The plant input supply industry is composed of many diverse segments and companies that supply farmers with seed, nutrients, pesticides, machinery, capital, labor, and many other inputs. These segments, companies and their markets are both domestic and international, so any review of market forces needs to have a global focus in how they will likely continue to evolve into the future. Since we do not have space in this article to cover every segment of this large industry in detail, we explore the impact of the major forces driving change using examples from the different segments and companies of the plant input industry.

Rivalry among Existing Competitors

The plant input industry has seen a dramatic reduction in the number of competitors. But the lower absolute number of suppliers has not diminished the price competition between industry players. Most of the plant input suppliers have high fixed cost structures in land, capital equipment, and significant permitting, approval, and regulatory costs. This gives existing competitors a strong economic incentive to strive for market share more aggressively than if they had low fixed costs. Each additional percent of the market allows them to spread their fixed costs and brings a better net margin. Given the regulatory and technological requirements to stay competitive in these sectors, the high fixed cost aspect of market share competitiveness will only continue to be a prominent feature.

Another aspect of rivalry is market segmentation. Within each plant input sector, similar aspects of segmentation make internal rivalry a complicated dynamic. For example, in the agricultural finance sector, a limited number of firms have the capital and expertise to make loans in excess of $10 million, but literally thousands of local banks and credit unions can make loans under $10 million. Even though we might expect it due to the fewer number of firms, competition is not diminished even in the large loan segment, due to electronic communication making market information available to borrowers and the ability and willingness of large borrowers to seek better terms beyond traditional geographic areas.

In the case of plant nutrients, there are three distinct markets and industries: nitrogen (N), phosphate (P) and potash (K). While there are common demand drivers for these nutrients such as grain prices, there are different supply drivers. Each primary nutrient requires different natural resources as well as different mining and processing technologies. These natural resources are located in different parts of the world. In the case of nitrogen, regions with low cost natural gas such as the Mideast, Russia and the Caribbean Basin are key producers and exporters. In the case of phosphate, regions with rich deposits of phosphate rock and access to low cost sulphur and ammonia are the main producers. These regions include Morocco and a few other North African countries; the United States; China; Russia; Israel and Jordan. In the case of potash, only 12 countries mine this mineral; Canada, Russia/Belarus, Germany, Israel and Jordan are the largest producers.

Despite fewer producers today compared to a couple of decades ago, these are large global markets and prices of crop nutrients in the middle of Illinois are impacted by fundamental developments from around the world. For example, nitrogen and phosphate trade account for about 40 percent of global use. Potash trade—excluding the large movement from Canada to the USA—accounts for approximately 70 percent of global potash use. These percentages compare to 13 percent for the major grains. Even though these large global markets are served by fewer companies today, industry concentration, as measured by the Herfindahl-Herschman Index (HHI), is low for each nutrient. Following the procedures described by the U.S. Department of Justice and the Federal Trade Commission, HHI is the sum of the squared market shares by firm with a market categorized as “unconcentrated” if the HHI is less than 1500, “moderately concentrated” for an HHI between 1500 and 2500, and “highly concentrated” if the HHI exceeds 2500.