Investor Relations

Business Environment 2009

Business environment

Global Trends

Yara is directly or indirectly influenced by major global trends, particularly the megatrends of growth, globalization and urbanization. Growth, of economies and populations, generates increased demand for food, and consequently for Yara’s crop nutrients and agronomic solutions. Urbanization contributes to environmental challenges, strengthening the market for Yara’s industrial products and environmental solutions. Also, urbanization takes cropland out of production and taps critical water resources vital to agriculture, increasing the need for productivity gains as well as innovative irrigation and fertilization methods.

With the financial crisis coming to its full force in 2009, growth as well as globalization came under pressure. Economic growth suffered a substantial set-back (see below), strongly affecting global trade and local purchases. Population growth continued, and the global population is expected to reach 9.2 billion by 2050. By 2025, nearly 60 percent of world population will live in urban areas, and about 70 percent by 2050.

Political Factors

2009 saw global political attention focused on the financial crisis and climate challenges more than the food crisis, which was predominant in 2008. At the same time, there was a growing awareness of the connection between climate change and food security – and the potential mitigating role of agriculture in stemming global warming through carbon sequestration and production of biofuel. Tackling resource scarcity, particularly of land, water and energy, will be a major, overarching challenge for agriculture in the years to come.

Financial crisis

In 2009, the global financial crisis took center stage in the global arena. The contraction in economic growth and global trade that started in 2008, increased during 2009 until it leveled off towards the end of the year. According to the January 2010 update to the IMF’s “World Economic Outlook”, the global economy is recovering faster than previously anticipated, and is forecasted to grow by 3.9 percent in 2010, and 4.3 percent in 2011.

The influence of macroeconomic factors on world agriculture has been profound. Yet, the OECD together with the UN Food and Agriculture Organisation (FAO) consider the sector to be less affected than some others. Their joint “Agricultural Outlook 2009–2018” concluded that the agriculture sector is showing more resilience to the global economic crisis than other industries – “because food is a basic necessity”.

Food prices came down from the record levels of mid-2008, but remained at a high level compared to previous years. The OECD–FAO report considers it unlikely that they will fall back to their average levels before the peak, forecasting that average crop prices will be 10–20 percent higher in real terms for the next ten years compared with the average for the period 1997–2006. The report does not rule out the reoccurrence of extreme price volatility similar to the hike in 2008, as commodity prices have become increasingly linked to oil and energy costs, and more erratic weather conditions are expected due to climate change effects.

Global energy consumption fell during the financial crisis. Still, the International Energy Agency (IEA), in its “World Energy Outlook 2009”, saw world primary energy demand being 40 percent higher by 2030 than today, with fossil fuels accounting for more than three-quarters of the demand increase. The agency joined the call for action to bring about a wholesale shift to low-carbon technologies.

Climate crisis

In 2009, climate change became a major policy issue, culminating with the UN Climate Change Conference 2009 in Copenhagen in December. The private sector, including Yara, took active part in the process, which raised the question of fundamentally shifting the global business environment from an economy heavily dependent upon fossil fuels to an inevitable low-carbon economy.

The World Bank (WB) devoted its “World Development Report 2010” to climate change, also addressing opportunities related to improving technologies, including energy efficiency and techniques for precision agriculture, with targeted and optimally-timed application of fertilizer and water. The WB stated the definite need for increases in agricultural productivity, pointing to reduced tillage and better fertilizer management as ways to achieve this.

World agriculture is now considered to be part of the solution in stemming global warming. Soil carbon sequestration by agriculture is considered an effective, and perhaps the most cost-effective way to reduce CO2 concentration in the atmosphere. This can potentially make the sector a net carbon sink. The fertilizer industry has a major role to play in this by helping to increase yields, reducing emissions, and conserving natural resources.

Food crisis

In its “State of Food Insecurity” 2010, the FAO and the World Food Programme (WFP) noted that the combination of food and economic crises had pushed the number of hungry people worldwide to historic levels: 1.02 billion people, about a 100 million more than the previous year. The decrease in official development aid to agriculture since the mid 1990s contributed to this negative trend.

At its 2009 summit, the G8 renewed its commitment to support agriculture, and adopted the “L’Aquila” statement on global food security. Here, the governments pointed to the need for a comprehensive approach including increased agricultural productivity and emphasis on private sector growth, supporting public-private partnerships and rejecting protectionism. Calling on the G8 to invest in increased agricultural productivity, the IFA, with the participation of Yara, argued that without mineral fertilizers, an additional two billion people would suffer from hunger. Today, an estimated 48 percent of world population live on food produced by the input of nitrogen fertilizers.

At the FAO “World Summit on Food Security” held in Rome in November 2009, food security was directly linked with climate change. It was argued that the enormous task of increasing food production to meet future needs, corresponding to a 70 percent increase by 2050 from today’s levels, can be achieved.

Projections show that 90 percent of this will need to come from yield increases and cropping intensity, and only ten percent from expansion of arable land. The need for improved productivity is further illustrated by a declining productivity growth rate in recent years. According to FAO, it is expected to fall to 1.5 percent until 2030, and further to 0.9 percent between 2030 and 2050, compared to 2.3 percent per year since 1961.

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