18th AFA Int’l Annual Fertilizer Forum & Exhibition Feb., 7-9-2012,

Sharm El-Sheikh , Egypt Maritim Jolie Ville Hotel

Food Security in the Arab World: Global Challenges and Regional Opportunities

Dr. Hadi Fathallah

Economist, FAO

Egypt

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FOOD SECURITY IN THE ARAB WORLD: GLOBAL CHALLENGES AND REGIONAL OPPORTUNITIES

Hadi Fathallah

Food and Agriculture Organization

Agenda

Global Price Volatility Interdependent Trends and Economic Outlook

Fertilizer Outlook Global and Regional Supply and Demand

Fertilizers and Farmgate Prices An Interrelated System

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Global Price Volatility

Key Global Drivers of Agricultural Markets and Price Volatility

Weather and climate change

Stock levels

Energy prices

Exchange rates

Growing demand

Rising energy related production costs and resource pressures (productivity growth)

Trade restrictions

Financialization of agricultural markets

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0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

1/1

990

10/1

990

7/1

991

4/1

992

1/1

993

10/1

993

7/1

994

4/1

995

1/1

996

10/1

996

7/1

997

4/1

998

1/1

999

10/1

999

7/2

000

4/2

001

1/2

002

10/2

002

7/2

003

4/2

004

1/2

005

10/2

005

7/2

006

4/2

007

1/2

008

10/2

008

7/2

009

4/2

010

1/2

011

10/2

011

Source: Food and Agriculture Organization

Food Price Index and Major Food Commodity Price Indices in Current USD

Food Price Index

Meat Price Index

Dairy Price Index

Cereals PriceIndex

Oils Price Index

Sugar PriceIndex

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

Source: Food and Agriculture Organization

Food Commodity Indices in Focus: 2008 – Present In Current USD

Food Price Index

Meat Price Index

Dairy Price Index

Cereals Price Index

Oils Price Index

Sugar Price Index

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Economic Outlook

The world economy has been recovering from 2010 after the spike in commodity pricesfollowed by deep recession experienced in the preceding two years

The global economic and financial situation impacts agriculture and demand for fertilizer.The world and regional fertilizer outlook, therefore, needs to be viewed from theperspective of the world economic growth

Energy prices moved upward from 2010 as a result of higher demand outpacing supply.During the first half of 2011, the price of Brent crude crossed more than US$ 110 perbarrel in a major part of the period. High crude oil prices provide strong incentives forbiofuel production. They also pull agricultural commodity prices up, which in turn, providestrong incentives for higher fertilizer application rates

In recent years, the production of biofuels has boosted demand for food crops such asmaize, wheat, sugarcane, and soybeans, pushing up their prices because of increasedcompetition among the food, feed and fuel sectors

Agriculture Outlook

FAO Agricultural Outlook expected global wheat output to increase by3.2 percent up to nearly 674 million tons, in 2011 from the 2010 reducedcrop, mostly reflecting improved yield prospects. World production will notbe sufficient to meet the expected demand, in spite of demand not rising asfast as in the previous season

Against the rising prices of agricultural commodities, the prices of fertilizershave also marked significant increase since 2010. For instance, the index(2002-04 =100) of FOB price of DAP increased from 176 in 2009 to 263in 2010 and moved further up at 323 in the first half of 2011

The food price index in 2011 at 233 crossed the earlier peak of 200 in2008. Under such scenario, the high agricultural commodity prices provideincentives for farmers in market-oriented economies to invest in fertilizersand other inputs for higher productivity

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5

0

200

400

600

800

1000

1200

1400

1600

1800

20002008M

01

2008M

03

2008M

05

2008M

07

2008M

09

2008M

11

2009M

01

2009M

03

2009M

05

2009M

07

2009M

09

2009M

11

2010M

01

2010M

03

2010M

05

2010M

07

2010M

09

2010M

11

2011M

01

2011M

03

2011M

05

2011M

07

2011M

09

2011M

11

Source: FAO; World Bank; IMF; International Financial Statistics; Shearson Lehman Brothers, Metal Market Weekly Review; Thomson Reuters Datastream; Platts Metals Week.

Comparative Commodity Indices in Current USD

Agr: Food, 2005=100,current$

Crude oil, avg, spot, $/bbl,current$

Fertilizers, 2005=100,current$

Gold, $/toz, current$

0

100

200

300

400

500

600

2008M

01

2008M

03

2008M

05

2008M

07

2008M

09

2008M

11

2009M

01

2009M

03

2009M

05

2009M

07

2009M

09

2009M

11

2010M

01

2010M

03

2010M

05

2010M

07

2010M

09

2010M

11

2011M

01

2011M

03

2011M

05

2011M

07

2011M

09

2011M

11

Source: FAO; World Bank; Fertilizer International

Fertilizer Index vs Food Index

Fertilizers, 2005=100,current$

Food Index

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Structural issues: Food deficit, poverty, unemployment, high incomegrowth, higher population growth rate, increased urbanization,single sector economies, scarce natural resource (water and land)

New and emerging challenges: Political and social unrests, civilinsecurity, low intensity armed conflict, cross border populationmovement, slow down of economic activities (tourism and associatedservice sectors), food inflation

Food Security Situation in the Region: A Context

Key Regional Agricultural Updates to Note

Good harvest was recorded in all the countries in North Africa sub-region due to favorable weather conditions during the past season. Less favorable harvest in Levant sub-region due to drought

Cereal import requirement to decrease for the next marketing year in Morocco, Algeria, and Egypt

Impact of the recent drought, increased water scarcity, inadequate input etc still remains problematic in some countries like Libya, Syria, Jordan, Iraq and Lebanon

Food price inflation continues to increase in most of the countries of the region

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Fertilizer Outlook

Fertilizer Outlook

Consumption of fertilizer nutrients increased significantly in 2010 and isexpected to grow in a stabilized way during the following years of theforecast period

World demand for total fertilizer nutrients is estimated to grow at 2.0percent per annum from 2011 to 2015. The demand for nitrogen,phosphate, and potash is forecast to grow annually by 1.7, 1.9, and 3.1percent, respectively, during the period

West Asia is in surplus in all the three nutrients. It is a major contributor toglobal nitrogen supply. The sub-region has a small surplus of phosphatefor exports which is expected to grow in the coming years

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8

0

200

400

600

800

1000

1200

1400

2008M

01

2008M

03

2008M

05

2008M

07

2008M

09

2008M

11

2009M

01

2009M

03

2009M

05

2009M

07

2009M

09

2009M

11

2010M

01

2010M

03

2010M

05

2010M

07

2010M

09

2010M

11

2011M

01

2011M

03

2011M

05

2011M

07

2011M

09

2011M

11

Source: FAO; Fertilizer Week; Fertilizer International; World Bank

Fertilizers Index and Major Fertilizer Commodity Prices in Current USD

DAP, $/mt, current$

Phosphate rock, $/mt, current$

Potassium Chloride, $/mt, current$

Fertilizers, 2005=100, current$

TSP, $/mt, current$

Urea, E. Europe, bulk, $/mt,current$

Demand for Fertilizer Nutrients

Total fertilizer nutrient (N+P2O5+K2O) consumption estimated at 170.7 million tons in 2010 isforecast to reach 175.7 million tons in 2011. With a successive growth of 2.0 percent per year,it is expected to reach 190.4 million tons by the end of 2015

Nitrogen (N) :

The world nitrogen fertilizer demand is expected to increase from a total of 105.3 million tonsin 2011 to 112.9 million tons in 2015 at the annual growth of 1.7 percent.

The share of increase in Africa is expected to be around 3 per cent, to be contributed mainlyby Egypt, Morocco, Nigeria and South Africa

Phosphate (P2O5)

The world phosphate fertilizer demand is expected to increase from a total of 41.7 million tonsin 2011 to 45.0 million tons in 2015 at a growth rate of 1.9 percent per year

Potash (K2O)

Potassium fertilizer demand in 2011 is projected to show an increase of 5.3 percent over 2010.The world potash fertilizer demand is expected to increase from a total of 28.7 million tons in2011 to 32.5 million tons in 2015 with an annual per annum growth of 3.1 per cent.

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0.00

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

140,000.00

160,000.00

180,000.00

200,000.00

2011 2012 2013 2014 2015Source: Food and Agriculture Organization

World Demand of Fertilizers Nutrient 2011-2015 (Thousand Tons)

Nitrogen (N)

Phosphate (P2O5)

Potash (K2O)

Total (N+ P2O5+K2O)

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Source: Food and Agriculture Organization

World and Regional Growth in Fertilizer Demand, 2011-2015

Total (N+P2O5+K2O)

K2O

P2O5

N

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Supply of Fertilizer Nutrients

Nitrogen (N)

Nitrogen the total ammonia capacity was 163.2 million tons in 2011. As a result of successive addition in capacity each year,total ammonia capacity is expected to rise to 188.7 million tons in 2015.

From 2011 to 2015, there would be a total addition in supply of 21.8 million tons. The total supply of ammonia (as N) would thereby rise to 156.3 million tons in 2015

Phosphate (P2O5)

A modest increase of 2.9 million tons in 2011 increased the total supply to 51.4 million tons. By 2015, it is expected to rise to 57.6 million tons. Of the total 6.2 million tons addition in world capacity between 2011 and 2015, 46 percent addition would take place in Asia, mainly in East Asia (China) and West Asia (Saudi Arabia and Jordan). About 37 percent capacity would be added in Africa (Morocco and Tunisia)

According to IFA, between 2010 and 2015, close to 34 new phosphoric acid units are planned for completion, of which 15 would be located in China, 6 in Morocco and 3 in Saudi Arabia.

After taking into account operating rates, the world supply of phosphoric acid (as P2O5) is estimated at 39.6 million tons in2010, which is estimated to rise to 42.1 million tons in 2011. A modest increase is expected annually, and by 2015, the totalsupply will be 47.8 million tons

Potash (K2O)

World potash capacity is estimated at 42.7 million tons (as K2O) in 2010. A small increase of 1 million tons is expected in 2011 with the total rising to 43.7 million tons. By 2015, the total capacity is likely to be 59.6 million tons.

After considering operating rates, world supply of potash (as K2O) is estimated at 38.9 million tons in 2010, which would rise to 39.8 million tons in 2011. A good increase is expected annually from 2012 and by 2015, the total supply may touch 52.3 million tons

0

50000

100000

150000

200000

250000

300000

2011 2012 2013 2014 2015Source: Food and Agriculture Organization

World Supply of Nutrient Fertilizers, 2011-2015 (thousand tons)

Ammonia (as N)

Phosphoric acid (as P2O5)

Potash (as K2O)

Total

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East Europe and Central Asia

7%

Oceania5%

Africa23%

North America2%

Latin America14%

West Asia10%

South Asia20%

East Asia19%

Central Europe0%

West Europe0%

Regional Share of World Increase in Ammonia (as N) Supply, 2011-2015

Source: Food and Agriculture Organization

East Europe and Central Asia

12%

Oceania1%

Africa34%

North America4%

Latin America13%

West Asia29%

South Asia2%

East Asia5%

Central Europe0%

West Europe0%

Regional Share of World Increase in Phosphate (as P2O5) Supply, 2011-2015

Source: Food and Agriculture Organization

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East Europe and Central Asia

28%

Oceania0%

Africa0%North America

48%

Latin America9%

West Asia0%

South Asia0% East Asia

15%

Central Europe0%

West Europe0%

Regional Share of World Increase in Potash (as K2O) Supply, 2011-2015

Source: Food and Agriculture Organization

Regional Fertilizer Situation

Africa

Its share in world consumption of nitrogen is 2.7 percent, phosphate 2.4 percent and potash1.7 percent

The main consumers of fertilizer in the region are Egypt, Morocco, Nigeria and South Africa

The growth rate in demand for nitrogen, phosphate, and potash is expected to be 1.9, 3.3,and 4.3 percent, respectively between 2011 and 2015. The fertilizer nutrientsupply/demand balance indicates that the region would remain a major exporter ofphosphate, followed by nitrogen. For potash, the region would continue to depend solely onimport

West Asia

The share of West Asia in world consumption of nitrogen is 3.0 percent, phosphate 3.0percent and potash 0.9 percent

Total fertilizer consumption in West Asia is forecast to grow by 3.2 percent per year from2011 to 2015. The demand for nitrogen and phosphate is expected to grow by 2.9 each andphosphate by 6.7 percent during the period

The sub-region is in surplus in all the three nutrients. It is a major contributor to global nitrogensupply. The sub-region has a small surplus of phosphate for exports which is expected to growin the coming years

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0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

2010 2011 2012 2013 2014 2015

Source: Food and Agriculture Organization

World Nitrogen Supply, Demand and Balance (Thousand of Tons )

NH3 Capacity (as N) NH3 Supply Capability (as N)

N Other Uses N Available for Ferts.

N Fert. Consumption Potential N Balance

0

2000

4000

6000

8000

10000

12000

14000

2010 2011 2012 2013 2014 2015

Africa Nitrogen Supply, Demand and Balance (Thousand of Tons )

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2010 2011 2012 2013 2014 2015

West Asia Nitrogen Supply, Demand and Balance (Thousand of Tons)

-10000

0

10000

20000

30000

40000

50000

60000

70000

2010 2011 2012 2013 2014 2015

Source: Food and Agriculture Organization

World Phosphate Supply, Demand, and Balance (Thousands of Tons)

H3PO4 capacity H3PO4 supply capabilityH3PO4 industrial demand H3PO4 available for fertilizerP Fert. consumption/demand H3PO4 Fert. demandNon-H3PO4 Fert. demand Potential H3PO4 balance

0

2000

4000

6000

8000

10000

12000

2010 2011 2012 2013 2014 2015

Africa Phosphate Supply, Demand, and Balance (Thousands of Tons)

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2010 2011 2012 2013 2014 2015

West Asia Phosphate Supply, Demand, and Balance (Thousands of Tons)

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0

10000

20000

30000

40000

50000

60000

70000

2010 2011 2012 2013 2014 2015

Source: Food and Agriculture Organization

World Potash Supply, Demand, Balance (Thousands of Tons )

Potash CapacityPotash Supply CapabilityIndustrial Demand and other demandAvailable for FertilizerPotash Fertilizer Consumption/demandPotential K2O Balance

-800

-600

-400

-200

0

200

400

600

800

2010 2011 2012 2013 2014 2015

World Potash Supply, Demand, Balance (Thousands of Tons )

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2011 2012 2013 2014 2015

World Potash Supply, Demand, Balance (Thousands of Tons )

Fertilizers and Farmgate Prices

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Farmgate Prices and Price Volatility

At FAO, we look both at Retail Prices and Farmgate Prices, as Food Securityincludes both the Consumers and Farmers

Evidence from other regions, suggests that, in countries where retail pricesincreased during the world food crisis, farmgate prices also increased

But the volatility of prices during the crisis increased risks for farmers andwill not promote longer-term investment by smallholders. The magnitude ofsupply responses in developing countries will be shaped by transmission ofworld prices not just to the retail level, but also to the farm level

Interrelated System: We all depend on each other

Between 2001 and 2008, world prices for nitrogen, phosphorus and potassium fertilizers allincreased by more than world grain prices. The price of urea, a prime source of nitrogen and oneof the most widely used fertilizers, more than quadrupled in real terms from 2001 to 2008.

To the extent that these higher world prices were passed on to farmers, they reduced farmprofitability and hence potential supply response. However, the extent to which fertilizer pricescancelled out farmgate price increases is probably less than commonly believed.

The cost of fertilizer used is much less than the gross value of the crop produced, and it is therelative magnitude of these two quantities that determines the net impact of fertilizer price onprofitability.

Example: Between 2007 and 2008, fertilizer costs more than doubled, seed costs nearlydoubled, labour costs increased substantially and yields fell, but a 57 percent increase in paddyprices was enough to lead to an increase in profits of 34 percent.

However, the increase in profits is dependent upon maintaining fertilizer use – if fertilizeruse falls because farmers cannot afford it, yields fall and profits may well decline.

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Thank YouQ&A