Chemical Manufacturing - Agricultural
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Industry Overview
In the US, about 700 companies are involved in the manufacture of agricultural chemicals, with combined annual revenue of $30 billion. Large companies include divisions of Dow and DuPont, and specialized producers like FMC, Mosaic, and Terra Industries. Many smaller companies are involved in mixing purchased raw materials to produce customized fertilizer compounds with special characteristics.
The industry is highly concentrated because of economies of scale in marketing and distribution. The eight largest producers of phosphate fertilizers control 90 percent of the market. The eight largest producers of nitrogen fertilizers control almost 80 percent of the market. Concentration is also high in the pesticide segment, where the eight largest producers control 70 percent of the market.
Competitive Landscape
Demand for agricultural chemicals depends mainly on demand for various crops, which in turn depends on crop prices. The profitability of individual companies is linked to efficient operations and marketing. Big producers have large economies of scale in production. Smaller companies can compete effectively by making specialty chemicals or fertilizer mixtures for local markets. Operations are capital-intensive and highly automated. Annual revenue per employee at a large plant is close to $700,000.
Products, Operations & Technology
Companies manufacture fertilizers, herbicides and insecticides, or produce fertilizer or pesticide mixtures. Fertilizers and pesticides each account for about 50 percent of industry revenue. Fertilizers are a handful of commodity chemicals that contain nitrogen, phosphorous, or potassium. Pesticides are a broader group of chemicals, but many of the biggest sellers are also commodity products.
Nitrogen fertilizers include products like ammonia, urea, ammonium nitrate (AN), and urea-ammonium nitrate (UAN). Phosphorous fertilizers include phosphoric acid, mono-ammonium phosphate (MAP), di-ammonium phosphate (DAP), and superphosphates like tri-sodium phosphate (TSP). Potassium fertilizers (potash) are common salts of potassium such as potassium chloride (muriate of potash) and potassium sulphate (sulphate of potash). Nitrogen is the most important fertilizer. In a typical year, US farmers use 12 million tons of nitrogen, 5 million tons of potash, and 4 million tons of phosphorous fertilizer. The largest volume fertilizer products are UAN, DAP, and muriate of potash.
Nitrogen fertilizers are based on ammonia, which is made from the nitrogen in the air, using natural gas as a source of hydrogen and heat. Nitrogen fertilizer plants are often located near sources of natural gas. Phosphate fertilizers are produced from phosphate rock that is mined, crushed, and treated with sulfuric acid. The largest deposits of phosphate rock in the US are located in Florida. Potash is mined from salt deposits and purified into different grades of fertilizer by various solution and crystallization techniques. Potash and phosphate manufacturing plants are often located near potash and phosphate mines.
Pesticides include herbicides (mainly used to control weeds), insecticides, fungicides, rodenticides, and biological agents. About 1,000 different pesticides are used in the US, including atrazine, metolachor, metam sodium, and various organochlorates, organophosphates, carbamates, and pyrethroids. Herbicides account for the largest dollar volume of pesticide production (50 percent), followed by insecticides (30 percent). Most pesticides are synthesized from basic industrial chemicals.
Fertilizer mixtures contain various concentrations of nitrogen (N); phosphorous (P); and potassium (K); with the phosphorous and potassium concentrations often specified as equivalents of phosphorous pentoxide (P2O5) and potassium oxide (K20). Fertilizer mixtures are often made in local plants from basic fertilizer bought from large producers. Local soil and crop conditions typically require custom mixtures of the three main fertilizer products.
The chemical technology used to manufacture most agricultural chemicals is basic and well-understood. Mixing operations use fairly simple technology and are often small, but most bulk fertilizer plants are large because of the economies of scale in production, and are expensive to build. The goal in most production plants is to achieve the highest possible yield of finished product from the raw materials, and the lowest volume of by-products and waste. Large manufacturing plants use sophisticated computerized process control systems.