It is almost exactly a year since we published our last blog on the New Zealand fertiliser industry ("Fertiliser prices on the nose" Dr Jon Hauser, Xcheque.com, 9 Dec 2009). Prompted by a new round of price adjustments ("Ballance adjusts its fertiliser prices", Radio New Zealand, 8 Dec 2010), we thought it was time for an update.
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A year ago I wrote about the New Zealand fertiliser industry, questioning the effectiveness of co-ops and competition. It was all a bit embarrasing really because 6 months before that I was pointing to NZ as a model for the Australian industry. History showed a keen level of competition between the two major suppliers with a close alignment between international price benchmarks and the New Zealand domestic price. Indeed the NZ price was consistently lower than expectations during the run up of international price in 2007 / 2008.
But then something happened. Ballance made a loss in 08/09 and all of a sudden competition went out the window. In May 2009 NZ prices stopped dead in their tracks and failed to follow the international market down.
At the low point of the international market in October 2009 New Zealanders were paying a 40% premium for fertiliser when compared to the historical parity between domestic and international prices.
That was then and this is now. During the course of 2010 we have continued to monitor global fertiliser prices and the corresponding prices in Australia and New Zealand. We track the price relativity of the major nutrients and fertiliser products on a monthly basis. This information is available via our website and we also provide data to Dairy Australia for their input cost and Situation and Outlook reports.
In the past year the Australian fertiliser industry has been reasonably well behaved. They are always slow to bring prices down and quick to increase them but generally speaking international and domestic prices have moved back to reasonable alignment.
Sorry but we can't say the same for New Zealand. New Zealand prices have pretty much flatlined over the past 18 months.
The chart below shows our index for a typical dairy industry pasture mix based on international pricing. The calculation takes account of the normal historical cost and margin for New Zealand suppliers. In other words we take the monthly international FOB price, correct for the exchange rate, and add a delivery cost and margin for suppliers. The blue line is the actual price index for the same dairy mix ie. the price quoted in the supplier price lists. The equivalent Australian price index is also shown (after conversion into NZ dollars).
What this tells us is that New Zealand farmers have been paying at least 20% more for fertiliser than is justified by international price benchmarks. Potash has been particlularly nasty. Given international price levels, NZ potash should have been at about $600 - $700 / tonne in 2010. The average has been $1,060 and the current price is $870 / tonne. You be the judge but somebody is either sitting on a big expensive stockpile, or they are taking extraordinary profits.
And what is it with these two companies? We don't bother looking up the price lists for both - there is essentially no difference. Perhaps they should be called Ballensdown or Ravensdance.
Incidentally you can be absolutely certain that Australian farmers are not paying the same price for fertiliser to Ravensdown as their NZ customers - but then we are always happy to accept a bit of cross Tasman subsidy.
Well one good thing for Xcheque.com is that we don't have to be too creative in Dave's View. Here's the toon we ran last year. Just about the only thing we need to change is the caption which should be:
"Same s..t, different year"