We need to cut the use of fertiliser more than we need to make it sustainable
In December 2021 we published detailed research on the investment opportunities & risks in the Ag Tech theme. This covered everything from precision ag, through robotics, biotech & biologicals to indoor farming, aquaculture, supply chains & foodtech. Access to this research is via our website. In this blog we examine the debates around nitrogen fertiliser and the long term risks to the current business models.
While the discovery of the Haber Bosch process and the development of synthetic fertiliser were undoubtedly one of the great scientific and social inventions of the 20th century, the global over use of fertiliser is now a massive problem as highlighted by the UNEP in fertilizers: challenges & solutions. Some argue that part of the solution is to change how we make it, effectively making its production more sustainable. This was the focus of a recent FT video (toward more sustainable fertilisers) which profiled two companies in France creating alternatives to the traditional, synthetic fertilisers produced from fossil fuels. Both produce fertilisers as by-products of their core manufacturing processes. Afyren recycles sugar beet waste to produce organic acids using a zero-waste fermentation process, producing a high value fertiliser with a very high potassium content as a by-product. Ynsect breeds mealworms to produce high-protein supplements for animal feeds and human foods. The faecal waste produced by the insects is turned into a fertiliser. The market for biofertilisers is expected to nearly double from USD9.3bn in 2020 to USD17bn globally by 2026.
We think this misses the point – it’s usage, not how its made, that we need to fix
The use of fertiliser is the real problem, not how it is made. There is growing evidence that fertilisers impact the global carbon cycle by stimulating the release of soil organic carbon (SOC). The soil accounts for 80% of the carbon stored in terrestrial ecosystems, vegetation the remaining 20%. Of the soil carbon, two-thirds is SOC, the rest being mineralised, inorganic carbon. Overall, there is three times as much carbon in the soil as in the atmosphere. While the burning of fossil fuels accounts for two-thirds of the increase in atmospheric CO2 concentrations since 1850, the loss of SOC accounts for the remaining third, arising from the clearance of forests and the cultivation of land. In aggregate the cultivation of agricultural land has resulted in some 50 to 100 giga tonnes of carbon being lost from soil post the industrial revolution (some 50-60% of the total SOC loss), a function of tillage, soil erosion and a reduction in the volume of plant matter returned to the soil. A recent metanalysis estimated that median SOC losses globally were 26% in the upper 30cm of soil and 16% for the top 100cm. Soil loss from tillage and erosion is extensive with an estimated one quarter to one half of the Corn Belt having lost its topsoil (i.e. the most fertile A-horizon) entirely, with hilltops typically completely devoid of topsoil, reducing yields by an estimated 6%. The resulting loss of top soil creates a vicious spiral where farmers add fertiliser to compensate (over half of which is then lost to waterways and the atmosphere).
Key trend – a link between SOC & the use of nitrogen fertilisers
Emerging research is finding a link between loss of SOC and the use of nitrogen fertilisers. “The nitrogen in the [crop] residues stimulates the microbes to burn carbon off through respiration” according to Professor Richard Mulvaney, lead author of a recent University of Illinois study. As a result, despite decades of incorporating crop residues into farms in the US Corn Belt, SOC has continued to decline. Soil ecologists go further and argue that synthetic fertilisers damage the rhizosphere, the critical interface between a plants roots and soil microbes. In a healthy soil, plants exchange carbon with mycorrhizal fungi in return for nutrients (mycorrhizal inoculants answer quest for carbon performance). When synthetic fertilisers are applied, the plants no longer need to swap their carbon leading to a reduction in the mycorrhizal fungi population. With fewer mycorrhizal fungi, the plants become dependent on the synthetic fertilisers which, critically, do not supply the full range of nutrients that the crop needs, impacting both yields and the crop’s nutrient profile. Regenerative agriculture puts soil health centre stage and advocates restoring it through stopping tillage, extensive use of diversified cover crops, and stopping the use of synthetic fertilisers.
The high cost of algae blooms
The other factor to bear in mind is nitrogen pollution. Though little known to the general public, experts call the flood of excess nitrogen one of the most severe pollution threats facing humanity today. A recent article from the Environmental Working Group estimated that algae blooms cost the US more than $10bn over the last 10 years. Blooms are triggered by nutrients such as nitrogen and phosphorous entering rivers and lakes (a process known as eutrophication). These can come from farm run off in rural areas and wastewater and/or stormwater in urban areas. In many cases, such blooms contain toxins detrimental to human health. They also deplete oxygen levels in the water, killing marine animals and aquatic plants. Much of the focus is on treatment not prevention despite clean-ups being expensive. A clean up of Lake Champlain in Vermont, for example, is expected to cost more than US$1bn over the next 20 years. Prevention is potentially cheaper and more effective but will likely require more stringent farming regulations (farms are viewed as non-point sources of pollution under federal law). The US National Ocean Service highlights that 65% of the estuaries and coastal waters studied in the contiguous US are “moderately to severely degraded” by excessive nutrients. As the US NOS explains, eutrophication sets off a chain reaction. As the algae decompose post bloom they release CO2, resulting in acidification. In turn, this slows the growth of fish and shellfish with knock on effects for the fishing industry. Nutrient run-off is not the only water pollution arising from agriculture. A recent European Environment Agency report found that 19% of rivers and lakes in Europe had levels of pesticides above critical thresholds, deemed harmful to the environment. In Belgium, Finland, Italy and the Netherlands thresholds were exceeded in half of all their rivers and lakes. It is a complex problem but a key part of the solution is reducing farm-derived pollution. Half of all nitrogen-based fertilisers applied to farmland are lost, either as run-off or as gases. The level of nitrogen pollution is expected to increase by 150% between 2010 and 2050 with agriculture accounting for 60% of the increase. In addition, as the EEA report shows, pesticide pollution of water bodies is widespread.
Long term implications – structural headwinds for the industry
We believe the agchem companies face long-term structural headwinds from a combination of factors. As well as improved agricultural practices (such as regenerative agriculture) and stricter regulations, new technologies will reduce the required volumes. These include precision ag where farming is done at the plant not field level, and new biological products such Pivot Bio’s and Sound Ag’s that seek to restore microbial activity in the soil. Yes, the emerging markets can provide a tailwind for a while, but not for ever.