purdue

University), J. Poulisse and T. van den Bergen (FAO).
ix
Glossary
AR Autoregressive
BNF Biological Nitrogen Fixation
CABA Common Agricultural Policy of Agenda
CBAT Codes of Best Agricultural Practice
CE Central Europe
CT Conventional Tillage
EFMA European Fertilizer Marketing Association
EPA Environmental Protection Agency
EU European Union
FAO Food and Agriculture Organization of the United Nations
FIAP Farm Income and Adaptation Policy
FSU Former Soviet Union
GPS Global Positioning System
IFA International Fertilizer Industry Association
IFDC International Fertilizer Development Centre
INES Increased Nutrient use Efficiency Scenario
IRRI International Rice Research Institute
LM Lagrange Multiplier
NAFTA North American Free Trade Agreement
NT No-Tillage
OECD Organisation for Economic Co-operation and Development
PA Precision Agriculture
PEA Production Economics Approach
PP Permanent Pasture
PPI Potash & Phosphate Institute
PPIC Potash & Phosphate Institute of Canada
SEM Structural Econometric Models
x
SSA sub-Saharan Africa

SUR Seemingly Unrelated Regression
TFI The Fertilizer Institute
VAR Vector Autoregression
VRA Variable Rate Application
1
Chapter 1
Introduction
Long term projections of international agricultural production and/or resource

requirements are fraught with assumptions, data limitations, and ill-understood
economic and physical relationships. Despite these well-known deficiencies,
there continues to be considerable interest in future agricultural production from
a number of quarters. Public agencies charged with developing and implementing
food, agriculture, environmental and trade policies; organizations concerned with
food security issues, and agri-businesses focused on production, processing and
marketing of agricultural commodities and inputs are constantly assessing the
future state of the global agricultural sector. Investment planning and public
policy initiatives are often better served when a systematic approach is employed
to quantify and explicitly examine the relevant factors affecting the future state
of agricultural production and resource requirements.
There appears to be some consensus in the research community about the

likely future path of global agricultural production and resource use (IFPRI,
1995; NAS, 1998). Aspects of this consensus can be succinctly summarized as
follows: growing world population and per caput incomes will likely require
more intensive agricultural crop production. Higher yields will, in turn, increase
the demand for agricultural inputs. Future agricultural cropping patterns will
reflect shifts in diets (e.g. greater meat consumption). Greater opportunities for
agricultural trade may also lead to regional shifts in world crop production.
At the same time, there will likely be economic and environmental incentives
to improve the efficiency of fertilizer use over current levels in all countries,
but especially in the developed countries. The overall goal of this paper is to
examine improved methodologies for FAO forecasting of fertilizer demand
that are consistent with FAO projections of agricultural production in 2015 and
2030. This paper is a follow-up to the FAO publication “Fertilizer requirements
in 2015 and 2030”.
Chapter 2 categorizes countries by fertilizer adoption level. Chapter 3

proposes three methodologies for fertilizer demand forecasting. Chapter 4
provides an overview and suggestions for next steps.
3
Chapter 2
Categorizing countries by adoption level
The review of literature identified key differences in the growth or decline of

the fertilizer demand by region. Forecasts will be improved if regions with
relatively similar fertilizer demand characteristics are identified. This chapter
uses qualitative differences between regions and some simple statistical tests
to identify separate regions.
In West Europe, five countries account for 80 percent of the regionʼs fertilizer
consumption. The region consumes about 11.5 million tonnes of fertilizers;
fertilizer consumption is expected to decline. Over 40 percent of the fertilizers
are applied to cereals (FAO/IFA/IFDC, 2002). Fertilizer consumption in Central
Europe (CE) and the Former Soviet Union (FSU) fell in the 1990s. There are
4 major consumers in CE and 3 in the FSU. Since the early 1990s, fertilizer
consumption remained stable at about 20 percent of its former level. North
Americaʼs fertilizer consumption has been rather stable around 20 million
tonnes; the United States of America (USA) account for 90 percent of this
amount. The consumption of Latin America and the Caribbean shows an upward
trend; it reached about 13 million tonnes in 2001/02. The largest consumer is
Brazil followed by Mexico and Argentina. Cereals receive the major part of
the fertilizers. In North Africa and the Middle East, four countries consume
70 percent of the total consumption in the region (6.8 million tonnes). The
consumption has been increasing since 1970 and this trend will continue. Sub-
Saharan Africa (SSA) is the region with the lowest fertilizer consumption. For
the past 20 years, it has been around 2 million tonnes (IFA statistics). Adoption
of fertilizer use has been slow and this may change gradually. South Africa is
the major consumer (38 percent). Fertilizer consumption in Asia has increased
considerably. The region consumes almost 50 percent of the world total.
FAO currently estimates that the world fertilizer consumption must increase
to about 180 million tonnes (±10 percent) in the next 30 years to attain projected
crop production. This implies an annual growth rate of about one percent, which
is less than the 3.3 percent experienced in the last 30 years (FAO, 2000). The
consumption in countries in the developing world will presumably increase while
consumption in the developed world will decrease. At present, geographical
location is the basis for the FAO fertilizer regions (IFA, 2002).
4 Fertilizer requirements in 2015 and 2030 revisited
The differences in average fertilizer application rates between regions are

tested for with a student t-test at a five percent level of significance. This is
to determine whether some neighbouring regions can be grouped together. A
scatter plot of fertilizer application rates versus wheat yield shows the extent
of differences in nutrient efficiency among countries. Using consumption
characteristics, countries found to be outliers in their current categories will
be re-categorized into appropriate groups. Characteristics include the level of
consumption and fertilizer use growth pattern.
The overall expected low growth rate of fertilizer use stems from the
following factors: reduction in consumption due to environmental concerns,
non-increasing consumption in the developing world, and improved efficiency in
fertilizer use in the developed world. Figures 1 and 2 show that some countries
FIGURE 1
Projected fertilizer use efficiency in selected countries for wheat yields < 3 t/ha
4.5
4.0
India
USA
3.5 China Greece
Pakistan Romania
Spain Canada
3.0 Nepal
China Latvia Bangladesh Iran
tonnes/ha
Uruguay
Lebanon Greece Israel Turkey Paraguay
2.5 USA Romania
Israel India Uruguay Argentina
Guatemala Portugal Brazil
Spain Canada
Guatemala Latvia Pakistan Argentina
2.0 Australia Paraguay
Lebanon Peru
Madagascar Bangladesh Australia Turkey
Madagascar Brazil Iran
1.5 Portugal Nepal
Peru 1995–97
1.0
2030
1995–97
0.5
2030
0.0
0 5 10 15 20 25 30 35 40 45
kg wheat per kg fertilizer nutrient
Source: Adapted from Fertilizer use by crop (FAO/IFA/IFDC, 2002).

Chapter 2 – Categorizing countries by adoption level 5
FIGURE 2
Projected fertilizer use efficiency in selected countries for wheat yields > 3 t/ha
14.0
12.0 Ireland
Netherlands
UK Belgium/Luxembourg
10.0 Denmark
Germany
France
Egypt Ireland Netherlands
Sweden
tonnes/ha
8.0 UK Belgium/Luxembourg
Denmark Austria
Germany
France
6.0 Czech Republic Hungary
Mexico Sweden
Zimbabwe
Egypt Finland
Croatia Austria Poland
Italy Zimbabwe Saudi Arabia
Czech Republic
4.0 Chile Mexico Saudi Arabia
Japan Croatia Finland 1995–97
Hungary Poland
Japan Chile Italy 2030
2.0 2030
1995–97
00
0 10 20 30 30 50 60
kg wheat per kg fertilizer nutrient
Source: Adapted from Fertilizer use by crop (FAO/IFA/IFDC, 2002).
achieved higher wheat yields than others with the same or even lower fertilizer
application rates. For instance, the United States of America has been able to
increase yields with lower fertilizer application through precision agriculture
(PA) and other efficiency enhancing technologies. However, in SSA, low
application rates mean low yields. This is an indication that the expected growth
in fertilizer consumption will not be the same across countries.
Table 1 shows the differences (un-shaded boxes) and similarities (shaded

boxes) of fertilizer application rates between regions. The effects of the factors
cited above vary among countries. These differences, in addition to the fact that
some countries in some categories may have to be re-grouped into different
regions, makes it imperative to examine the current fertilizer consumption
characteristics and the expected response of the various regions and countries,
and re-categorizing them based on their expected consumption pattern where
necessary.
6
TABLE 1
Average fertilizer application rate and paired t-test statistics for the regional categories
Region Mean N Std. T-value for Mean Comparison Between 2 Groups
(kg/ha) Deviation
1&2 2&3 3&4 4&5 5&6 6&7 7&8 8&9 9 & 10
1. W. Europe 421.72 16 712.74 2.04
2. C. Europe 86.13 19 77.18 2.05
3. FSU 34.17 11 43.02 -1.52
4. N. America 83.89 2 36.71 -0.5
5. L. America 135.9 37 145.1 1.08
6. Oceania 69.99 6 76.62 1.86
7. SSA 23.29 43 55.07 -5.32
8. M. East 133.86 15 100.65 -0.72
9. S. Asia 292.23 14 841.64 0.141
10. E. Asia 237.91 5 151.31
Total 135.68 169 349.82
Categories t-test was done at 5% level of significance.

Shaded boxes: there is no significant difference between the two regions.
Source: Computation based on IFA data (2002).
Fertilizer requirements in 2015 and 2030 revisited
Forecasting future fertilizer demand with such categorization would not

have been a problem had all countries in their current categories been at par in
regards to consumption, and technological know-how. The characteristics of
some countries distinguish them from the other members of their respective
categories. These distinct countries are at different adoption levels compared
to the other member countries. As a result, their inclusion in the current
fertilizer consumption categories needs to be reconsidered. This is crucial for
accurate prediction of future fertilizer use. A second look is taken at the present
categorization to see whether there is the need for re-categorization.
SUB-SAHARAN AFRICA
Because of the characteristics of agriculture in SSA, fertilizer consumption is
low and expected to increase only slowly in the next decade or two. A distinct
country in the region is South Africa. It accounts for about 38 percent of the
regionʼs total fertilizer consumption. South Africa has maintained a fairly stable
consumption of about 0.8 million tonnes per year for over a decade now (IFA,
2002). Improved agricultural practices such as variable rate fertilizer application,
variable rate seeding, yield monitoring, which are found in North America and
Europe, exist in South Africa. Correlation analysis of fertilizer consumption
in the sub-regions in SSA shows that South Africaʼs consumption is always
significantly different from the other sub-regions (Naseem and Kelly, 1999).
Therefore, in terms of fertilizer application and agricultural practices, South
Africa is miles ahead of the other SSA countries. It ranks similarly to Central
European countries or Australia and New Zealand. Hence, it is not included
with other SSA countries. South Africa can be re-categorized among the other
countries of the Southern Hemisphere in Oceania. South Africa shares in
particular with Australia a legacy of very old weathered soils, a well developed
economy and easy access to technology from North America and Europe.
NORTH AFRICA AND THE MIDDLE EAST

Because of harsh conditions in this region, only 38 percent of the 1.1 billion ha
of land is fit for human habitation. Irrigation is a necessity in the region because
the humid and semi-humid areas cover only two percent of the land (FAO,
2001). Five million ha out of the six million ha land equipped for irrigation are
under cultivation. Forty percent of the 296 million people live in rural areas.
The region was one of the strongest in agricultural technology but now lags
behind. Fertilizer consumption in the region is about five percent of the world
total. Consumption is on an upward and steady trend.
Although fertilizer consumption in North Africa (except Egypt) is not

comparable to that of the Middle Eastern countries, it makes sense to categorize
them together as the Near East because of their common sub-regional interest
and the alignment of the North African countries to the Middle East. Appendix
B provides a list of the countries in this category.
WEST EUROPE, CENTRAL EUROPE AND FSU

Almost all countries in West Europe have experienced a decline in fertilizer
consumption over the last five years. There is no reason to eliminate any country
from this category.
CE and the FSU have similar total consumption patterns in terms of total
nutrients. However, their application rates differ. CEʼs application rates are over
100 kg/ha, while those of the FSU are less than 30 kg/ha. Population growth
rate in this region is very low, with countries such as Bulgaria, Hungary and
Croatia having negative growth rates. Agricultural transformation in CE is
more advanced compared to the FSU. CE is following West Europe and North
America in terms of agricultural technology such as conservation agriculture to
improve their agriculture (FAO, 2001). The CE countries are also motivated to
follow the standards of West Europe because of their desire to join the EU. The
FSU accounts for a greater proportion of the decline in this groupʼs fertilizer
consumption. With time, the FSUʼs fertilizer consumption will probably increase
while the consumption in the other European countries is expected to decline.
Based on these differences putting CE and the FSU in the same category is not
appropriate. This is confirmed by the significant differences in their fertilizer
consumption patterns (Table 1). Although Table 1 also shows that the difference
between CE and West Europeʼs application rate is significant, for the above
reasons, it is appropriate to put the CE countries that are more similar to West
Europe in the same category as the latter, and refer to the new group as EUR
(Appendix B). The CE countries not grouped with West Europe and the FSU will
form another category. Data of decentralization are available from 1990 onwards
for the FSU and for the Czech Republic and Slovakia from 1993 onwards.
NORTH AMERICA, LATIN AMERICA AND THE CARIBBEAN

Canada and the USA are major exporters of crop products. Increased crop yield
has been achieved with declining increments of applied fertilizer. Although
mineral fertilizer consumption in Canada is far less than that in the USA (mainly
because of less cultivated land), both countries have access to, and utilize the
most improved fertilizer application methods. Their similarities as well as being
neighbours put them in the same category.
The expected increase in food production in Latin America and the Caribbean
will come mainly from increasing the cultivable land, which will lead to increased
fertilizer consumption in the region. This has been forecasted to be about four
percent per annum (IFA, 2002). The region is made up of 42 countries, which
share similar agricultural development and environmental protection issues.
The region looks forward to improved economies due to an expected increase in
agricultural performance. The countries in the region are listed in Appendix B.
The outlier among these countries is Mexico. Mexicoʼs contiguity with

the USA increases the research and technology spillover. Through the North
American Free Trade Agreement (NAFTA) there is also an increasing alliance
between Canada and Mexico. As a result, 80 percent of Mexicoʼs exports go to
the USA, and this has boosted Mexicoʼs economy with a GDP growth of three
to five percent per annum (IFA, 2002). A stronger alliance and more technology
spillover can be foreseen in the future. For these reasons, it is proposed to put
Mexico, the USA and Canada in the same category.
ASIA
Asia can be divided into three subregions: South Asia, Southeast Asia and East
Asia.
Many Southeast Asian countries are overusing fertilizer. They have exceeded
their theoretical maximum levels. All countries in South Asia are using three to
70 percent of their maximum. Countries such as Cambodia and Laos use three
to five percent while Malaysia and India use over 50 percent. China, Korea PDR
and Vietnam have room for expansion. China consumes only 62 percent of its
theoretical maximum.
Although the countries in the regions collaborate on eliminating the

environmental impact of fertilizers, the regions are at different stages in fertilizer
adoption. As a result, different measures are required to solve each regionʼs

problems. Two categories are proposed for Asia: East Asia and the Rest of Asia
(RoA). This is because East Asia is the only sub-region where the majority of
countries are overusing fertilizer.
OCEANIA
Fertilizer application rates in the region are larger than in SSA. In terms of total
nutrient consumption, Oceaniaʼs consumption is more than SSAʼs by about
one million tonnes. However, unlike SSA, Australia and New Zealand are
high-income countries, and have the available improved fertilizer application
methods such as VRA. The region consumes more P than N and K. As mentioned
above, South Africa is out of place in the SSA group. Therefore, categorizing
South Africa with Australia and New Zealand is suggested. The suggested
recategorization will fine-tune the FAO estimates mentioned earlier.
CONCLUSION
The current categorization is by geographical location. The literature
review has shown that not all countries in the same category exhibit similar
fertilizer consuming characteristics. Overlooking such outliers can have
serious implications when modeling fertilizer demand data. Because of the
importance for the future FAO fertilizer forecast, the following categorization
is recommended:
1. SSA (excluding South Africa and Sudan)
2. Oceania (including South Africa)
3. East Asia (all East Asian countries)
4. Rest of Asia (RoE) (excluding East Asian countries)
5. North America (including Mexico)
6. Latin America and the Caribbean (excluding Mexico)
7. EUR (West Europe and Bulgaria, Czech Republic, Hungary, Poland, and
Romania)
8. Rest of Europe (RoE) Central Europe and FSU (excluding Bulgaria, Czech
Republic, Hungary, Poland, and Romania)
9. Near East – all North African and Middle Eastern countries
Appendix B shows the full list for each category.

11
Chapter 3
Proposed fertilizer demand forecasting
methods
Long term forecasting is at best an inexact science, which must make the best
of both formal estimation methods and the informal observations of those in the
fertilizer and related industries. This section focuses on potential improvements
on the formal quantitative methods used by FAO to forecast fertilizer demand.
The three methodologies proposed are described below:
1. simple structural econometric models (SEM) based on modification of past
fertilizer demand methodologies;
2. time series modeling with Vector Autoregression (VAR);
3. causal models based on production economics approach (PEA) and duality
theory.
Parthasarthy (1994) reviews the basic issues in fertilizer demand forecasting.

He divides forecasting into three steps: i) assessment of potential; ii) forecasting
demand; and iii) forecasting sales. The focus of this section is on step ii)
forecasting demand. For public and private planning, fertilizer demand potential
based on agronomic needs may be a useful upper limit, but this estimation
omits key factors in economic demand (e.g. price relationships, national and
international fertilizer policies, trends). Forecasting sales of particular fertilizer
products in specific countries is not feasible given the 11 to 26 year offset from
the forecast targets (i.e. 2015, 2030).
Parthasarthy also specifies four categories among forecasting methods:

1. measurement of potential based on biological requirements;
2. time series analysis;
3. casual models;
4. qualitative approach.
As noted above, the biological potential estimates may be useful, but they
are not adequate for private and public planning. The qualitative approach
relies on expert opinion and can be useful in sparse data environments, but
in this case it is more of a complement to the quantitative approaches than a
TABLE 2
12
Summary of past fertilizer demand studies

Variables Emphasis Scope Results/Elasticities Authors
Fertilizer price; crop price All crops USA Griliches, 1958
Fertilizer price; regional effect Total fertilizer USA, regional Varies across regions: elastic and Griliches, 1959
inelastic
Fertilizer price; crop price; Individual nutrients on all crops USA, regional N: -0.45 Heady and Yeh,
total cash receipts; total crop Cobb-Douglas function P: -0.45 1959
acreage; time effect; wage rates K: -0.40
Maize price; N price; K price; Maize-fertilizer production USA K is more own-price elastic than N. Heady and
P price function: quadratic and square Own price elasticity is equal but Tweeten, 1963
root opposite in sign to maize price
elasticity.
Land price index; farm Individual nutrients USA, western Elasticities varied among states, and Carmen, 1979
productivity index; technology Cobb-Douglas states among nutrients
Cost; fertilizer price Individual nutrients Republic of Ireland N: elastic own price elasticity Boyle, 1982
Translog cost function P: inelastic own price elasticity
K: inelastic own price elasticity
Derivative price of N; agricultural Nitrogen UK N: inelastic own price elasticity Lingard, 1971
price index; rent Simple econometric model
N price; crop price Nitrogen; total fertilizer UK Negative inelastic crop price Burrell, 1989
3 different models elasticity
Area; production of maize; crop Individual nutrients; simple Canada, regions Inelastic elasticities; high for N and K Pidgeon and
rev. and average crop price econometric model Kiwanuka, 1987
(Prairies); fertilizer price
Fertilizer price; other economic Individual nutrients cross- USA Fertilizer demand response to same Gunjal, Roberts
factors sectional: per acre of five crops factor differs among crops and Heady, 1980
Fertilizer price; other economic Cross-sectional: per acre of three USA Maize: N,P,K are price elastic Roberts and
factors crops Others: price inelastic Heady, 1982
AR least squares & SUR
Land; labour; fertilizer price Individual nutrients USA Inelastic SR and LR Denbaly and
dynamic model (ecm) Land: substitute. Vroomen, 1993
Labor: complement
Price Total nutrients; cost function; Denmark SR own-price elasticity: -0.52 Kristensen and
panel data Jensen, 1999
Output price index; N price; land Nitrogen; dual theory- profit Denmark Mean of own-price farm elasticities Hansen, 2001
maximization approach –-0.45
panel data
Source: reviewed articles and FIAP (2003).

Chapter 3 – Proposed fertilizer demand forecasting methods 13
competing method. The qualitative approach can help fill in gaps for countries
where data is inadequate for quantitative estimation and it can help decision
makers understand the context of quantitative forecasts. This chapter will focus
on time series analysis and causal models.
FERTILIZER DEMAND STUDIES

Table 2 summarizes past fertilizer demand studies. One can trace back fertilizer
demand studies to at least 1958 when Griliches (1958) studied the impact of
fertilizer prices, crop prices and regional effects on the fertilizer demand in the
USA. Some country level studies include Burrell (1989) for the United Kingdom
(UK); Bonnieux and Rainelli (1987) for France; Dubgaard (1986) for Denmark;
Boyle (1982) for Ireland; Binswanger (1974), Shumway (1983) and Frink et
al. (1999) for the USA; Green and Ngʼongʼola (1993) for Malawi; and Naseem
and Kelly (1999) for SSA. In general, the primary objective of these studies was
estimation of demand elasticities, not forecasting long-term fertilizer demand.
The type of causal models used for elasticity estimation does not necessarily
provide useful long-term forecasts.
A few studies have focused on forecasting demand. Bumb and Baanante

(1996) used food production requirements, agronomic needs and behavioral
models to forecast 1.2 percent annual growth rate of fertilizer demand for the
period between 1990 and 2020. Alexandratos (1998) forecasted 3.8 percent
growth rate per annum for 1989 to 2010. Gilland (1998) predicted 1.89 percent
growth rate per annum for nitrogen for the next 50 years to produce 3.6 billion
tonnes of cereals (world total).
One of the most current estimations is the joint effort of FAO, TFI and
USDA. In this study, FAO (2000) forecasted fertilizer requirements in 2015 and
2030 using a baseline scenario and an increased nutrient use efficiency scenario
(INES). The INES produced lower fertilizer consumption for 2015 and 2030
(151.2 and 165.7 million tonnes compared with 174.7 and 199.2 million tonnes
produced by the baseline scenario) because it captured the efficiency of fertilizer
use over time (FAO, 2000). Based on the nutrient efficiency assumption, an
annual growth of 0.7 to 1.3 percent is expected between 1995/97 and 2030. This
is in line with the current trend resulting from improved timing, split applications,
site-specific management etc. in most developed countries. Currently, FAO
(2000) uses this study to support its projected crop yields.
Three different approaches

The three methodologies proposed to forecast fertilizer demand are: (1) a simple
structural econometric model (SEM) based on the modification of past fertilizer
demand methodologies; (2) a time series model using Vector Autoregression
(VAR) (Hamilton, 1994); and (3) demand systems analysis using econometric
regression techniques (Chambers, 1988; Capalbo, 1988). All approaches use data
for many countries over several time periods. All models allow for temporal
correlation. Because of the likelihood of the existence of spatial effects (see
Appendix A for details) among country level data on fertilizer consumption,
the presence of spatial autocorrelation will be tested. If diagnostics indicate the
presence of spatial dependence, then each of the three proposed methodologies
will be adjusted to account for this. In the SEM, VAR and PEA approaches,
temporal error correlation will also be diagnosed and corrected when
appropriate.
1. Simple Structural Econometric Model (SEM)
The strength of a simple SEM approach is its simplicity while incorporating

insights from economic theory. Griliches (1958, 1959) studied the impact of
fertilizer prices, crop prices and regional effects on the fertilizer demand in the
USA. Many other studies have followed afterwards.
From the summary Table 2, the most important variables in fertilizer demand
are fertilizer price, prices of other inputs and crop prices. The economic theory
states that the demand for a factor input depends on its own price, the price of
other inputs (substitutes/complements), and the output. To be consistent with
economic theory a demand function for a normal input must be non-increasing
in its own price, non-decreasing in output and homogeneous of degree zero in
prices.
1.a. The SEM model specification
FAOʼs (2000) model for estimating fertilizer demand is a useful starting point
for the development of the SEM equation outlined here. This is:
(1)
where:
F = unadjusted fertilizer application rate (by nutrient)
Y = yield (area weighted average of major fertilizer consuming crops)
t = a time index
Rearranging FAOʼs model as a log-log model gives:
(2a)
where:
and , and the index i represents a
country. Rearranging equation 2a and then taking the natural log of both sides
of the equation, the following relation between current fertilizer use, nutrient
depletion, and the inter-period change in yield is obtained:
(2b)
Equation (2) is fit using regression. The interaction between Yit and
describes nutrient depletion (Jomini, 1990), whereas is the inter-period
change in yield. The review of literature identified expansion or contraction in
area of agricultural land as being the potential driver of change. If the country
level estimates of agricultural land for 2015 and 2030 can be obtained for the
forecasting, agricultural land (represented by Z) can be included in the model.
If data are available, including projections for 2015 and 2030, then Z could
include population, price changes for fertilizers and crops, environmental
quality indexes, and fertilizer-efficiency technology indexes. The estimated
model would then be:
(3a)
βi1 = the impact of nutrient depletion on the current use of fertilizer;

βi2 = the impact of the change between periods of fertilizer used in the
current period;
βi3 = the impact of the change between periods of yield in the current
period;
γ = a time trend capturing environmental and technological change (T);
θ = captures changes in land expansion by the inclusion of available land
(or proportion available);
i= country index.
Thus, fertilizer use in the current period is explained by agricultural land,

crop production, the change in crop production, the change in fertilizer use over
the previous period (essentially lagged fertilizer use) and a trend variable. The
coefficients of interest in this model are θ, βi1, βi2, βi3, and γ. The coefficient θ
is the percentage of change in fertilizer demand, with respect to a percentage

of change in agricultural land.
Coefficient βi1 is the percentage of change in fertilizer demand with respect to

a one percentage of change in crop production. It relates to soil nutrient depletion
or build up. If the coefficient is substantially less than one, depletion is probably
occurring. If it is greater than one, the amount of fertilizer applied is greater than
the amount required and nutrient build up is probably happening.
Coefficient βi2 captures the effect of lagged fertilizer use. Coefficient βi3
captures the technical efficiency changes in fertilizer use. It is the percentage of
change in fertilizer demand with respect to a percentage of change in production.
If βi3 is less than one, each increment of yield requires less than an increment
of fertilizer. The coefficient γ captures other technologies, regulations and other
trends.
Nutrient depletion or build up is difficult to capture directly in a simple

model. This is because it depends on the type of crop, type of soil, and initial
soil fertility. Soil test information is available only on a few locations even in
developed countries, and often not at all in developing countries. In addition,
it is difficult to know the quantity of fertilizer applied on each crop, and how
much was the residual effect from one crop to another, especially under crop
rotation.
This model will be estimated using seemingly unrelated regression (Zellner,

1962). There is reason to believe that the error terms in the model are correlated
across regions. The specified model will also use panel data: there is information
about yield and fertilizer use for each country over time. Panel data helps to
control for the effects of unobserved variables (Solon, 1989). This is useful since
not all relevant variables can be included in the model.
1.b. Variables used in the model
The following variables will be used in this analysis: percentage of available

arable land, crop yields (FAO projected yields), fertilizer application rates (total
nutrients and individual nutrients), and the time series (T).
1.c. Diagnostics for spatial correlation
Since the data is inherently spatial, the presence of spatial autocorrelation

between observations is likely. There are many tests that detect the presence
of spatial dependence between observations (Anselin, 1988). The Lagrange

multiplier (LM) test is one such test. If the LM test indicates the presence of
spatial correlation, then the model (3) will be re-specified as a spatial lag or
spatial error model (Anselin, 1988 and 1992), depending on this diagnostic.
For example, if spatial lag dependence exists between observations, then the
model (3) is re-specified as:
(4)
with W an n x n exogenous spatial weights matrix describing contiguous

relationships between countries within regions (that is, border-sharing
countries), and ρ is an autoregressive (AR) parameter. The AR parameter ρ
captures spillover effects of technology, trade, or other unobserved effects that
may exist between countries. If spatial error is detected in the residuals, then
the error term εit in equation (3) is respecified as, where uit
~N(0,σi2). Conceivably, but rarely, lag and error effects may be present. In this
case, a hybrid of these corrections can be specified to model spatial lag and error
processes in equation (3).
1.d. Estimation
If no spatial dependence is detected, then equation (3) is estimated using

seemingly unrelated regression (SUR). If spatial dependence is detected,
then AR terms in the spatial correction models are estimated using maximum
likelihood. Generally, maximum likelihood is used to estimate the above model
if it is done by region.
1.e. Forecasting
Forty percent of the data will be reserved as out-of-sample data so that the
forecasting ability of the model can be validated. The estimated model will
be used to generate fertilizer quantities for the withheld years, which will be
compared with the actual quantities to test the forecasting power of the model.
Afterwards, the whole sample will be re-estimated, and the estimated model used
to forecast fertilizer demands for 2015 and 2030 based on projected dependent
variables, including FAOʼs crop yield projections.
2. Vector autoregressive (VAR) model
One of the major strengths of VAR models is their forecasting ability (Hamilton,
1994). According to Longbottom et al. (1985), time series models often produce
better forecasting results than SEM models. This gears the analysis towards the
explanation of a variable by its past values, and the past values of other relevant
variables.
Another reason for using VAR is its simplicity. The structure of a VAR model
does not depend on economic or plant growth theory per se, but VAR models
make use of the idea that economic variables have a propensity to move together
over time (Johnston and DiNardo, 1997). Therefore, there are fewer problems
with model misspecification.
2.a. Specification of the VAR model
In this analysis, the VAR model is specified as:
(5)
where:
γk = the coefficient explaining the relation between current-period fertilizer
use in country k and the cross-lag effect of fertilizer use of country k
on fertilizer use in country i;
δi = the own-lag effect of fertilizer use in country i;
gi = the lag effect of country iʼs yield on their current use of fertilizer;
εit = a disturbance term.
The VAR model incorporates the key forces driving change in fertilizer use.
Agricultural land expansion and contraction, technology and environmental
trend effects are embodied in the lagged values of the fertilizer demand and crop
production variables. Depletion or build up of soil fertility can be analyzed by
comparing the estimated coefficient of crop production to average crop removal
parameters (PPI, 1995). Given estimates of the quantities of each crop produced
and average crop removal rates, total crop removal can be estimated by nutrient
and region. If the removal is substantially larger than the amount replaced with
fertilizer (the estimated coefficient of Y), then soil nutrient depletion is likely
to occur with eventual effects on crop productivity. If the effect of production
on fertilizer demand (the estimated coefficient) is larger than the removal, then
soil nutrient build up is occurring.
2.b. Estimation
Each equation for country i will be estimated simultaneously using SUR.

Estimation procedures for VAR models are available in many commercial
regression software packages. The analysis will be done for both total nutrients
and individual nutrients.
2.c. Spatial VAR
If the LM test for spatial dependence shows that spatial dependence is present,
then spatial VAR will be used instead (Dowd and LeSage, 2000). The implication
of this is that the lag of Fk,t is also relatively as important as the lag of Fit in
country i.
2.d. Forecasting
One-step-ahead forecasts will be generated and compared with out-of-sample

data. Model adjustments, in terms of lag length, will be made when necessary
to obtain the most accurate forecasts. Dickey-Fuller tests are commonly used
in time-series economic analysis to determine the appropriate number of lags to
include in VAR models. Additionally, unit-root tests will be conducted to check
stationarity in the fertilizer and yield time series. This is important to ensure that
parameters are correctly estimated, and forecasts are robust.
3. Production economics approach (PEA) model
In the production economics theory, growers use fertilizer as an input in the

production process to optimize some objective, often profit. It can be shown that
maximizing profit is equivalent to minimizing cost using the duality theory at
the profit maximizing yield level (Chambers, 1988). The duality theory attempts
to create systems that accurately capture reality, and that are also applicable to
multiple systems in multiple stages of development. Using the mathematical
results of Hotellingʼs Lemma and Shepardʼs Lemma, a system of equations
representing demands for inputs for a given output can be constructed. It is then
possible to estimate the system of equations using time series data of prices,
yields, input quantities, and other factors. This approach is data intensive, but it
has been widely used to estimate input demand elasticities, welfare changes, and
other economic questions. For example, it has been used to analyze the fertilizer
demand in Denmark with data from a cross section of farms (Hansen, 2001).
The use of duality concepts is proposed in order to estimate the conditional

demand for fertilizer given a cost minimization objective. This asks for estimates
of fertilizer demand that are consistent with the FAO agricultural production
estimates for 2015 and 2030. Profit maximization and risk management objectives
typically assume that production quantities are choice variables, but the classic
cost minimization problem takes the production quantity as given, while input
quantities change with prices and other factors. Thus the cost minimization
paradigm fits the FAO requirement.
A translog function is convenient for empirically estimating cost functions,

conditional input demands, and marginal cost of production over time. Since true
demand functions are generally unknown, the translog is convenient since it is a
second order Taylor series expansion representing a local approximation of any
function. Capalbo (1988) used the translog functional form to estimate industry-
level demands for input factors over a time series. Christensen et al. (1973) used
the translog production function to estimate the demand for labour and other
inputs for the domestic private economy in the USA. Linking the production
economics theory to a demand-forecasting model entails the following.
Using duality results, a set of conditional demand functions is obtained by

solving the first order conditions of the producerʼs cost minimization problem:
.
C( ) is an indirect cost function, q is a vector of outputs, w is a vector of

input prices, x are levels of input, and f*( ) is a production function evaluated
at optimal input levels. Conditional input demands are derived from the partial
derivative of C( ) with respect to w. Marginal cost of production is derived from
the partial derivative of C( ) with respect to q. The most relevant conditional
input demand functions to this study are those of nitrogen (N), phosphorous
(P) and potassium (K).
To estimate the conditional demand for fertilizer using the translog function
econometrically, the following functional form is specified as:
(7)
where:
q= yield (a crop-area weighted index)
i= country index;
k= an index for input prices, k = N, P, K;
t= time subscript;
w= input price;
T= a time trend;
C= total cost of production;
CL = cropland;
β, α, γ, δ, θ are parameters to be estimated.
Conditional input demands are and the marginal cost of production

is given by .
These derivatives form a system of demand equations that can be estimated

econometrically. The necessary homogeneity and symmetry restrictions are
imposed to ensure concavity of the cost function and the behavioral assumptions
of profit maximizing producers. Empirically, the left hand side of the demand
system of equations are cost shares based on the data. Input prices and output
quantities are considered the exogenous variables in the regression.
The production economics approach reflects the key drivers of change in

fertilizer use noted in the literature review. The agricultural land can be included
as an independent variable. The trend variable captures technology change and
growth in environmental concern. Depletion or build up of soil fertility can be
analyzed by comparing the estimated coefficient of crop production (γ) to crop
removal parameters (φ), as in the VAR model.
3.a. Estimation
The system of conditional demands, marginal cost, and the cost function in
equation (7) are estimated using SUR.
3.b. Estimation of elasticities and forecasting future fertilizer demand
The responsiveness of fertilizer demand to output production is useful in

determining the amount of fertilizer needed to produce a given level of output.
Since the data set is a time series, fertilizer demand elasticities can be projected
to 2015 and 2030. If the LM test for spatial dependence detects spatial error or
spatial lag, then a spatial SUR as proposed by Anselin (1988) will be used for
the estimation.
23
Chapter 4
Conclusions and next steps
The literature review suggests that the drivers of change in fertilizer demand
may differ substantially from country to country. Demand for food, fiber and
other crop products is likely to grow rapidly in Asia, Africa and Latin America
because of population growth and economic development, while in Europe and
North America the crop product demand is likely to grow slowly. In SSA and
Latin America, the area of agricultural land is likely to expand substantially
before 2015 and more by 2030, while in Europe and North America agricultural
land may decline slightly as land is diverted to urban and recreational uses. On
some land, fertilizer applications will be discontinued as it is used for organic
agriculture. This is likely to remain a niche market for premium products, but in
some countries, particularly in Europe, is having an important effect on fertilizer
demand. Technology for more efficient fertilizer use is being developed mainly
in Europe and North America, and environmental concern is encouraging its use
there. This same technology is available in Latin America and Oceania, but the
economic and regulatory factors are not as favorable for its use as in Europe and
North America. Some of the efficiency technology is being adapted in Asia; only
rarely can it be used directly there because the farm structure differs substantially
from that of Europe and North America (i.e. very small farms). Some of the new
lands opened for cultivation (e.g. Cerrados of Brazil) require substantial initial
fertilizer applications to build up soil fertility for crop production. Many soils
in Europe, North America and Oceania have experienced a century of build up
(particularly of phosphate) and growers may draw on that invested fertility to
help cope with tight profit margins and environmental concern. In Africa, many
farmers will be using fertilizer for the first time in the study period, while in most
of the world fertilizer use has been common for decades. A fertilizer demand
forecasting method must deal with these drivers of change and the difference
among regions as to their importance.
Between 1960 and 2001, total fertilizer consumption increased from about
30 to 137 million tonnes. The highest annual consumption of 145 million tonnes
was recorded in 1989. Between 1988/89 and 1993/94 consumption fell by 20
percent due to environmental concerns in many developed countries and the
economic problems following the breakup of the FSU. The developing world,
however, experienced over 100 percent increase in fertilizer consumption. Asiaʼs

consumption increased by 300 percent. In all, Asia accounted for almost half
the worldʼs fertilizer use in 2000/01. Africa and Oceania are the two regions
with the lowest fertilizer consumption (2 percent of the world total each). The
share of the developing countries of the consumption in 2001/02 was 66 percent.
Consumption is expected to increase by 2.3 percent in 2002/03 (IFA, 2002).
Fertilizer misuse has the potential of degrading the environment and

affecting human health. Inefficient application can lead to reduction in soil
fertility, water pollution, and NH3 emissions. Nitrogenous compounds are
sources of environmental hazards in rice growing countries in Asia. About 60
percent of applied mineral nitrogen (N) is lost through leaching, denitrification,
volatilization, and run off, which pollutes the atmosphere and water systems.
Reduction in fertilizer consumption in developed countries has been

successful due to improved agricultural production technologies such as
denitrification inhibitors, polymer coated slow-release fertilizers, and precision
agriculture. It is now possible to achieve higher crop yields with less fertilizer.
However, higher yields in most developing countries imply application of
more fertilizers. In SSA, fertilizer adoption is still at the grass root level due to
economic instability and high fertilizer cost.
Soil fertility buildup was used to claim marginal soils in Europe and North
America many years ago, and large areas in Australia in the early twentieth
century. P and K build up is used to create agricultural land in Brazil. Africa and
Asia will benefit a lot from such activities. The USA and Argentina are currently
believed to mine soil nutrients.
Long term forecasting is at best an inexact science, which must make the
best of both formal estimation methods and the informal observations of those
in the fertilizer and related industries. The three formal methodologies proposed
are: a) simple structural econometric models (SEM) based on modification of
past fertilizer demand methodologies; b) time series modeling with Vector
Autoregression (VAR); and c) casual production economics approach (PEA)
models based on economic duality theory.
The current FAO fertilizer demand model (FAO, 2000) is a starting point for
the development of the simple structural econometric model. Fertilizer use in
the current period is explained by agricultural land, crop production, the change
in crop production, the change in fertilizer over the previous period (essentially
lagged fertilizer use) and a trend variable. The yield change variable captures
Chapter 4 – Conclusions and next steps 25
the effect of technical improvements in fertilizer use on fertilizer demand. The

trend variable combines both technology and environmental quality effects. The
coefficients of this model would be estimated on cross section time series data for
each macronutrient using econometric techniques to deal with the temporal and
spatial correlation. The model directly reflects the effects of change in agricultural
land, technology and environmental concern. It indirectly reflects the build up
or depletion of soil fertility through the crop production variable.
The suggested VAR approach uses past observations of the variable in

question and crop production. Past observations of other variables could be
included if the historical data are available for estimation and the projections
available for the period up to 2030. The model does not depend on economic
theory and as such, it is easy to model. Agricultural land, technology and
environmental trend effects are embodied in the lagged values of the fertilizer
demand and crop production variables. Depletion or build up of soil fertility can
be analyzed by comparing the estimated coefficient of crop production to crop
removal parameters. Researchers have found that VAR models produce more
accurate forecasts than other econometric estimates. The VAR can be estimated
with a spatial error structure if diagnostic tests show that this is needed. The
forecast is generated by repeatedly estimating forecasts one period ahead out
to 2015 and 2030.
The PEA model is based on duality theory. Estimating a system of the cost
function and macronutrient demand equation as a function of input prices and
other factors is suggested. A cost minimizing approach is used providing a
direct mechanism for the estimated FAO 2015 and 2030 crop production to be
incorporated into the model; the target production level is a parameter in the
cost function. Because of the theoretical base, it requires strict assumptions, but
its results tend to provide more intuition about the mechanisms of the fertilizer
market than the other two approaches. The agricultural land can be included
as an independent variable. The trend variable captures technology change
and growth in environmental concern. Depletion or build up of soil fertility
can be analyzed by comparing the estimated coefficient of crop production to
crop removal parameters, as in the VAR model. The forecasts are generated by
inserting projected fertilizer prices and crop production into the macronutrient
demand equations.
27
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39
Appendix A
Overview of analysis of data with spatial
structure
Spatial econometrics have come a long way since they were first used by
Paelink in his description of multiregional econometric models in the early
1970s (Anselin, 1988). They have become popular because of the realization of
dependence (spatial autocorrelation) and heterogeneity (spatial structure) inherent
in aggregate spatial data. Spatial autocorrelation, the more acknowledged effect,
is the result of lack of independence in cross-sectional data observations, which
is usually the result of measurement errors. Spatial heterogeneity is related to
the lack of stability over space (Anselin, 1988). Spatial heterogeneity becomes
more evident when cross-sectional data are combined with time series data.
Spatial correlation, which may be presented in the form of spatial lag or

spatial error, however, is often unaccounted for. This is because previously,
spatial data were not available, and even though such data are now available by
courtesy of PA, analyzing such data has been a challenge (Bullock et al., 2002).
There is a wide gap between data analysis and site-specific recommendations
of agricultural inputs such as seed, fertilizers and pesticides that will maximize
profits and at the same time minimize the negative environmental effects of these
inputs (Lambert et al., 2003). Ignoring this spatial correlation is tantamount to
the assumption of independence of crop yields among countries, which if found
not to hold, can lead to inefficient estimates (due to spatial error) and biased and
inconsistent estimates (due to spatial lag) (Anselin, 1992). The categorization
of countries is an indication of interdependence, and reviewed literature shows
that countries within a specific FAO categorized region have many similarities
in terms of crop yield, fertilizer consumption, level of technology, population
growth rates etc. Of late, spatial effects have begun to receive consideration in
time series analyses (Azomahou, 1999; Dowd and LeSage, 1997) especially
when the data have cross-sectional dimension.
Spatial regression has been used in many fields including epidemiology,

environmental science, image analysis, oceanography, and econometrics among
others (Hallin et al., 2002). The basic feature among these fields lies in the
presence of spatial effects. It has also been used extensively in the analysis
of site-specific farm level data (Anselin et al., forthcoming; Bongiovanni and

Lowenberg-DeBoer, 2000, 2001 and 2002; Lambert et al., 2003).
Concerning fertilizer consumption, spatial autocorrelation is more likely

to be present among consumption levels of countries belonging to the same
consumption category, and heterogeneity is more likely to be present among
consumption levels in different consumption categories.
41
Appendix B
List of fertilizer consuming countries by new
categories
42
Sub-Saharan Africa (excl. South Africa and Sudan) East Asia Rest of Asia (RoA)
Angola Ethiopia Namibia Indonesia Bangladesh

Benin Gabon Niger Japan Bhutan
Botswana Gambia Nigeria Korea Rep. Cambodia
Burkina Faso Ghana Réunion Malaysia China
Burundi Guinea Rwanda Myanmar India
Cameroon Guinea-Bissau Senegal Philippines Korea PDR
Cape Verde Kenya Seychelles Singapore Laos
Central African Rep. Lesotho Sierra Leone Taiwan, province of China Mongolia
Chad Liberia Somalia Thailand Nepal
Comoros Madagascar Swaziland Pakistan
Congo, D.R. Malawi Tanzania, United Rep. Sri Lanka
Congo, Rep. Mali Togo Vietnam
Côte d’Ivoire Mauritania Uganda
Djibouti Mauritius Zambia
Eritrea Mozambique Zimbabwe
Latin America & the Caribbean (excl. Mexico) Near East
Argentina Ecuador Panama Afghanistan Morocco

Bahamas El Salvador Paraguay Algeria Oman
Barbados French Guyana Peru Bahrain Qatar
Belize Grenada St. Kitts and Nevis Cyprus Saudi Arabia
Bolivia Guadeloupe St. Lucia Egypt Sudan
Brazil Guatemala St. Vincent/Grenadines Iran Syrian Arab Republic
Chile Guyana Suriname Iraq Tunisia
Colombia Haiti Trinidad/Tobago Israel Turkey
Costa Rica Honduras Uruguay Jordan United Arab Emirates
Cuba Jamaica US Virgin Islands Kuwait Yemen
Dominica Martinique Venezuela Lebanon
Dominican Rep. Nicaragua Libyan Arab Jamahiriya
EUR Rest of Europe (RoE)
Austria Hungary Portugal Albania Georgia Serbia & Montenegro

Belgium-Luxemburg Iceland Romania Armenia Kazakhstan Slovak Rep.
Bulgaria Ireland San Marino Azerbaijan Kyrgyzstan Slovenia
Appendix B – List of fertilizer consuming countries by new categories
Denmark Italy Spain Belarus Latvia Tajikistan

Finland Malta Sweden Bosnia / Herzegovina Lithuania Turkmenistan
France Netherlands Switzerland Croatia Macedonia Ukraine
Germany Norway United Kingdom Czech Rep. Moldova Rep. Uzbekistan
Greece Poland Estonia Russian Federation
43
44
Oceania + South Africa North America + Mexico
Australia Canada
Fiji Islands United Sates
French Polynesia Mexico
New Zealand
Papua New Guinea
Samoa
South Africa
Tonga

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INTERNAL WORKING DOCUMENT

Land and Plant Nutrition Management Service

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

All rights reserved. Reproduction and dissemination of material in this

2. CATEGORIZING COUNTRIES BY ADOPTION LEVEL 3

4. CONCLUSIONS AND NEXT STEPS 23

REFERENCES AND BACKGROUND READING 27

1. Projected fertilizer use efficiency in selected countries for

1. Average fertilizer application rate and paired t-test statistics

Fertilizer has been a key element in the growth of agricultural productivity in

Appendix B provides a list of all countries in each category.

THREE METHODOLOGIES FOR FERTILIZER DEMAND FORECASTING

The PEA model is based on duality theory. It is suggested to estimate a system

This study is based on the work of F. Tenkorang, Department of Agricultural

The study benefited from the contribution of J. Lowenberg-DeBoer (Purdue

SSA sub-Saharan Africa

Long term projections of international agricultural production and/or resource

There appears to be some consensus in the research community about the

Chapter 2 categorizes countries by fertilizer adoption level. Chapter 3

The review of literature identified key differences in the growth or decline of

The differences in average fertilizer application rates between regions are

Source: Adapted from Fertilizer use by crop (FAO/IFA/IFDC, 2002).

Source: Adapted from Fertilizer use by crop (FAO/IFA/IFDC, 2002).

Table 1 shows the differences (un-shaded boxes) and similarities (shaded

1. W. Europe 421.72 16 712.74 2.04

2. C. Europe 86.13 19 77.18 2.05

3. FSU 34.17 11 43.02 -1.52

4. N. America 83.89 2 36.71 -0.5

5. L. America 135.9 37 145.1 1.08

6. Oceania 69.99 6 76.62 1.86

7. SSA 23.29 43 55.07 -5.32

8. M. East 133.86 15 100.65 -0.72

9. S. Asia 292.23 14 841.64 0.141

10. E. Asia 237.91 5 151.31

Total 135.68 169 349.82

Categories t-test was done at 5% level of significance.

Forecasting future fertilizer demand with such categorization would not

NORTH AFRICA AND THE MIDDLE EAST

Although fertilizer consumption in North Africa (except Egypt) is not

WEST EUROPE, CENTRAL EUROPE AND FSU

NORTH AMERICA, LATIN AMERICA AND THE CARIBBEAN

The outlier among these countries is Mexico. Mexicoʼs contiguity with

Although the countries in the regions collaborate on eliminating the

adoption. As a result, different measures are required to solve each regionʼs

Appendix B shows the full list for each category.

Parthasarthy (1994) reviews the basic issues in fertilizer demand forecasting.

Parthasarthy also specifies four categories among forecasting methods:

Summary of past fertilizer demand studies

Source: reviewed articles and FIAP (2003).

FERTILIZER DEMAND STUDIES

A few studies have focused on forecasting demand. Bumb and Baanante

Three different approaches

1. Simple Structural Econometric Model (SEM)

The strength of a simple SEM approach is its simplicity while incorporating

1.a. The SEM model specification

Rearranging FAOʼs model as a log-log model gives:

βi1 = the impact of nutrient depletion on the current use of fertilizer;

Thus, fertilizer use in the current period is explained by agricultural land,

is the percentage of change in fertilizer demand, with respect to a percentage

Coefficient βi1 is the percentage of change in fertilizer demand with respect to

Nutrient depletion or build up is difficult to capture directly in a simple

This model will be estimated using seemingly unrelated regression (Zellner,

1.b. Variables used in the model