How Prices and Fertiliser Use Can Be Linked

Fluctuations in the price of fertilisers and agricultural products influence the economic efficiency of fertiliser use. This can create economic incentives for reducing fertiliser use.

Prices for synthetic fertilisers rose significantly in 2021 and 2022, exposing farmers to a higher risk from market-price fluctuations. These price increases and fluctuations could occur more often in future as a result of geopolitical developments and climate change. In deciding how much fertiliser to use, both the cost of the fertiliser and the prices of agricultural products play an important role. These price trends can therefore also influence the extent to which agricultural policy achieves its aims, such as the reduction of nitrogen surpluses.

Two cropping systems investigated

We examined how market-price trends for synthetic nitrogen fertilisers, milk and wheat could have affected farmers’ preferences over time (from 1991–2006 compared to 2007–2022) for reducing fertiliser use. Two different systems and measures for reducing fertiliser use were taken into account in the analysis:

1. Grassland-based milk production and the use of legumes as nitrogen fixers;
2. Wheat production and the use of precision farming technologies, specifically variable rate application of synthetic nitrogen fertiliser.

Higher prices can make fertiliser reduction more economically attractive

Our study shows that – with reference to the prices considered here – it has become more economically attractive to reduce fertiliser use with alternative measures – specifically, through the use of legumes in grassland and precision fertilisation in wheat production. This is mainly due to higher prices for synthetic nitrogen fertilisers compared to wheat and milk prices (Fig. 1), and their effect on income.

Price fluctuations have different effects

In wheat production, the attractiveness of precision fertilisation as a measure for reducing fertiliser use is increasing not only because fertiliser prices are rising, but also because the flutuations in fertiliser prices represent a risk. The use of variable rate application of fertiliser is therefore becoming more economically attractive, especially for risk-averse farmers.

In milk production, however, the attractiveness of using legumes as a fertiliser-reduction measure only increases with increasing fertiliser prices. Fertiliser price fluctuations are cancelled out by the opposing milk price fluctuations.

We conclude that the effects of market price trends on the use of fertilisers should be taken into consideration when developing and evaluating agricultural policy measures. Both price level and price fluctuations can influence the attractiveness of inputs, and are therefore important in designing effective measures.