"‘ “1%“ E r FERTILIZER CONSUMPTION and E- INDUSTRY ADJUSTMENT E Thai: for the Degree of Ph. D MICHIGAN STATE UNIVERSITY J DENNIS ROGER HENDERSON g z 1971 - e: er“:- w“! This is to certify that the thesis entitled FERTI LI 2.23 CO N SUI-1P TI ON AND INDUSTRY ADJ U 313-15141' presented by Dennis Roger Henderson has been accepted towards fulfillment of the requirements for DOCTOR OF PHILOSOPHY degree in AGRI CULTURAL ECONOI-‘lI CS Major professor <21fi¢n54143tgyL7?9/ / Date—Qatmlm 0.7639 M“ « LIBR/‘l‘. Univmlt)’ {V‘x’ '3: ABSTRACT FEMILIZER CONSUMPTION AND INNSTBY AMUSEMENT By Dennis R. Henderson In the past there has not been a clear delineation of the interre- lationships between suppliers and consumers of fertilizers in the United States. Desirable responses by the supplying industry to changes in consumption requirements have not been well specified nor given prcper consideration in the develOpment of the industry as it exists today. Likewise, famers have not adjusted to the types of fertilizer products that minimize the costs of plant nutrients, given the existing compli- ment of production and distribution technolog. These factors have given rise to substantial over capacity and excessive costs in the fer- tilizer industry. A computerized linear programing model was develOped and utilized to determine the organization of the activities in the fertilizer in- dustry that minimizes the costs for supplying plant nutrients to lichigm farms under conditions representative of the short and long run time horizons. Additionally, the industry was simulated as it ex- isted for the purposes of supplying the fertilizers that were actually consumed in Michigan during 1970. Dennis R. Henderson Variations were imposed upon the model in order to generate in- formation concerning the changes in the optimum organization of the in- dustry necessary to supply changing quantities of plant nutrients for consumption on Michigan farms. Specific fertilizers not included in the optimum product mix were forced into simulated use and the costs and organizational changes associated with the use of these sub-optimum products were determined. The implications of the implied adjustments for various groups, including basic producers, carriers, local sup- pliers, farmers, and educators and extension workers, have been traced out. It was found that the costs for supplying plant nutrients to Michigan farms can be reduced by 26.4 percent from the actual 1970 costs by reorganizing the industry in the short run, when no new facilities are added. (hilly four of the 17 major fertilizer products currently being used are required. The use of all liquid and bagged materials, along with production and distribution activities for these products and the intermediate materials used in their manufacture, is no longer re- quired. In the longer run, costs can be decreased by 32.4 percent of the 1970 level. This requires investment in anhydrous ammonia production facilities in Michigan, a central Michigan terminal for potassium chloride, and between 22 and 37 new large scale bulk blenders throughout Michigan's lower peninsula. Anhydrous ammonia, wet process phosphoric acid, monoammonim phosphate, granular potassium chloride, and bulk and custom blends are the optimum intermediate and direct application prod- ucts. Use of other products adds substantially to costs. Dennis R. Henderson A reorganization of the inchrstry toward the optimum generates pos- sibilities for (1) increased market power by suppliers, and/or (2) use of more fertilizer by farmers, increasing agricultural output and de- creasing the demand for substitute factors of production. The conse- quences of both demand careful analyses, beyond the scape of this study. The model deve10ped in the study provides a basis for integrating fertilizer supply relationships with other types of studies, in par- ticular, fertilizer demand models, management training models, and sector studies of which fertilizers may be one component. Addition- ally, only limited resources would be required to expand the application of this model into broader geographical regions. FERTILIZER CONSUMPTION AND INDUSTRY ADJUSTMENT by Dennis E. Henderson A THESIS Suhnitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR.0F PHILOSOPHY Department of Agricultural Economics 1971 ACKNOWLEDGMENTS My appreciation is extended, in particular, to Messrs. David M. Bell and George R. Perkins, my colleagues in research, without whose cooperation this study would not have been completed. Thanks are due to Dr. David 1.. Armstrong, codirector of the research project, for his assistance and direction throughout the study. Sincere appreciation is emressed to Dr. James Duncan Shaffer, nw major professor and codirector of research, whose intellectual stimulation has made graduate study, in retrospect, a rewarding ex- perience. It is the accepted practice to extend thanks to department chair- men for financing and to families for tolerance. My thanks to Dr. Dale E. Hathaway and to my wife Gail are hereby duly noted. And finally, appreciation is due to Mrs. Barbara Gibson for typing much of the original manuscript. ii TABLE 01" CONTENTS Acknowledgnents .................. List of List of List of CHAPTER I. II. Tables 0 O O O O O O O O O O O O I O O O O O Rims O O C O O O O O O O 0 O O O O O O O Appmdi cos I O O O O O O O O O O O O O O O O INTRONGTION................ TheProblanSetting............. Objectives................. ReviewofLiterature............ Method................... Organizationofthesmdy. . . . . . . . . . RELATIVE CHAN-l IN NUTRIENT CONSWPTION . . Introduction................ Importance of Relative Nutrimt Changes. . . Relative Changes in Nutrient Consumption . . Modeling Relative Nutrient Changes . . . . . Relative Increases in Nitrogen Consumption . Relative Increases in Phosphate Consumption. Relative Increases in Potash Consumption . . Adjustment to a 2.3-1.0-l.8 Nutrient Ratio . Summary-Relative Nutrient Changes. . . . . . iii aging: del-J 13 17 18 18 26 32 35 49 66 83 87 CHAPTER III. IV. ECONOMICALLY SUB-OPTIMUM PRODUCT Introduction.......... Important Sub-Optimum Products Method of Experimentation Mixed Liquid Fertilizers . . . Suspension Fertilizers . . . . Granulated Mixed Fertilizers . Nonpressure Nitrogen Solutions mummitmt. e o e e e e o Urea............. Smary—Sub-Op timum Product Use SUMMARY, CONCLUSIONS AND IMPLICATIONS. TheProblem........... TheResults........... Potential for Cost Reduction. Nitrogen Fertilizers. . . . . Potash Fertilizers. . . Mixed Fertilizers . . . Phosphate Fertilizers . LongRunOptimum. . .. Conclusions and Implications Basic Producers . . . . Carriers......... iv Page 90 9O 9O 93 95 105 1.17 124 128 CHAPTER Local Suppliers . . . . . . . . . . . Farmers............... Educators.............. V. EVALUATION AND RESEARCH RECOMNDATIONS. Evaluation and Limitations . . . . . . . Recomendations for Further Research . . mmOGmHY O O O O O O O O O O O O O O O I O O Page 153 156 161 166 166 169 173 LIST OF TABLES Table Page 1. Products Supplied to Michigan Farmers by Short Run Optimum Industry Organization to Satisfy 1970 NutrientConsumption.................. 22 2. Maximum Quantity of Products That Can Be Supplied to Michigan Farmers by Constrained Optimrm Organization: Supplying the 1970 N - P205 - K20 Ratio of Nutrients . . 23 3. Ratio of N, P 0 and K O Nutrients Removed in Major Field Crops Hargested In Michigan in 1970 . . . . . . . 3o 4. 1970 Nutrient Prices and Lowest Nutrient Cost AmmuemWMeeeeoeeeeeeeeeeee 31 5. Nutrient Ratios Used to Simulate Changes in Consumption...................... 34 6. Average Incremental Cost Per Nutrient Ton as N Consuutption Increases in the Short Run (Dollars) . . . . 42 7. Average Incremental Cost Per Nutrient Ton as N Consunption Increases in the Long Run (Dollars) . . . . 48 8. Average Incremental Cost Per Nutrient Ton As P205 Consumption Increases in the Short Run (Dollars . . . . 59 9. Average Incremental Cost Per Nutrient Ton As P205 Consumption Increases in the Long Run (Dollars) . . . . 64 10. Average Incremental Cost Per Nutrient Ton as K20 Consumption Increases in the Short Run (Dollars) . . . . 73 11. Average Incremental Cost Per Nutrient Ton as K20 Consumption Increases in the Lon Run (Dollars) . . 82 12. Average Incremental Cost Per Nutrient Ton at the l-l-l and 2-3-l.0-l.8 Nutrient Ratios, in the IIODfiRDDIi.li.ties to provide this overlapping array of fertilizer materials. The pattern is now clear. The size and organization of the in- dustry changed dramatically over the past two decades in response to real and anticipated changes in fertilizer consumption. However, by 1968, industry capability to produce and distribute its products far exceeded actual consumption and the industry was faced with the pros- Dect of deactivating facilities and decreasing production in order to align supply more closely with demand. Additionally, the proliferation 01’ products and types of fertilizer materials has complicated both the buying processes and suppliers' decisions with regard to investments in production and distribution facilities. It appears that the 2111de fertilizers are sold in grades such as 5-10-10 and 12- 12-12 with each number designating the number of 20-pound units of Plant food contained in one ton of the mixture. The first number designates the nitrogen content, the second desigiates phosphoric acid, and the third, potassium. 6 interrelationships between fertilizer supply and consumption are not Well-defined nor understood by the participants in the fertilizer mar- ket. In the absence of a clear delineation of these interrelation- ships, it is a difficult task to determine what types of supplying fa- crLJities should be deactivated and which ones should be operated at or more closely to their actual capacities. It is also not clear how <>Om1s'umption patterns should be altered to best utilize the capability Of the industry without jeOpardizing crop response, what costs are as- Bociated with sub-optimum economic behavior in the market, or which activities are most important to the long-run supply situation. It is within the framework of these uncertainties, as they re- late to the Michigan fertilizer market, that this study is formulated. Objectives The primary objective of this study is to improve the under- standing Of the interrelationships between, and the nature of the de- sirable adjustments in, the patterns of fertilizer consumption and the organization of the supplying industry,3 and analyze the costs 3The factors of the industry organization that are subjected to investigation in this study include the physical facilities, activi- ties, and products that are utilized throughout the industry for the end purpose of supplying the three basic plant nutrients to Michigan farms. This is to be distinguished from the usual concept of industry or market structure because the number and size of firms in the in- dustry, important components of structure, are not subject to analysis herewithin. If 7 associated with sub—Optimum economic behavior4 in the Michigan ferti- lizer market. More specifically, the objectives are: 1. Trace out and analyze the consequences of relative changes in the consumption of nitrogen, phosphate and potassium in Michigan over both the short and long run,5 and prescribe the necessary adjust- ments that need to be made’in the fertilizer industry in response to Gulch changes in order to minimize the cost at which fertilizer is sup- Plied to Michigan farmers, and 2. Project the consequences to the participants in the Michigan fertilizer market of economically sub-optimnn product preferences, sup- ply, and consumption, and trace out the economic implications Of such conditions in the long run, with secondary analysis of the short-run implications of continued sub-Optimum behavior when it is possible to reduce costs under existing market conditions. Review of literature Nonfam-produced agricultural inputs in general have received relatively little attention by public researchers in the past. Fer- tilizers provide an exception, as rather extensive research has been 4A8 used in this study, sub-optimum economic behavior refers to any behavior that leads to something other than the lowest cost supply possible for the three basic fertilizer nutrients to Michigan farms under given conditions. The corollary, optimum behavior, refers to the most efficient supply. 5For the purposes of this study, the short ‘run covers the span of time in which the capital facilities in the industry are fixed. That is, there can be no facilities utilized in the short run other than those that currently exist, although all existing facilities do not necessarily have to be used. The long run covers the span of time in which all existing facilities can be replaced by new ones. That is, ousting facilities are fully depreciated and the industry con- sists primarily of facilities not currently in existence. 5H 8 conducted conceming the economics of both fertilizer use and produc- tion and distribution. Most of this, however, has dealt exclusively with either consumption or production, and there has been only a mini- m of research aimed directly at the total production-consumption Barstem and the interrelationships between these two sectors. The most complete investigation of the interrelationships be- tween consumption patterns and the organization of the fertilizer in- chstry was undertaken by Markham in the mid 1950's (Markham, 1958). lMarkham makes an important distinction between market impurities and Inarket imperfections and their relationship to the fertilizer market. Monopoly elements on the supplying side of the market, or within the industry organization itself, are called impurities while factors that intervene in the transactions between buyers and sellers are referred to as imperfections. The most sigiifioant example of an imperfection in the fertilizer market is, as shown by Markham, imperfect knowledge (Markham, 1958, p. 187). Markham conducted a rather complete investigation of the domestic fertilizer market and assigned values to the social costs being gen- erated by both market impurities and imperfections. Most of his ef- forts were spent in evaluating costs associated with market impurities arising fmm monopoly elements in the industry. Only limited analysis is made of the costs associated with market imperfections that arise frm imperfect knowledge and imperfect buyer-seller and seller-buyer responses and adjustments. Even though he placed less emphasis on the analysis of these factors, he concludes that "the social cost of these market imperfections is high; in truth, in recent years it appears to 9 have been higher than that of monOpOly and restraints of trade" (Mark- ham, 1958, p. 207). It appears to be a reasonable assumption, based on Markham's conclusions, that imperfect buyer and seller knowledge and sub-optinmm behavior have helped foster an inefficient production and distribution sJVBtem. This may be the most serious problem iacing the industry, at least in toms of generating inefficiencies or excessive social costs. MLarkham argues that fertilizers, as factors of production, can be com- Dared on the basis of their plant nutrient content, as fertilizers are 1«l—sed solely for their plant food content. Therefore, purchases should be based upon the price per nutrient and supply should be based on thitrient requirements rather than product types or other "irrational" criteria. In fact, he calls any other sales or purchase criterion ir- rational. Markham investigated in depth the costs associated with econom- ically sub-Optimum market behavior arising from imperfect knowledge on the part of the market participants, and in particular, farmers. He investigated two types of transactions that he interpreted as arising from sub-Optimum behavior: (1) the purchase and consumption of low- analysis mixed fertilizers rather than high-analysis mixtures,6 and (2) the purchase and consumption of mixed fertilizers instead of straight materials. 6low—analysis mixed fertilizers are generally considered to be those mixtures that contain 25 percent or less plant nutrients (N, P205, and K20) in total, by weight. High-analysis mixtures contain more than 25 percent total nutrients. A high-analysis grade is a direct substitute for a larger quantity of a low-analysis grade. For example, one ton of high-analysis 10-20-10 is a direct substitute for two tone of low-analysis 5-10—5. l -.4 ..H_.__ 10 Markham found the average cost per unit of plant nutrient de- livered to the farm to be considerably less in high-analysis grades than in corresponding-low analysis grades. Yet, in the 1949-50 fer- 1313-Liner year studied, he found that over 90 percent of the grades sold "Ere low analysis. Markham estimated that, if all fertilizer sales had been high-analysis grades rather than mostly low-analysis grades in 1950, American farmers could nave obtained the same qu ntity of Plant mtrients at a savings of 861.32 million, or a reduction of 10.5 PQrcent in the total fertilizer bill for that year (Markham, 1958, pp. 193-5). Markham calls the potential for cost reduction by using high rather than low analysis fertilizers the excessive social cost arising from imperfect knowledge. His analysis is based on 1949-50 data, 8 Period when high analysis fertilizers were relatively new. Actually, there is little evidence that high analysis products were commercially available until about 1947. The two years between availability and Markhsm's study is scarcely enough time for diffusion of information concerning high analysis products. Therefore, some Of the costs Mark— ham ascribes to imperfect knowledge may be due to the relatively short period of time available for diffusion of less imperfect information. Markham also investigated the cos ts associated with the use of mixed fertilizers rather than straight one nutrient materials. He found that, in 1949, farmers used almost 13 million tons of mixed fertilizers containing about 500,000 tons of N, 1,400,000 tons of P205, and 1,000,000 tons Of K20, with a total bill for mixed fertilizers of about $587 million. The same quantities of plant nutrients could have been supplied using a combination of straight materials including 11 ammonium nitrate, concentrated triple super-phosphate and muriate of potash for a total cost of about $419 million at prevailing prices if adequate quantities were available (Markham, 1958, pp. 201—3). He did not determine to what extent this implied $168 million potential savings would be eroded by additional costs experienced for the on- fam mixing or triplicate application that would be required if straight materials only were purchased by farmers. But the advantage to straight materials over mixtures is clearly less than the $168 mil- lion. Actually, there may be no advantage. Nevertheless, based on these findings, Mandham concludes that, at prevailing prices, farmers alit-.cauld buy larger quantities of separate materials if they are avail- able, and fertilizer manufacturers do not supply the most economical ty'pes of fertilizers. Markham's findings indicate that substantial savings may be pos- $11116 by changing the mix of fertilizer products that are used by farmers. Information supporting the idea that low-analysis fertilizers are economically inefficient has been supplied by federal and state Q"gencies for many years. Never-the-less, Nevins found that, as late \ 1966, farmers in the southeastern part of the U.S. were heavy users QIE low-analysis fertilizers. He interpreted this is a contradiction 1:9 this generally accepted conclusion (Nevins, 1970). In some areas 9:8 the country, the trend was definitely toward higher analysis ma- terials but, even though the literature had favored high-analysis materials in the Southeast, they had not been adapted to a significant extent. To resolve this paradox, he raised the question, is the use of low analysis fertilizer uneconomical in the Southeast? 12 Nevins deve10ped a linear programing model of a fertilizer mixing and distribution system in North Carolina as a means for sys- tematically investigating the problem of efficient selection of prod- ucts by both producers and constmers, in particular with respect to the concentration of nutrients. His model is sensitive to both the might of products and the quantity of nutrients within a product. The model reflects economies to scale in production and diseconomies to scale in distribution, as well as various costs for different raw mterials. Nevins determined the nutrient concentrate that results in the minimum average total costs per ton of mixed fertilizer with a 1‘ 2—2 nutrient ratio delivered to the farm. The available product 3<>:l;|ltions mged from a low-analysis 5-10-10 to a high-analysis l°~2o-2o. Actual consumption was approximately a 5-10-10 product. Nevins found the Optimum product to be a 6-12-12 grade from the a"iandpoint of minimizing production and distribution costs. This is I'h-ll'fll closer to the low-analysis grades actuflly consumed than to the blets-analysis grades recommended for this area in the literature. Nd upon these findings he concluded that a high—analysis bias Qhiete in the literature concerning fertilizer use in the Southeast. gulch high-analysis bias could be a basis for economically sub-aptimnn behavior by both buyers and sellers, although fertilizer buyers in that area appear to be using relatively efficient mixed products. A Eurplus of high-analysis materials are produced in the area, however, indicating sub-Optimum behavior by producers. The two studies reviewed here appear to contain the substance of findings with regard to imperfections in the market relationships 13 among fertilizer suppliers and users. Markham concluses that the use of low rather than high analysis products and mixed rather than straight fertilizers causes excessive social costs. But these con- clusions are questionable. Nevins demonstrated that there is not a clear economic advantage to high analysis fertilizers in one area of the country. Additionally, Nevins has pointed the way toward syste- matic evaluation of real or suspected sub-optimalities with regard to one important factor: nutrient concentration. Method Following the review of research related to the interrelation- ships between fertilizer consumption and supply, a systems evaluation is Imdertaken with IeSpect to meeting the objectives of this study. Methods are developed for interpreting the problems to be studied in tens of a linear programming model. This model assists in determining 1311-9 most efficient organization of the fertilizer industry for the pun- I>Qsea of supplying the Michigan market under a variety of situations. the analyses of the problem areas are based upon the findings generated i‘thin the scape of the linear pregram. A chuterized linear programing model was constructed as a Ith§ans of simulating the fertilizer industry in the United States rela- tiwe to the supply of fertilizers in Michigan. The linear programming format allows representing in mathematical equations the interrelation- ahips between a large number of pertinent activities in the industry. At the same time, it offers maximizing or optimizing capability. By including a sOphisticated system of controls in the model, it is pos- sible to manipulate it in such a way that a large number of situations 14 can be duplicated, and the "best" or most efficient organization of the industry, given each situation, can be determined. In total, the model contains more than 2650 activities and over 750 constraints that may be important to the supply of fertilizers in Michigan under various conditions. These include the production, handling, storage, transportation, retailing and application of all the major forms of basic fertilizer products as well as several hun- dred different grades and formulations of mixed fertilizers. The basic s0—-called "straight" materials represented in the model include a~n-klydrous and aqueous ammonia; nonpressure, low pressure and manu- facturing nitrogen solutions; nitric acid; urea; ammonium nitrate; am- monium sulfate; sulfuric acid; elemental phosphorus, phosphoric and sup erphosphoric acids; ammoniated polyphosphate liquids; nomal and GOD-centrated superphosphates; mono— and diammonium phosphates; and In‘3—71‘1ate of potash. The forms of mixed products include dry bulk and custom blends; dry granular mixed fertilizers; clear liquid mixtures; Nd suspended liquids. Any specified product mix can be accommodated within the model, QQ can a wide variety of different types of industry organization. The constraints in the model a‘L‘Low testing the sensitivity of any pan- ti cular organization and product mix, including total costs, to changes it)» a wide variety of factors including plant nutrient consumption, Q">tlssulxlption of specific products or product types, seasonal use pat- tfirns, costs of a large number of factors of production, transportation r8Ites, the supply of by-products from other industries, and the costs for capital and labor. 15 The activities in the model include both those specific to the distribution of fertilizers in Michigan and those that supply the Mid- west in general. More detail is included on in-state facilities, such as mixing plants and retail outlets. These are assumed to serve only the Michigan market; therefore, the entire capability of such facili- ties must be utilized within this market area if the facility is to be utilized. It is assumed that the out-of-state facilities and the la-I‘ee, centrally-located facilities within Michigan can serve a larger SeOgmphic area than Michigan alone. Each of these facilities is as- sumed to operate at its rated or most efficient capacity with any pro- duction in excess of that required in Michigan being diverted to other consuming areas. The out-ofs-state facilities are primarily for the pro duction and distribution of the basic fertilizer materials that may be important to the supply of fertilizers in Michigan. For the most Damt, facilities for basic phosphorus materials are assumed to be 10- Qa-‘ted near the Florida phosphate mines and those for basic nitrogen materials are assumed to be located on the Gulf Coast near the supply Q33 natural gas, the primary raw material in their manufacture. Al- tfirnatives for these facilities include central midwest and central Michigan locations. Basic potassium facilities are assumed to be lo- QQted near the Saskatchewan potassium brine mines. Most mixing and “tailing facilities are assmned to be located throughout the Michigan market area, in proximity to farm consumers. Thus, geographic al- ternatives can be studied within the model, as well as functional or activity alternatives. 16 This computerized model of the fertilizer industry was develOped in a joint research project, of which this study constitutes one com- ponent. A complete and detailed description of the model and all of the activities and constraints therein has been reported by Bell, _e_t_ _a_u_1_. (Bell, 1971), and explicit information on the economic and tech- nical relationships contained therein has been reported by Henderson, 31: 81. (Henderson, 1971)-aboth supplimental reports to this and re- lated studies. Further discussion and explanation of the basic model is not, therefore, included herewithin. Utilizing the capability of the model, three basic analyses were conducted within the framework of the joint research effort. These in- Q:I—\:I.¢:ie: (l) a simulation of the industry as it existed for purposes of Supplying the Michigan market in 1970 (actual); (2) the most efficient OI‘ganization of the industry in the short run, that is, the Optimum Organization of the existing industry capability (constrained Optinmm); and (3) the most efficient long-run organization of the industry with l‘anrd to the Michigan market, that is, the optimum organization of the industry with all new facilities (Optimum). Nblch of the analyses Q13 market maladjustments subjected to study herewithin depend upon §Qmparisons of the results of specific experiments with the short-run QOnstrained optimum and long-run Optimum results of this joint re- Qearch. Therefore, the findings of these three joint research efforts aCue presented in detail in Appendix A to this study. Reference to this appendix will be made throughout this study. The basic method of Operation in this study is to very different constraints in the model over a range that reflects hypothesized changes in the study variables. For example, in order to determine .' It, I' If. 5‘ 'el 1’! II I; {-I’ r',‘ l7 optimum adjustments within the industry in reSponse to increased levels of nitrogen consumption relative to the other plant nutrients, reason- able limits were first determined concerning the degree of possible change, and then the nitrogen constraint within the model was ranged between these limits while other constraints were unchanged. At se- le cted points within that range, the optimum and constrained Optimum Organizations of the industry were recorded. A charison and con- trast of the records at each point allow the mapping of the appmpriate Path of adjustment in reaponse to changes in that particular study Variable within the apprOpriate time horizon, e.g., short or long run. I':-‘-:l:!':ewise, to facilitate the study of sub-Optimum buying behavior, con- 8‘-ull;::tion was forced for selected sub-Optimum products over a feasible range of quantities. Actual analysis is then based upon these implied a"‘3-iltmstment patterns for each study variable or problematic area. Organization of the Study Chapter 11 presents the findings and analysis with regard to de- ail‘ed adjustments in the industry in response to relative changes in tn'l‘tzrient consumption, in both the constrained optinmm short-run and lth—run time horizons. Chapter III includes the findings and anal- yfil‘ls of the consequences of economically sub—Optimum product use for a. lumber of products that are currently being produced and consumed. 'nhe findings of the study are summarized in Chapter IV with conclusions Eild implications. An evaluation of the model and recommendations for further research are included in Chapter V. CHAPTER II RELATIVE CHANGES IN NUTRIENT CONSUMPTION Introduction The current state of the fertilizer market in the United States and in Michigan was explored briefly in Chapter I. In this chapter, the organization of the supplying industry is investigated in order to ‘19 termine the adjustments that are desirable in that organization in msponse to relative changes in plant nutrient consumption, in both the ahead and long run, and to analyze the economic implications of such a‘d-Zi‘llstments. Importance of Relative Nutrient Changes Fertilizer materials are used because of the plant nutrients §<>Iltained therein. The fertilizer materials purchased by farmers in lhL‘Lchigan in 1970 contained, in total, 141,932 tons of nitrogen (N), 140,650 tons of phosphoric acid (P205) and 155,441 tons of potash (320), according to data reported by the Michigan Department of Agri- Qlilt'ure (Michigan Department of Agriculture, undated). This represents e ratio of nutrients N - 2205 - K20 of 1.009 - 1.0 - 1.051, almost a 1.1-1 nutrient ratio. This ratio has changed substantially over the best 20 years, as has the absolute level of nutrients consumed within the state. In 1950, for example, only 13,477 tons of N were used, along with 66,403 tons of P205 and 42,198 tons of K20, resulting in a 18 be. N.‘ is! \w\ ...! \\. 19 mitrient ratio of 0.203 - 1.0 - 0.635 (Hargett, 1970, p. 56). Thus, the constmption of N and K20 has increased relative to that of P205, and N has increased relative to K20. The materials that supply these nutrients include both mixed fer- tilizers that contain specified quantities of the three basic rmtrients in a given ratio and straight or basic materials that contain a spec- ified quantity of one and sometimes two nutrients. The three basic nutrients were supplied to Michigan farms in 1970 in the form of 638 ,636 tons of mixed products and 238,209 tons of straight materials (IL-L chigam Department of Agriculture, undated). The mixed fertilizers i11<=ILuded 19,083 tons of liquids, 27,785 tons of custom blends, and the W 591,768 tons were granulated or blended dry grades. The Straight materials included 130,280 tons of dry products and 107,929 tons of liquids, including gases. The actual products that were used, Eta amnated in the study, are detailed in Appendix B (Tables 3.1 and 3‘2).7 The organization of the supplying industry is directly tied to the types and forms of products that move through the system. Grades Qt dry mixed fertilizers can be produced only by granulator-mixers and fi‘lfi' blenders, for example. Custom blends can be produced only by dry b:Lenders. Liquid mixtures require specialized production and handling \ 7There was a number of grades of fertilizers actually used in ItLehigan in 1970 that are not simulated in the model. These grades Conectively account for less than 10 percent of the total fertilizer tonnage, and individually account for less than one half of one per- cent of the total. Because of their relatively small use, these grades were not simulated and the quantities of comparable grades were adjusted upward in the model in order to account for all of the plant nutrients actually used. 20 facilities, as do the various types of straight materials. Likewise, if certain types of facilities are Operated, than specific products axe provided. For example, if anhydrous ammonia retailers are active, ‘blren that prochzct is being supplied to farmers, and so on for all of the pertinent products in the industry. Therefore, the products that were moved through the Michigan market in 1970 required a specific set ()1 facilities and activities; a set that would not be appropriate to handle a different mix of products. The facilities that were actually used in Michigan in 1970, along with the level at which they were 0p- en‘ated and the maximum capacity of these facilities, are also detailed in: Appendix B (Table 13.3). These facilities are supplemented by a large number of activities that are performed outside of Michigan. 3311.; out-of-state activities, along with a sunnnary of in-state activi- ties, are shown in Appendix A, 1970 Actual (Tables A.l through 11-31), with the levels at which they were operated in 1970, as simulated,f0r ‘hlle purpose of supplying the Michigan market. It should be noted, however, that most of the out-of-state facilities served market areas larger than Michigan; thus their actual level of operations was higher in total than that used to supply Michigan. When the capacity of both the existing industry in Michigan and the supporting out-of-state facilities are considered, the capability to amply the 1970 product mix is substantially in excess of its cur- rent level of utilization. There currently exists capacity to produce 1,048,000 tons per year of mixed fertilizers alone in Michigan, for example; 164 percent of the current rate of utilization of these ma- terials (Appendix B, Table 3-3). Supplying uniformly increasing quan- tities of the same products provides an increasing supply of N, P205 21 and K20 to farmers in the same ratio, that is, about l-l-l. Therefore, a. mbstmtial increase can occur in the consumption of plant nutrients 1.11 the existing ratio without creating a need for additional facili- ties. This is a particularly important point when the most efficient organization of the industry in the short run is considered. This short run Optiimm organization, for the purposes of supplying the 1970 :Levels of nutrients consumed in Michigan, is presented in detail in Ampendix A, identified as the constrained Optimum (Tables Anl through A—31). The products actually provided for consmnption by this organi- ZEtion, along with the quantities of N, P205 and K20 supplied, are Mar-ind in Table 1. By expanding the supply of this same short run c>Iotimlnn product mix up to the limits of the existing capacity to sup- ply these products, the total nutrients supplied to Michigan farmers, in the sane 1.009 - 1.0 - 1.051 nutrient ratio, can be increased to 154 percent of their current level (Table 2). Therefore, once the Optimum short run organization of the industry is achieved, suppliers car adjust to upward (or downward) changes in consumption of plant nu- trients in the same ratio simply by uniformly increasing (or decreas- ing) the utilization of the facilities and activities of which that organization is composed, up to a limit of 154 percent of current nutrient consumption. If nutrient consumption in Michigan would con- tinue to grow at the same rate it has over the past 20 years, 6.5 per- cent per year compound, it would take almost 7 years to increase COD- emption to 154 percent of the 1970 level. This is certainly beyond the short run horizon; therefore, once the industry has adjusted to the short run optimum organization, no further short run adjustments 22 Products Supplied to Michigan Farmers by Short Run Optimwn Industry Organization to Satisfy 1970 Nutrient Consumption Tab 18 10 Product Nutrient Tons Product Tons N P 0 K O 2 5 2 Ar11'1ydrous Ammonia 128,338 105,1495 - .- Direct From Michigan l’roducers 146,1411 Direct From Midwest Producers 36,687 m Gulf Coast Producers Through Retailers l45,5140 Graziulated 6-214—24 303,655 18,219 72,877 72,877 F‘J‘om Central Granulators 250,000 F‘Zrom Outstate Granulators 53,655 Ere rided 7-28—28 185,535 12,987 51,950 51,950 Filmm Central Blender 20,000 M Outstate Blenders 165,535 CuStom Blends (6.05-18.5-36.05) 86,165 5,231 15,996 31,162 m Outstate Blenders Totals 703,993 lu1,932 1110,8231 155.9891 \ rOtals for P205 and K20 are slightly higher than actual P205 and K20 Consumption due to rounding in product formulations . 23 .owma 5 v8m>nmn O we neon use.mma one m0N anon 000.0:H .z neon mmm.asa one no astound ems warehouses one .000.H.0.H.000.H as oases sameness Haseoam .Am.m mammal m xaoemaaa momH mmee.mmm memm.amm m0aa.mmm 0mm.000.a nachos mamncoam mumpmuso Sosa mm0.mm :0N.HH sew.m mam.m0 Am0.0mnm.0alm0.0v madman eonmso 500.00m 000.m0e maoohoem onmnmeso_eohm 000.0m 000.0m doorman Renato some 00:.00 00e.00 msm.mm e00.0em mmummns doorman 00H.m0m 000.m0e mooseosm capstan sea 000.0mm 000.0mm £83880 masseuse spam 000.0mm 000.0mm maoamaseasu Hauocmo nose 000.0ma 000.0ma 000.0m 000.000 000.00m emuemun poamesnaeo 0em.00 0e~.00 preseason heroine mhmosvohm pmmoo .HHSU EOHm 000.:e 000.:e mucosoohm awesome Sea 0088 000.00 000.00 mucosooem semester song 0.0an u 1 000.03 0:0.m0m 0:0.m0m 3852 2805s m m 0m Enos assess other Aaron. 0 a 0m 2 asosunaz H00.H.0.H-000.H arsenal emeemmsm pros onoesasz m0a>oam on aasomamo so anecdoa0 persona coarseness: seesaw: umeaomaxm - noeoaseaz 00 cheer owe . momm u 2 050a one meassaasm .soeoesaaemso es s e 1 1e 111012001111 1 e e .0. .u ma Ame 24 are necessary in that organization if the consumption of nutrients in- creases and the ratio of nutrients does not change. Likewise, once the industry has adjusted to the long run optimum organization as detailed in Appendix A, Optinmm (Tables A—l through A—31), the only response to changes in the level of nutrient consump- ‘tion, given a constant nutrient ratio, is to proportionally expand (or contract) the use of the facilities and activities that are included 3.2m that organization.8 Because new investments can be made in the lcng run, there is no time limit on the composition of that organiza— tional mix: a given mix of those facilities can be added to the in- dustry as increased nutrient consmnption warrants. 8It is important to note that, in order for the Optimum industry Organization to remain unchanged as the level of product throughput of a. constant nutrient ratio changes, there can be no substantial scale efficiencies that would cause one activity to substitute for another at certain levels of utilization and there can be no substantial in- advisabilities among the activities included therein. Most activities 3m the industry Operate at or near a point where their average cost curves are relatively flat; therefore, changes in levels of utiliza- tion usually don't affect operating costs substantially. Indivis- a-bility of facilities does not create a serious problem because the large central Michigan and out-of—state facilities can usually Operate Close to their most efficient levels even if that level does not cor- respond with consumption in Michigan because excesses are consumed in Other market areas served by these types of facilities. The outstate facilities that serve the Michigan market exclusively are relatively Small scale activities, reaching the relatively flat portion of their average cost curve at low levels of utilization (400 to 9000 tons per year, depending upon the activity). Because only relatively low levels of throughput are required (as low as 0.04 percent of total Michigan consumption) in order to operate these facilities near their least-cost levels, it appears reasonable to assume that, when an ad- ditional unit of such an activity is required, these activities can always Operate near their least-cost levels (even if this requires a slight reduction in the level of utilization of all similar activi- ties). Therefore, in this study, indivisabilities are ignored. 25 Neither the Optimum short run nor long run composition of the supplying industry is particularly sensitive, therefore, to changes in the level of nutrient conMption as long as the ratio of nutrients consumed remains constant. The rate of utilization or the number of each type of facility will vary as the absolute level of consumption changes, but the relative composition of the industry remains stable. That is, the quantity of fertilizers that are granulated relative to the quantity blended, relative to the quantity of ammonia produced, ma so on for each activity in the system, remains constant. But when the quantities of nutrients consumed change relative to eanh other, the need for adjustments in the composition of the industry in order to maintain the most efficient supply may be substantial. A 3.0 percent increase in P205 consumMion relative to N and K 0 consump- 2 tion, for ample, is clearly inconsistent with the optimum short run oJ'L‘ganization and product mix (Table 1) which provides a group of prod- nets to the farmer consisting of 82.0-0-0 (anhydrous ammonia), 6-24-24, '7—28-28, and custom blends with an average nutrient content of 6.05 - 18.5 - 36.05. Because two of these products contain P205 and K20 in a. 1-1 (19205 - K20) ratio, one provides them in a 1-2 ratio, and the fourth contains no phosphates at all, there is no way that these prod- ucts can be combined to satisfy a nutrient ratio higher in P 0 than 25 111 K20. The 10 percent increase in P relative to N and K20 changes 205 the nutrient ratio from the existing 1-1-1 to about a l-l.l-1 where P205 consumption is definitely higher than that of K20, creating a need for a new product mix and new types of facilities. Likewise, a relative increase in K20 consumption would necessitate some relative changes in the industry—at the least it would require the production 26 and distribution of more custom blends (6.05 - 18.5 - 36.05) relative to the three other products, and there is no assurance that such a shift would result in the most efficient supply to the market. The same holds true for relative changes in nitrogen consumption. The most efficient organization of the industry in both the short run and long run may change, therefore, from the constrained C short run) Optimum and (long run) Optimum as reported in Appendix A as there are relative changes in the consumption of plant nutrients. Tibet is, the composition of the most efficient industry organization may be sensitive to changes in the ratio of nutrients consumed, while 11 does not appear to be sensitive to changes in the level of nutrients Wan they are used in a constant ratio. This factor, coupled with the likelihood that the ratio of nutrients consumed will change in the ranture, makes the question of industry adjustments to relative changes 5a): nutrient consumption an important area for investigation. Relative Changes in Nutrient Consumption As indicated in the above section, there is reason to believe that the comption of nutrients N, P and K 0 will change relative 205 2 to each other over time. This has been the case in the past, as indi- cated above, as the nutrient ratio of fertilizers consumed in Michigan has changed from 0.203-1.0-0.635 in 1950 to about 1-1-1 in 1970. The trend line over the past 20 years shows that, until recently, P205 consurlpflon exceeded that of either N or K 0, but the consumption of N 2 and 120 have increased more rapidly than that Of P205 less P205 was consumed than N or K20 (Figure 1). Over this period of until, in 1970, time, while the total nutrient consumption in Michigan has grown at a compmmded annual rate of 6.5 percent, consumption of P205 has Thousands of Tom 27 17o - 160 - 150 ~ 140 . 130 4 120 .. no . 100 fi 90 4 8° .- 7o - so - so a 40 ~ 30 - 20 ..J 10 .- 1950 Figure l. 1955 1960 1965 Plant Nutrient Consumption in.Michigan, 1950 to 1970. 1970 D, ‘l‘l 1' r1 ll ’0' fl. ’1' [if ,ay 28 increased at a compound usual rate of only 3.8 percent, K20 consunxp- tion has increased by 6.7 percent compounded ammallv, and the con- sumption of H has increased by a compounded annual rate of 12.5 per- cent (Hargett, 1970, p. 56). While it is uncertain how the consumption of plant nutrients will change relative to each other in the future, the past trends indicate that it is probable that there will be some relative changes, and most likely the conslmption of 1' will increase relative to P205 and K20, and that of K20 relative to P205. Projections of nutrient demmd in memgan bear out this contention. 1:119 demd for H in Michigan to increase by a compounded annual rate Railing, for example, has projected 0:: 5 percent between 1965 and 1980, compared to compounded annual growth rates for 19205 of about 2.4 percent and 2.7 percent for K20 (Iieiling, 1966). Also, Lucas has projected that, between 1960 and 1960, the consumption of N in Michigan will increase at a compounded amd K20 increase at 1.5 percent Enamel rate of 4.5 percent while P205 and 2.7 percent, respectively (Incas, undated). Further support for the preposition that the consumption of nu- trients is likely to change relative to each other can be generated based upon the actual use or removal of plant nutrients in harvested trope. It can be hypothesized that, as the general level of fertility in Iichigan soils is built up to some acceptable level, the application of further quantities of plant nutrients will correspond more closely to the quantities actuale removed in the harvested crOp than has been the case in the past where some effort has been directed toward the general buildpup of soil fertility. If so, the quantities of 1!, P205 and K20 that are removed by harvested craps should provide some 1..— Hum «1n IV .\ e \\ )..\ 29 insight into the future use of these nutrients, or their relative use, at least. The average H, P205 and K20 removed by the major field crops harvested in Michigan in 1970, weighted by the quantity of each crap actually harvested, yields a 2.3-l.o-l.s nutrient ratio (Table 3). Therefore, if fertilizer use in Michigan was matched with the removal or plant nutrients by harvested crops, a relative change in the quan- tities of H, P 0 and K 0 consumed would be expected, again indicating 25 2 that the consumption of N will increase relative to that of P205 and K o,ondx 2 0 relative to P 0 . 2 2 5 Additional insight into possible changes in relative nutrient QOnsumption can be gained by studying the response of farmers to <2trainees in the prices of nutrients. Belling calculated price elastic- ities for each of the three basic nutrients in Michigan, based on time aarise data for the years 1950 through 1964 (Reiling, 1966, pp. 102- 106). He has shown nitrogen to be very price elastic (e: = 02.117) While potassium is less price elastic and phosphate is quite price in.- elastic (the actual values are e: = 0.783 and e: = 0.112 for phosphate and potassim, respectively, both with incorrect signs due to actual increases in both consumption and prices for these nutrients during the period studied). A comparison of the prices paid by farmers for the three basic nutrients in 1970 with the cost of supplying these nutrients under the Optimum industry organization (Table 4) indicates that the potential for decreases in nitrogen prices (based upon potential costs) is sub- stantial (30 percent or more, potential decrease), while potential for price decreases for P (about 12 percent) and for K20 (about 10 per- 2°5 cent) are less significant. Coupling the potential for substantial e\\ J-uu‘.‘I-v Irr- 4- in- s I I). It... I»- he I‘ ‘ I. 30 .mpcoeoafisooa aouaaapnom wcasmasOHMo mo mowoaasa sou emesaoca so: we maoao omens Mo cofipaoa cosmo>amc on» as eo>oeoa cowoapfic no meanness one openness» mmaoao omens on eofiaaam no: zaamsm: was maoufiafipaom cowoaoa: .moszwoa wcfixfimncowoaufi: mam mcmonmom new names new omsmoomm .m .a .Hema sas0 .oosaasoanwa no .oaoo newness: anyonanonon he .owfiumma .aa .owma .amxo«>oz no nonsense m< N a 0.H 0.a m.m caper eceaoanz 0mm.0mm a:e.0me m00.00m nanoenasz.eo Assesses h.000v season Hence ae0.0a 0m0.0a m.<.z :m0.ma 0e.H 00.0 a0.a .sm ncsoeaom mem.0 000.0 m.<.z 00m.0 ma.a em.a No.2 .ezo mason are aa0.a mme mt0.m em0.0 0m.0 00.0 am.0 .azo assessed mm0.ma mee.m 050.a :00.H a0.0 ~0.H 0a.: :09 sheen semen 00>.0ea 000.0: 0mm.wme 00m.m 00.me 00.mH 0m.ma :09 as: sexes 000 00m 0am.e m00.a mm.0 mm.0 ea.a .sm one mmm ems 0em.a ama.e mm.0 03.0 0H.a .sm season eaa.m mae.0 000.5a 000.5m 0m.0 mm.0 00.0 .sm memo 00m.m 00a.ma aem.am mmo.mm mm.0 0m.0 mm.a .am anon: amm.0m mae.am 000.m0e 050.:HH mm.0 mm.0 00.0 .sn cso0 owe m0md z Aeoraaso n.0000 0mg moms z Aeoahaso p.000v Hesoeem mcoaaoseonn Haas: sou coaaoseons anoasaaz 0a0H Hence 0e0a Hs>csom oceanasz no use: nono Assassin Hesse Assassin [ll .0 sense as a 535% 0H 038%: 38 SE .sg 5 3.030% manners: ems e5 meme .2 no one 31 decreases in the price of N with the high price elasticity of the de- mand for that nutrient indicates that significant increases in N con- sumption can be brought about by changing nutrient prices. The lower price elasticity and lower potential price decline for K20 relative to N indicates that mmption of this nutrient would decrease relative to 1! due to price effects. And, likewise, the relatively small poten- tial for price decline and inelastic demand for P 0 indicate that 25 there would be declines in P205 consumption relative to other nutrients, particularly nitrogen, due to price effects. Table 4. 1970 Nutrient Prices and Lowest Nutrient Cost Achievable in Long Run Price/Cost Per Nutrient Ton N P O K 0 2 5 2 1970 Average Prices Paid $129.72 8168.99 3102.00 Lowest Achievable Cost 87.92 148.36 91.91 ‘ Sources: Fertilizer Situation, 1971, and Appendix B, Table B—4. The case for continued relative changes in nutrient consumption in lichigan appears, therefore, to be well supported. While the actual ratio of nutrients that will be consumed in the future is not certain, past trends, actual nutrient removal and price responses lead to the conclusion that the consumption of N is likely to increase relative to P and K 0,and the consumption of K20 is likely to in.- 205 2 crease relative to P205. somewhat speculative, as is the exact nature of these relative changes. How fast these changes may come about is It @pears appropriate, therefore, to investigate a fairly wide range 1“ ,fil ”fl 5‘ 5‘ do 5 .N u. 32 of relative changes in the consumption of each nutrient, both in the short run with constraints upon the available facilities and in the long run when new investment can occur. While it appears most likely that N and K 0 consumption will increase relative to P205,sone in- 2 vestigation of relative increases in P 0 is also desirable in order 2 5 to provide a complete study of the sensitivity of the composition of the most efficient industry organization to changing nutrient consump- tion patterns. This will allow the tracing-out of desirable adjust- ments in the industry organization contingent upon any type of relative change in nutrient utilization. Modeling Relative Nutrient Changes The nutrient ratio of fertilizers actually consumed in Michigan, 1-009-1.04.051, is close to a 1-1-1 ratio, and therefore a 1-1-1 nu- trient ratio was selected as the base point from which to study the effects of changes in that ratio. The quantities of the three nu- ~trients consumed in 1970, 141,932 tons of N, 140,650 tons of P O and 25 20, were averaged to 146,000 tons of each nutrient in order to provide an exact l-l-l ratio. This required altering three 155,441 tons of K constraints in the linear programing model to affect a demand on the model to satisfy N, P205 and K20 application requirements of 146,000 tons each. By requiring these quantities to be applied, the model responds with the most efficient mix of activities, facilities and products that satisfy these constraints. Additionally, due to the seasonal pattern of fertilizer applica- tion and the nonseasonal pattern of producing and handling mew prod- ucts basic to the supply of plant nutrients, it is necessary to provide 33 for storage of those materials that are produced continuously but con- sumed seasonally. The current pattern of application peaks in the spring (April and May) and again in theautmm (September, October and November) requires that about one-half of these nutrient-bearing ma- terials be stored in some form. Therefore, the product storage con- straints within the model were modified in such a manner that the re- naulting organizational solution provided for the storage of at least 73,000 tons each of N, P205, and K20. For the short run analyses, constraints were imposed upon the lllamdel that limit each activity therein to a maximum of the existing capability to perform that activity. These constraints are consistent V'Z‘lth those used to generate the short run, constrained Optimum solution as presented in Appendix A. No limitations were placed on activities 341 the long run analyses. No changes were made in the other technical and economic relationships in the model, allowing them to remain the name as in the 1970 actual, constrained Optimum, and Optimum solutions. After the optimum short run and long run solutions were obtained for the adjusted l-l-l nutrient ratio, the level of each nutrient sup- plied was systematically increased by factors of 1.1, 1.2, 1.4, 1.7 and 2.0 while the levels of the other nutrients were held constant. At the same time, the storage requirement for the nutrient under in- vestigation was increased accordingly. This results in information mid detail on the most efficient organization of the industry under both the short run and long run conditions for a wide range of nutrient ratios (Table 5) and allows tracing out the path of adjustment for the industry as the consumption of each nutrient varies in relation to the other two. An additional investigation was made with the nutrient 34 consumption equal to the 2.3-1.0-1.8 ratio of nutrient removal by har- vested crops, with corresponding adjustments in storage requirements. For this analysis, the qumtity of P required was held constant at 205 146,000 tons, and the quantities of N and K 0 were accordingly adjusted 2 to 335,800 tons and 262,800 tons, respectively. This analysis was conducted only under the long run optimum conditions as it is unlikely that changes in nutrient consumption of these magnitudes would occur Within a short run time horizon. Table 5. Nutrient Ratios Used to Simulate Changes in Consumption ¥ Increased litrogen Increased Phosphate Increased Potassium \ Consumption Consumption ConsLmrption 1-1-1 1-1-1 1-1-1 1 0 1-1-1 1.]. o 1-1 1-1-1 0 1 1 0 2.1-]. 1-1 0 2.1 1-1-1 0 2 l 0 4-1-1 1'1 0 4.1 1.1.1 o 4 1.7-1-1 l-l.7-1 1—l-l.7 2.0-1-1 l-2.0-1 1-1-2.0 Even though the analysis was conducted over the entire range of nutrient ratios, from factor of one to a factor of two for each nu- trient, it is doubtful that such large relative changes will occur Within the short run time horizon. It is quite possible, however, that changes of this magnitude, i.e. a doubling of the consumption of one nutrient relative to another, will occur in the long run. While the short run effects of relative increases by more than a factor of, say, 1.4, are not likely to materialize, the analyses of short run changes of greater magritude do help point out the consequences of a static industry over a substantially longer time horizon than the short 11m. 35 Relative Increases in Nitrogen Consumption As indicated in the previous section, the constraints in the linear programming model were modified in such a manner that 146,000 tons, 160,600 tons, 175,200 tons, 204,400 tons, 248,200 tons and 292,000 tons of N were required for application while the quantities or P205 and K20 remained constant at 146,000 tons each. The resulting organizations of the industry for supplying each of these levels of nutrients to Michigan farms in the most efficient manner, in both the abort run (constrained) and long run are presented in detail in Ap— pendix 13 (Tables B-S through 3.17). It should be noted that the or- SEInization is recorded in these tables at only those nutrient ratios fOr which changes are implied in the composition of the industry from that which supplies the benclmark 1-1-1 nutrient ratio. In the sense ‘here no reorganization occurs over a wide range of nutrient ratios, as is the case when the consummation of N increases relative to P205 and K20 in the long run (see Appendix B, Tables B-4 through 13.17), only the resulting organization at the extremities of the range are pre- sented (such as at the 1-1-1 ratio and the 2-1-1 ratio in the case of long run increases in N) as nothing additional is learned from the intervening points. A summary of the total quantities of each product that is utilized in the industry under each relevant organization, in- cluding both the quantities that are used for direct application and that are used as factor inputs for the production of other products, is also presented in Appendix B (Table 84), along with the shadow 36 9 price, or average incremental cost per ton of each nutrient, N, P 205’ and K20, supplied by each particular organization of the industry over the narrow range of each solution. From the data presented in Appendix B, it is possible to deters- nrine which elements of the organization of the industry are sensitive to relative changes in nitrogen consumption in both the short and long run. It can be noted by comparing the industry organizations as pre- sented in Appendix B With those appearing in Appendix A that, When mtnents are supplied in an exact l-l-l ratio, the resulting product m1: and composition of the industry are identical with those for the a<-=‘t:ua.l 1.009-1.0-l.051 nutrient ratio experienced in 1970, for both the short run (constrained) optmnn and long run Optimum solutions. That is, adjusting the nutrient ratio to an exact l-l-l for the pur- Doses of this investigation had no effect on the composition of the industry for supplying Michigan in the most efficient manner. 9The Control Data Corporation "Optima" linear program which was utilized in this study records the shadow prices for each constraint in the model. That is, the pi values generated within the model de- fine the amount of change in the objective function for each unit of change in the right-hand side values of the constraints over the nar- row range of each solution (thima, 1969, p. 33). Because the objec- tive function in this study is composed of costs, the pi values as- sociated with the rows that control the quantity of each nutrient supplied denote the change in the cost that would be incurred for a one unit (ton) change in the level of each nutrient supplied. Thus, these shadow prices reflect the average cost of incremental units of nutrients over the range of each solution. That is, the pi values denote the average incremental cost for each nutrient, or the average cost for each additional ton of nutrient over the increment within which the quantity supplied of a nutrient can change without changing the activities that are in the solution, or basis. These costs are constant over the entire range of each solution, but can change as the basis changes due to shifts from one production function to an- other. 37 It cm be seen that, under the short run conditions, the only product within the system that is sensitive to relative increases in N consumption is anhydrous ammonia (Figure 2). Likewise, the only product directly applied to crOps that is sensitive to such changes is also anhydrous ammonia (Figure 3). This indicates that the general organization of the industry, within the short run constraints, is not Sénsitive to relative increases in the use of N, with the exception of that portion of the industry that is associated in one form or another with anhydrous ammonia. There are several types of adjustments implied for the armnonia sector of the industry, however, and these adjustments are sensitive to the quantity of N being consumed. The implied changes in the am- InChis-related portion of the industry are summarized in Figure 4. c3<2mpled with these changes in the organization of the ammonia sector Rte adjustments in the distribution of ammonia from various facilities (Figure 5). It can be noted that, as the level of N consumed increases up to 204,400 tons, corresponding with a 1.4-1-1 nutrient ratio, only one significant change is indicated in the amonia sector: a relative in- crease in the quantity of ammonia produced in the midwest shipped di- rectly to Michigan farms. Up to this point, midwest production of am- monia does not change relative to other production, and the relatively higher quantity of this product that is shipped to farms is reflected in a reduction in midwest ammonia going to midwest nitric acid pro- duction, a reduction that is offset by ammonia shipments from the Gulf Coast producers to the midwest nitric acid facilities (Figure 5). 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Alana 0.3% Pflogvzz ionpoag JO suom 1.1qu tamuv JO spuesnoqq, 42 of 1.4 in the short run there is relatively little adjustment required in the industry in order to maintain the least-cost supply. The re- quired adjustment in the source of ammonia for nitric acid production in the midwest over this range does, however, have a notable impact on the average incremental cost per ton of each.nutrient applied on Michigan farms (Table 6). Table 6. Average Incremental Cost Per Nutrient Ton As N Consumption Increases in the Short Run (Dollars) Average Incremental Cost Nutrient Ratio Per Ton of: 1-1-1 1.2-1-1 1.4—1.1 1.7—1.1 2—1-1 N 108.33 108.33 109.25 115.04 115.04 22:05 154.23 154.23 153.97 153.86 153.86 K20 102.36 102.36 102.25 102.19 102.19 Source: See Appendix B, Table B—4. As the consumption of N increases by more than.a factor of 1.4, the canfiguration of the ammonia sector changes substantially, due, for the most part, to the fact that the capacities of existing facil- ities begin to be pressed hy this level of nitrogen supply. As the supply of N'exceeds the 204,400 tons corresponding with the 1.4-1-1 nutrient ratio, the limits of the existing capability in the industry to produce anhydrous ammonia in Michigan and to route ammonia sales to farms through retailing facilities are reached (Figure 4). This pre- vents any further increases in these activities, as no new capacity can be added in the short run. At this point, existing capability to produce large amounts of ammonia in both the Gulf Coast region and in 43 the midwest is utilized to a relatively greater extent, and, for the first time, the existing terminal capability in the midwest is utilized for ammonia supply in Michigan (Figure 4). As these additional activities are utilized, the average incre— mental cost for supplying N increases significantly (Table 6). This indicates that the most efficient possible short run organization of the industry when N consumption increases by more than a factor of 1.4 results in a substantially more costly supply of this nutrient than with N at lower relative levels. Because this point is reached when the existing anmonia production and retailing capacities in Michigan are reached, it can be concluded that these two factors, i.e. the limit on existing ammonia production capacity in Michigan and the limit on existing retailing capacity, are the most important con- straints on the relatively low cost supply of additional nitrogen in the short run. An interesting relationship between the costs of supplying N and the costs for other nutrients is also demonstrated by these results. When the cost of supplying N increases (between the ratios of 1.2-1-1 and 1.7-1-1), the corresponding costs for 2205 and K20 decrease (Table 6). The basis for the explanation of this phenomenon rests with the change in the source of ammonia supply to the midwest producers of nitric acid, that is, from midwest ammonia producers to Gulf Coast monia producers (Figure 5). Supplying ammonia from the Gulf Coast is actually less costly than utilizing ammonia produced in the h.‘ .«Lu N..." 44 midwest.lo The midwest nitric acid producers should not utilize the Gulf Coast ammonia at lower levels of N supplied, but, as shown, uti- lize ammonia produced in the midwest because of excess ammonia pro- duction capacity at that location. As the quantity of N supplied in- creases, however, there becomes an alternative use for the midwest am- monia production capacity; shipping ammonia from these producers di— rectly to the farms (Figure 5). Once this alternative use for midwest mania utilizes the midwest production capability, it then becomes feasible to utilize the lower cost Gulf Coast ammonia in producing nitric acid in the midwest. The lower cost for ammonia to produce nitric acid has conse- quences for the cost of supplying P and K O, particularly in the 205 2 fom of 6-24-24 grarmlated fertilizer. The 6-24-24 product is marm- facture‘d from a group of intermediate products including nitrogen manu- facturing solutions, triple superphosphate, diamonium phosphate and potassium chloride. Therefore, the cost of supplying this product, and the N, P and K 0 contained therein, is partially a function of 205 2 the costs of these intermediate products. The cost of nitrogen mum- facturing solutions decreases as the midwest nitric acid producers shift to lower cost Gulf Coast ammonia. The lower cost for ammonia decreases the costs of producing nitric acid, which in turn lowers the cost of producing amonium nitrate in which the nitric acid is used, IOBased on existing economic and technological relationships, current namral gas prices at the Gulf Coast and midwest, and trans- portation rates between the two locations (see Henderson, 1971, pp. 23, 68, 90), Gulf Coast mania costs the midwest nitric acid pro- ducers 80.37 per ton less than ammonia produced in the midwest. ....‘.-a.-pn—- . -c A u I ,_ . - v 45 and this, in turn, decreases the cost of producing the nitrogen manu- facturing solutions as axmnonium nitrate is the primary input into that product. Thus, the cost of producing 6-24-24 decreases, lowering the costs associated with supplying all three nutrients contained therein. The lower cost of N in the 6-24-24 is more than offset by increases in the costs of supplying N in other forms throughout the system, result- ing in higher, rather than lower, costs for N. But there are no fac- tors in the system that correspondingly increase the costs for 29205 and K 0, therefore the costs for supplying these two nutrients sc- 2 tually decline as the cost of 6-24-24 decreases. The long run consequences on the organization of the industry of relative increases in the consumption of N over the entire range studied are substantially less than is the case in the short run. The only relative adjustment required in the industry is the production of increasing quantities of anhydrous ammonia in Michigan, with this increased production shipped directly to farms for application (Fig- ures 6 and 7). All other activities remain constant, including the production of ammonia at the Gulf Coast. Therefore, as the relative consumption of N increases in the long run, the only portion of the industry that is sensitive to this change is that concerned with the production of ammonia in Michigan and with its distribution to farms. The relative lack of sensitivities in the long run optimum organiza- tion is possible because new facilities can be constructed, if needed. Therefore, the limited capacity that exists to produce ammonia in mchigm, Which necessitated a number of short run adjustments, is not a constraint in the long run and additional capability to produce .4. 46 Gem 0mm P 0mm .msm ween ma eonsoaosH soapassmsoo 2 no assassm eoscoam snow Hem mowoapaz no mass pneaapsz paonm mo accessory Ohm com 0mm Gem 0mm CNN OHN CON .P F omH owH owa 5 end on on:m«m OmH ova easoaaa roses ease L\\\\\\\\\\\\\v sac as more 898 \\ \ 9.0.? sees. a. .0 oeaaoaso asaenepom opsnanosm_ssanosssosos a H1alm HIHI>.H H!Hl¢.d cases 33.5% ‘ HIleod 4 HIHIHaH HIHIH ionporg go suom irons tenuuv go spuesnoqm 47 .3 mean ca 33805 soapagnmoo a as gouaaaflom mo soapooaaaaa #083 .a. Padwaea anew .aem ammonia no 309 psoanpsz Paonm no doggone 00m 0mm onm arm omw 0mw oxw pmw oww OWN com owa oma med pma oma oea Aoasom escapees humus ssoam assess .8 m u. .9. m row mm ,8 m osfloaso asaeoeeom seasseso ..8a 1. cam woea S 8a m s s roowau m [CNN 0 r. IOVN a .08 m. hang . nmunwla. 9»on madam roam W 6 TOOM . a la 4 4 a alanm analp.a alale.a aIHn~.a HIHIH.H Huala caper pneanpsz 48 ammonia in Michigan, relative to the other activities in the industry, can be constructed as the need arises. These long run adjustments in the industry do not generate higher average incremental costs for supplying nutrients (Table 7), contrary to what occurred in the short we Table 7. Average Incremental Cost Per Nutrient Ton as N Consumption Increases in the Long Run (Dollars) Average Incremental Cost Nutrient Ratio Per Ton of: 1-1-1 2-1-1 N 87.92 87.92 1’205 148.36 148.36 K20 91.91 91.91 Source: See Appendix B, Table B-4. It should be noted that substantial efficiencies can be realized by reorganizing the industry in the long run as compared to the short run (Tables 6 and 7), as the average incremental cost per ton of N is 820.41 lower (18.8 percent) at relatively low levels of consumption, and is 827.12 lower (23.6 percent) at relatively high levels of N comp sumption, when supplied by the long run optimum industry configuration. likewise, the cost of P205 is 3.8 percent less and the cost of K20 is 10.2 percent less in the long run than in the short run. Overall, it can be concluded that the organization of the fer- tilizer industry is not particularly sensitive to relative changes in the level of nitrogen consumed with the exception of the anhydrous mania sector. In the short run, the limitations of existing capacity \ ‘ 49 to produce and retail annonia in Michigan become serious constraints to the low-cost supply of this nutrient to Hichigan farmers, and a substantial reorganization of activities in the ammonia sector is necessary in order to provide more than about a 40 percent relative increase in N. In the long run, the industry is quite insensitive to relative changes in the use of N, and the only adjustments required in order to maintain the most efficient supply of N to farms is an ex- pansion of the mania sector of the industry in Michigan. Relative Increases in Phosphate Consumption There are substantial implications for the fertilizer industry if the conswnption of phosphate increases relative to that of nitrogen and potassium. The adjustments required, given such relative changes, are probably more far reaching than is the case for relative changes in either It or K20. This is the case because of the closer ties be- tween the supply of phosphate and other nutrients in the fans of 14205 and N—PZOS-Kzo materials than is true for N or K20. Both of the later nutrients are frequently applied in the form of straight, single nutrient fertilizers, but 1’205 is rarely applied in a material that doesn't also contain one or both of the other major nutrients. Thus, changes in the supply of 13205 may have important consequences for the supply of N and K20, where the reverse is not necessarily true. While the probability is low for relative increases in P205, this type of change could occur under some conditions such as the development of high phosphate-consuming crop varieties or substantial decreases in price. The substantial impact of such potential changes makes the study of their consequences important. .‘U'- 9"; “- ' A 50 In order to detemine the adjustments in the industry over both the short run and long run, the linear programing model was instructed to successively provide 146,000 tons, 160,600 tons, 175,200 tons, 204,400 tons, 248,200 tons and 292,000 tons of P205 for application while the levels of H and K20 were held constant at 146,000 tons each. These tonnages correspond with the nutrient ratios listed earlier (Table 5), ranging from 1.1.1 to 1-2—1. Detailed information on the resulting composition of the supplying industry is presented in Ap- pendix B (Tables 13.-19 through 3.33). As was the case for relative changes in N, data are presented for only those points where adjust- ments are implied in order to minimize the costs for supplying nutri- ents in the related ratio. In the short run analysis, this includes each of the points tested. That is, data are presented for each of the six nutrients ratios studied. For the long run analysis, only the and points need be presented, corresponding with the 1-1-1 and 1-2-1 ratios. A summary of the total quantities of each product required for each relevant ratio, along with costs for the nutrients, is also presented in Appendix B (Table B-18) . Under short run conditions, there are a large number of products that are sensitive to the relative level of 2205 consumption (Figure 8). Idkewise, there are substantial changes indicated in the products that are used for direct application on Michigan farms (Figure 9). Thus, the organization oi the supplying industry appears to be very sensitive to relative increases in the level of P 0 consumption over 25 theshort run. 51 ..Bm flonm a." nooeououH 5395.38 mowm as g poacosm .m 93mg 800% Hon argumenm Ho 339 ”65.3945 phonm Ho modem—.639 cow 0mm Obw 0mm 0mm 9cm 0mm CNN OHN 00m 00H 03” 2rd 00H and (F . p . n u r h n . u h (r p \ r 3an ‘ mm gaflfiom gong demon» «a on II|I‘ll‘ll‘.||‘l|“l|‘l||l/ \ v Headache opus ohm 530533 7 mp o350.20 gauwdpom odds weed \\ on . 0mm . 03 m3. . 8m 11.3 aumuaé Tie; ans-m ..n snaps; Hum..." 0.33m vdoflpfiz 4°“POJJ I0 won nous mm 150 Beaumont 52 .SE chasm 5 condensed” dosage—moo momm ms Engineers. mo 833334 #083 .m enema use» pom eagmnonm no mace 23.335 23m Ho doggone F r oom 0mm 0mm CNN 0mm 0mm ova 0mm CNN OHN cow om." cm." or." 00H OmH 3 new V48 ovgamonm Bandeau—s3 \ a: w X/Hieaeg .0 Twas Z . Ta H.444 To 44 1.1 1a Tana 33m easing o.9\a\.9 sauces—4 gang] be." 0 53 It is particularly important to note that under no conditions are any of the straight P205 materials used for direct application (Figure 9). The two basic phOSphate materials that do become inpor- tamt as direct application products, monoammonimn phosphate and diaam- monium phosphate, both contain some N as well as P205 (13 percent N and 18 percent N, respectively). All of the remaining products for direct application are granulated or blended mixed grades and custom blends which contain all three nutrients, plus supplemental N applied as anm'drous axmnonia. This occurs even though there is existing capacity to supply straight phosphate products 0-20-0 and 0-46-0, products which, in fact, were used in 1970 (Appendix B, Table 3-2). From these results, it appears reasonable to conclude that the direct use on farms of single nutrient phosphate materials is not economical- ly feasible in the short run. The entire existing capacity to blend fertilizers, either blended grades or custom blends or any combination of both, utilizing facilities that can Operate at 9000 tons or more per year, should be used to provide the current level of nutrients in the 1-1-1 ratio. The balance of the mixed fertilizers are provided by the existing granulator/mixers. The existing capacity to grannlate fertilizers in Michigan is not reached until the 1-2-1 nutrient rate is approached, at which time some of the existing small blenders in the state are used to supply the needed mixed fertilizers (Figure 9 and Appendix B, Tables 13.-32 and B-33). This indicates that to supply mixed fertilizers through relatively small blenders (1000 to 2500 tons per year) is eco- nomically inferior to the utilization of both grazmlator/mixers and larger scale blenders. h» 54 There are also important implications fran the observation that, even as more P205 is provided in the form of mixed fertilizers, ad- ditional quantities are also being supplied by direct application of “the two ll-LPZO5 basic products” monoammonium and diaxmnonium phosphate. Over most of the relevant range (between nutrient ratios 1-1.l-l and 1.1.7-1) the quantity of diammonium phosphate that is directly applied corresponds with the quantity oi that material that can be produced with existing capability in Michigan (Appendix B, Tables 13.3 and B-28). The monomenimn phosphate for direct application is supplied from existing capability in the midwest to produce this product. It will be shown later in this section that, in the long run, when this exist- ing capability is deactivated and replaced with new facilities, neither of these products is used for direct application. Becmse additional quantities of N are supplied in the mixed fertilizers that also provide 13205 and K20 as P205 consumption in- creases, direct application of supplemental N in the fem of anhydrous mania decreases accordingly (Figure 9). Likewise, the composition of the mixed fertilizers changes fran large quantities of mixtures with P205 and K20 in a l-l ratio (7-28-28 and 6-24-24) to a mired product high in 2205 relative to K20 (8-32-16 and 1-4-1 ratio custom blend) in order to supply the relatively high quantities of 2205. These changes in the most efficient product mix in the short run have substantial impact upon the quantities of all products, including intermediates, that must be supplied (Figure 8). The existing capac- ity to produce both white phosphoric acid and diammonium phosphate in lichigan, which is idle when nutrients are consumed in the l-1-l ratio, is utilized as soon as P205 begins to increase, and the limits 55 of this capacity are quickly reached (l-l.l-l nutrient ratio). Fur» ther relative increases in 29205 consumption beyond the l-l.l-l ratio require relative increases in the utilization of both Florida and mid- west capacity to produce green phosphoric acid and diammonium phos- phate, as well as monoanmonium phosphate (Figures 10 and 11). Once the relatively high level of P205 consumption of 248,200 tons is reached (l-l.7-1 ratio) mcnoamcnium phosphate utilization declines slightly as the direct application of 1-4-1 ratio custom blend in which it is used drops off. The use of dianmonium phosphate in- creases rapidly as this product is utilized in the production of the granulated 8-32-16 that begins to be used in large quantities. Changes in relative P205 consumption of this magnitude (greater than l-l.7-1) are not likely to occur in the short run, and these later organiza- tional adjustments are probably beyond the realm of expectation. The critical factors in the short run supply of phosphatic ma— terials as P205 consumption experiences relative increases are, there- fore, the limitations on capacities to produce phosphoric acid (white) and dimonium phosphate in Michigan. When these capacities are reached, at the l—l.l-l nutrient ratio level, a relative reorganiza- tion of the phosphatic sector of the industry is necessary in order to provide the additional P205. At the same time, a change in the dis- tribution of anhydrous ammonia is necessary in order to supply ammonia to the changing pattern of production of ammoniated phosphates (Figure 12). Total ammonia production remains constant, with no geographical shifts indicated for this production. No changes are implied for the mania produced in Michigan, as all of this production continues to be distributed directly to farms. The quantity of ammonia distributed Rw-vvdiea ulte'..-.tw.,- 56 .Sam pncnm 3 noesgosH dosagesco mama so scaposuam 33 oflohanosm .oa enema anew aom assessors so ease accesses torn no assessors 0mm 0mm 35 0% cam on 08 can one own oma on; 03 com com arm can P . \IL 33 oaaonaeoaa cash; no noaeoaeoaa counter —T I 315% §8 I o: v 00H .532 1 'i .. CNN .. oeN v OmN I 1 I § § ‘3: coupon: yo snag, nous mm 30 spussnoqy. vONm Turn 3. . 1a .144 Tm Ana and 44 7TH cheer neonate 3 57 .3 team 5 momsaosH sagas—3580 mONm no mangoes: cauganoam copooaom Ho noavosnonm ...H 095mg use.» Hem operanosm He uses 95.3932 sperm no assessors OOn OWN OWN OWN 0.0N OmN OWN OnN ONN OHN OON Om.” OOH o: OOH OmH 3H \ \\\\‘ 5.3033.” cannaconm 53033.5 3255‘ t gaposeosm 3.3335 3530ch sameness t|\\\.11 (I . assesses possesses assesses: operas } (e . T rt T T v V 4 d 4 4| J Human” H.444 e filer—”...." HIN ..7a and. Him 3...” cheer oneness: 000000 0 Pmmd'nN H O 0‘ §§§ 8 none WW JO abutment eyed ...-Ia. -, .~ -.2 58 .35 team 3 393905 defies—sauce mONm no .63 use soaposeoum mascara .NH enema Hoax Hem opsnanonm Mo noes assuage team we eunuch—one ooh omN 8N OPN CON omN 3N OMN ONN OHN SN 09.. OS 0:” OOH and 03” LP r H b \— nnooscosm openneonm 5.303839 50.9 cu pence H3O .. m .. OH ”salon «dos-ac noted: on peeked: ll cannmmonm 32mm on use a: .5 p . ma t ON PM. .. NEQW Cu. #8 N (I 00 “HM—Q v on masses 0» possess ,( v mm 1:: . oe aoaeoseoaa possess / manna cm. I soapoaoam numerous: .. 1. coarseness assoc ease a J} 4 a q a HIN Ia HIP . HIH Hie . HIH HIN . ....IH HIM . HIH HIHIH 03mm 93.2932 59 through Michigan retailers from the Gulf Coast decreases as more Gulf Coast product is distributed to the Florida moniated phosphate pro- ducere. A relative increase in this Gulf Coast to Florida flow occurs at the l-l.l-l ratio when the capacity of the Michigan diamonium phosphate plant is reached and no additional quantities of Gulf Coast almonia are directed to that facility. Likewise, the share of midwest- produced ammonia shipped to farms for direct application decreases as more of this promct is directed to midwest producers of amoniated phosphates. The most significant relative change in ammonia flow oc- curs, therefore, at the critical l-l.l-l nutrient ratio, brought about by capacity limitations on Michigan phosphate facilities. There are, therefore, a substantial number of adjustments re- quired in the organization of the supplying industry as the relative consumption of P increases by a factor of 1.1 or more in the short 2°5 run. These shifts have a substantial impact on the average incremental costs for supplying both F205 and K20 (Table 8). Table 8. Average Incremental Cost Per Nutrient Ton As 1’205 Consumption Increases in the Short Run (Dollars) Average Incremental Nutrient Ratio Cost Per Ton of: l-l-l l-l.1-l l-l.2-l l-l.4-l l—l.7-l l-2-1 N 108.33 108.33 108.33 108.33 108.33 108.33 1’205 154 . 23 157 .65 158.39 158 . 55 158. 55 163 .44 K20 102.36 98.94 98.20 98.27 98.27 103.37 Source: See Appendix B, Table B-18. 60 The average incranental cost per ton for N does not vary because additional N can be supplied as direct application anhydrous ammonia, independent of the level of 13205 that is used. The cost per ton for supplying P205 takes a considerable jump at about the l-l.l-l nutrient ratio level, the point where the Michigan white phosphoric acid and dimonium phosphate capacities are reached. There are less signif- icmt increases in P205 costs as the nutrient ratio changes from l-l.l-1 to l-l.7-l, brought about by the relative changes in direct application fertilizers being used (Figure 9), in particular the sub- stitution of granulated 6-24-24 for blended 7-28-28. This change is necessary in order to free blending capacity in Michigan to produce increasing quantities of the high phosphate 1-4-1 ratio custom blend. This same change that brings about an increase in the cost of supplying P205 also generates a corresponding reduction in the cost of supplying K20 (Table 8). This reduction stems directly from the sub- stitution of granulated 6-24—24 for blended 7-28-28. Low cost run-of- mine potassium chloride can be utilized in the production of granulated fertilizers while this grade of potash is not suitable for use in the production of blended fertilizers. Higher cost granular potassium chloride must be used for blending purposes. The 1-4-1 ratio custom blend is relatively low in K 0, allowing a relatively larger portion of 2 the total K20 supplied to be in the form of granular 6-24-24, uti- lizing a larger proportion of low cost run-of-smine potash and a smller proportion of higher cost gramlar potash to satisfy the K20 requirement. Significant changes in the costs for both P205 and K20 are indi- cated as relative P205 consumption increases from a ratio of l-l.7-l \.. 5‘. ...: n4 \ kw 61 up to a ratio of 1-2-1 (Table 8). The essence of these changes rests With the substitution of relatively higher cost diammonium phosphate for lower cost monoammonium phosphate as a major source of P205 as the granulated mixed products change from 6-24-24 to 8-32-16, and the rela— tive increase in blended 7-28-28 utilizing higher cost potash. Because of the low probability of relative increases in P205 consumption of this magnitude in the short run, these later consequences deserve lit- tle attention. As in the case for relative increases in nitrogen consumption in the long run, there is substantially less adjustment implied as the relative consumption of P increases in the long run. The major ad- 205 justment that is required is the production of relatively higher quan- tities of 1-4—1 ratio custom blend for direct application, accompanied by a decrease in the use of blended 7-28-28 (Figure 14). This re- quires the production of relatively larger quantities of monoammonium phosphate as an input to the blended fertilizer, along with a larger quantity of phosphoric acid for monoammonium phosphate production (Figure 13), and a shift in ammonia production away from Michigan where it is produced for direct application to the Gulf Coast where it is produced for use in manufacturing monoammonium phosphate. The in- creasing ammmt of 1-4-1 ratio custom blend supplies an increasing share of the N requirement, bringing about a relative decrease in the direct application of ammonia (Figure 14). These relative changes occur in constant proportions over the entire range of relative changes in P20,5 consumption, allowing the supply of nutrients to change with no change in the average incremental cost per ton of nutrient supplied (Table 9). qr - \- «\us \- dol. cunt. lez ‘ll‘l 62 com CmN .ssm was 5 concouofl 5395230 mONm on gm 9030.5 Meow Hem spannnonm Ho macs unuahpsz Phonm Ho ucudnsona CON CNN CON CON C¢N CnN (F CNN CHN CCN OCH 05H CmH COH Oma L .3 ensure Ced newnessoem cascade somehow: Hosea .. assesses 38345. )I" 3.30.30 gflmgpom Baggage rmN YCm f Ln P’ tCOH vaH vaH M them m. u. §§ HINIH alboalfl diseald ease nonsense d I HlNole leoHIH HIHIH 63 con eqsm muon.aa monounQQH naavgasmnoo momm ad anoNAHAVHom no abandoaana4 poonfin omN b CmN P use» hum opdnnné Ho 339 990.3545 993m no 33965 omN 0¢N onN cam cam cow oma oma and oma oma o¢a ChN CCN .P .3 £sz ocanoano_azwumd¢om Hdaduuno dag 303g QIQNIN. ©0303 ion wow .C@ m wowdmw woma 63 w .98 m. IC¢N .CbN .oon .03 w 5% m a... .Cmn.m .8... m 53 o .00.? .J .on m. b3 m. 2n w 58 33 Hum ..H Hivodla Altoala HfNole HIH.HIH Seam flags: HIHIA 64 Table 9. Average Incremental Cost Per Nutrient Ton As P 0 Consumption.lncreases in.the Long Run (Dollars 5 Average Incremental Cost Nutrient Ratio Per Ton.of: l-l-l l-2-l N 87.92 87.92 P205 148.36 148.36 K20 91.91 91.91 Source: See Appendix B, Table B—18. It is clear that the costs for supplying phoSphate can be re- duced by reorganizing the industry along the lines of the long run optimum.as compared to the short run organization (Tables 8 and 9), although the potential for cost reduction for P supply is not as 205 great as for'nitrogen. The potential savings in the long run amount to 35.87 per ton.of P20 (3.8 percent reduction.in costs) at relatively 5 low levels of P205 consumption. This potential for cost reduction in, creases to $10.19 per ten of P205 (6.4 percent savings) at relatively higher levels of P205 consumption (with P205 a factor of 1.4) and to 815.08 at high levels of P increasing relatively by 205 use, representing a 9.2 percent reduction in cost in.the long run if P consumption is 205 twice that of N and K20. These compare with the potential reductions in cost for N of 18.8 percent and 23.6 percent under conditions of relatively low and high N consumption, reapectively. Overall, it has been shown that the organization.of the industry is quite sensitive to the relative level of P consumption in the 205 short run, and relatively insensitive to such consumption shifts when the long run optimum is achieved. In the short run, the limits on ‘J' I" ‘l 65 existing capacity to produce phosphoric acid and diammonium phosphate in Michigan: become constraints to the low cost supply of relative in- creases in phosphate by more than 10 percent, and adjustments are re- quired in the relative levels at which different activities are oper- ated at that point. These Michigan activities are not included in the long-run optimnn organization of the industry, however, and it cannot be concluded that this expansion of these facilities in Michigan is in the best long-run interest of the industry, even though there ap- pears to be a need for such expansion in the short run. This paradox occurs because the existing Michigan phosphoric acid and diammonium phosphate facilities can provide lower cost materials for the granule.- tion of mixed fertilizers than can similar facilities located else- where. But the use of granulated mixed fertilizers is a short-run phenomenom-in the long run, mixed fertilizers are produced by bulk blenders rather than by grarmlator/mixers, a production pattern that can't occur in the short nan due to the limited existing blending capacity—and the lowest cost source of phosphate for blended ferti- lizers is from monoamonium phosphate produced in Florida utilizing phosphoric acid also produced at that location. Therefore, in the long run there is no demand upon the industry to supply phosphoric acid or diammonium phosphate in Michigan, and, likewise, no reason to maintain facilities within the state for their production. The implications of this phenomenon for the organization of the industry are clear: if the relative emsttion of 13205 increases in the short run, existing capability to produce phosphoric acid and diamonium phosphate in Michigan should be utilized but not expanded. 'J )1 66 As new facilities are constructed, priority should be placed on ex- pansion of the large-scale blending facilities to replace existing granulator/mixers. As this occurs, the demand for the output of the Michigan phosphate plants will diminish until these facilities can be phased out in favor of the long-run cptizmxm facilities for producing phosphoric acid and monomenium phosphate in Elorida. Relative Increases in Potash Consumption As was the case for both relative increases in nitrogen and phosphate, the linear programming model was manipulated in such a way as to determine the adjustments that are desirable in the composition of the industry in response to relative changes in potash consumption in both the short and long run. The model was instructed to succes- sively supply 146,000 tons, 160,600 tons, 175,200 tons, 204,400 tons, 248,200 tons, and 292,000 tons of K 0 for application on farms with 2 the consmption of H and P 0 held constant at 146,000 tons each. The 2 5 tonnages correspond with the nutrient ratios listed earlier (Table 5), with K20 consumption increasing relative to the other nutrients by factors of 1, 1.1, 1.2, 1.4, 1.7, and 2. Detailed information on the resulting industry organization is presented in Appendix B (Tables 13.35 through B-48). Consistent with the data presented in relation to the analyses of relative increases in N and P205, data are included only for those points at which adjustments are implied for the industry. Inboththeshortrunandinthelongmn, there is onlyons range over which relative changes in the organization of the industry are indicated: beheen the l-l-l.2 and the 1-1-1.4 ratios in the short run and between the 1-1-1.4 and the l-l-l.7 ratios in the long run. P! (I, III 67 In both cases, the beginning and ending ratios, 1-1-1 and 1-1-2 re- spectively, are included as benchmarks. A emery of the total quan- tities of each product required at each relevant nutrient ratio, along with the average nutrient costs, is also presented in Appendix B (Table 15-34). In the short run, there are substantial changes that occur in the quantities of several products used as the relative level of K20 consmtion increases up to the 1-1-1.4 ratio level. Beyond this point, the only change indicated is a relative increase in the quan- tity of granular potassium chloride (Figure 15). These changes are related directly to changes in the fertilizer products provided for direct application on Michigm farms (Figure 16). This pattern of ex- pension in the use of materials for direct application offers excep- tional insight into some significant relationships within the industry. The existing capability to produce blended fertilizers in large- scale facilities (9000 tons per year or more per facility) is utilized completely at the beginning point, the 1-1-1 ratio level (Appendix B, Tables B-3 and B-48). This capacity is being used to produce a combi- nation of blended 7-28-28 and custom blend 1-3-6 ratio material. As the relative level of K20 increases, the mix of blended products changes from high amounts of 7-28-28 and low amounts of 1—3-6 custom blend to all custom blend and no 7-28-28 (Figure 16). Thus, the 7-28-28 promlct with P0 and K 20 in a 1 to 1 ratio is replaced by a 205 custom blend with a 1-2 (220 5 to 1:20) ratio. This provides more K20 relative to 1’205 as is required by the relatively high K20 consumption. At the same time, the production of granulated 6-24-24 increases to provide some material with a 1-1 (P20 to K20) ratio that, when 205 1 u a u I. u u - ~ ql~llu ~Il.~l~ Ali-J one. 0... --I\u¢-z .55 team 5 330923 sagas—Buss cum on gm panacea .3 033m ado» Hem agom no 308 983952 team we oedema—0:9 8n 0mm 08 Ohm SN 03 Gem onw CNN OHN 8w 8H BA or 8H 03” o: L L Lurwli. do." a it ow anode—snow gem—Haas: demon»; be .m. ll. 0 So ova—335m gen—cannons: Em boa a. opsnaoonm gases—no.3 it n. Toma openeoosfioasm 33.5 ofiddonas . 83M _ boa . 2.33:3 dues-...“; mm «.305 3.2.65 .00.” 1 58 1 % 6mm m :1. r oew m. o a 0 64.84 Eon m cm Towmm 108 m. . 8n w Town a J a fl * a «laud a. 27.7...” 71.7.” N 274..." H. Alana HIHIH 0.30m Pagan—z 69 .nsx puonm a.“ 33305 doggone own. on gouafifiom Ho 5333a? 909.39 .3 ensmg ado» nom season no Boa peoflpez fionm no 853% com 0mm 08 Ohm oww 0mm Gem onm CNN OHN cow om." 8H 0:” om.” and 3H b P F b P b b b P p by I.“ ? P i mwlmwlh 30.8 Mg 3.3% penises minus 2.on 538 t 58 m Elana. 33383 G i d 4 i J NA...” >44..." e . 73 N 44.4 a 4.4.4 and.” Spam 98252 I) ‘1.) ' .1 I I) L! ..' LI '1 I! .I 7O oonbined with the 1-2 (PO to K 20) custom blend, provides the required 205 1’02 5 to K 20 ratio for application, that is, between the l-l. l and the l-l.4 (P20 5 to K20) ratios over this range. Once the existing capacity to produce the 1-3-6 ratio custom blend is reached (at the l-l-l.4 ratio level), no additional quantities of granulated fertilizers are produced even though the granulator/ mixer capacity utilized at this level is less than the existing capac- ity by almost 100,000 annual tons (Appendix B, Tables 3.3 and B—47). This occurs because there is no available capacity to produce addi- tional quantities of the 1-2 (P20 to K20) custom blend and, therefore, 205 no additional quantities of the l-l (P205 to K20) 6-24-24 material can be used without upsetting the nutrient balance between a fixed level of P205 and an increasing level of K20. The additional granulator/mixer capacity could be utilized to produce sons quantity of 5-10-15 fertilizer which, with a 1.1.5 (P20 205 to K20) ratio, would provide additional quantities of K20 relative to 2205. But this option is not selected. Instead, granular potassium chloride, a single element K 0 product, is used for direct application. 2 The gramlated 5-10-15 product requires the use of low-analysis ordi- nary superphosphate (0-20-0) (Henderson, 1971, p. 91) in order to produce the low P0 to K 20 ratio, rather than the high-analysis sm- 20 5 moniated phosptnte used in producing 6-24-24. It appears, therefore, that while the use of granulated mixed products is economically supe- rior to the direct application of straight potash materials as long as high-analysis phosphate materials can be used to produce these mix- tunes, this economic advantage for granulated nixed fertilizers II' 1'! I! 7l disappears if low-analysis phosphate materials are used to produce the mixtures. Another available alternative that would allow greater utiliza- tion of mixed fertilizers beyond the l-l-l.4 ratio is to utilize some of the blending capacity to produce a 0-1-3 ratio custom blend rather than the 1-3-6 custom blend in the existing selution. This would pro- vide P205 and K20 in a l-‘j ratio, allowing greater quantities of the 1-1 (19205 to K20) 6-24-24 to be granulated, thus utilizing more of the existing granulator/mixer capacity and, at the same time, providing a m of products that could supply quantities of K 0 higher relative to 2 P205 than the current limit of 140 percent. To produce the 0-1-3 ratio Greta: blend requires the use of granular triple superphosphate as an input and source of P205 rather than monoammonium or disamnonium phosphates that have been used in the other blended products that have been used. The source of potash is the same in all blends. Because this option was not selected, it indicates that, while the use of mixed products is gmrally commonly superior to straight materials for direct application, this advantage disappears when the mixed product is blended from straight phosphate materials rather than from almo— niated phosphates. The explanation for this occurrence may be found in the costs of transporting phosphate products from the Florida phosphate rock mines to Michigan. Triple superphosphate (0-46-0) contains a total of only 46 percent total plant nutrients; thus, 920 pounds of nutrients are shipped per tm of material, whereas diamonium phosphate (18-46-0) contains a total of 64 percent plant nutrients and monoarmnonium phosphate (13-52-0), a total of 65 percent nutrients. Therefore, 360 72 to 380 additional pounds of nutrients are shipped per ton of material, at the same cost per material ton, with amoniated phosphates as com- pared to triple superphosphate. This raises the cost for shipping nu- trients in the straight P product for blending and appears to be 205 enough to offset the advantage that mixed fertilizers usually have over the direct application of straight potash fertilizer. Two important short-run relationships have been shown between the use of mixed fertilizers and straight potash fertilizers for di- rect application: (1) granulated mixed fertilizers that utilize high- analysis phosphate products are economically superior to the direct application of potash, while granulated mixtures utilizing low—analysis phosphate materials are not; and (2) blended mixed fertilizers uti- lizing ammoniated phosphates are economically superior to the direct application of potash, while blends that utilize straight phosphate products are not. The adjustments that are indicated for the industry in the short run as the use of K 0 increases relative to N and P 0 between the 2 2 5’ ratios of l-l-l.2 and l-l-l.4, have impact on both the average incre- mental coste for supplying K20 and for supplying P205 (Table 10). As these adjustments are implimented, the cost per ton of K20 increases by 5.2 percent and the cost per ton of P 0 decreases by 3.3 percent, 2 5 while nitrogen cost remains unchanged. 73 Table 10. Average Incremental Cost Per Nutrient Ton as K20 Consumption Increases in the Short Run (Dollars) Average Incremental C Nutrient Ratio Cost Per Ton of : 1-1-1 1-1-1 . 2 1-1-1 . 4 l-l-2 N 108.33 108.33 108.33 108.33 P205 154 . 23 154 . 23 149 .09 149 .09 K20 102.36 102.36 107.67 107.67 Source: See Appendix B (Table B-34). As is the case for relative increases in P205 consumption, the average incremaltal cost of N does not vary because this nutrient is being provided largely by the supplemental application of anhydrous annonia and is independent of the level of both P205 and K20 used. 20 increases over the range between the l-l-l.2 and the lei-1.4 nutrient ratios as it is in this range that the quantity of The cost for K K20 supplied in lun-of-mine potassium chloride levels off and the balance of the increasing quantity of K20 is supplied by the higher cost granular grade material (Figure 15). This occurs because the relatively low cost nm—of-mine material is suitable only for use in the production of granulated mixed fertilizers. Direct application of this material is not technically feasible.11 It is in this range that the maximum desirable quantity of granulated mixed fertilizers is reached (Figure 16); therefore, no additional quantity of K 0 can be 2 11The random particle size of run-of-mine potassium chloride makes it technically infeasible to apply this material directly on fame as the lack of consistency in particle size prevents achieving a unifom spreading pattern. 74 provided by the low cost run-of-mine material. Both blmding and di- rect application require a potash product consistent in particle size, a quality achieved only in higher cost forms of potassium chloride (i.e., granular grade potassium chloride). Therefore, as the addi- tional quantities of K20 are supplied by either direct application of straight potash or by bulk blends, the higher cost potassium chloride product must be used, increasing the cost of K O. In this case, it is 2 the increased quantities of direct application potash that accounts for both the high relative quantities of K O supplied and for the 2 higher average incremmtal cost for this nutrient at relatively high levels of K20 consumption. The short-run cost of supplying 19205 decreases over this range due to the increased use of granulated 6-24-24 which is relatively high in P205 content compared to the other phosphate-bearing product for direct application, the 1-3-6 custom blend (6.05-18.5-36.05). There- fore, relatively more P20518 being supplied in the fem of granulated 6-24-24 aid has in the fan: of blended fertilizer. The process of producing granulated fertilizers allows the use of a lower quality phosphate material, run-of-pile triple superphosphate, than can be used in blending fertilizers (where either grander triple superphosphate of monieted phosphates are used). The lower quality run-of-pile triple superphosphate is a lower cost source of supply for this nu- trient. As relatively larger quantities of P are supplied using 205 this material, the average incremental cost for supplying 1’205 de- Gum's In the long run, there are more adjustments implied for the in- dustry due to relative increases in K 0 consumtion than is the case 2 75 for relative changes in either N or P205. The product summary (Figure 17) indicates relatively modest changes in the products that are pro- duced, with the expected relative increase in granular potassium chloride as the most significant change. Additionally, small quan- tities of urea are produced as the relative consnnnption of K20 in- creases by a factor of 1.4 or more. These changes stem from some sub— stantial changes that occur in the mix of products used for direct ap- plication as K20 increases (Figure 18). In particular, the use of blended 7-28-28 begins to drOp off as the nutrient exceeds l-l-l.4 and, at the same time, the quantity of custom blend 1-3-6 ratio ms- 12 terial increases. Also, both of these blended products replace the custom blend l—4—l ratio product that is important at the 1-1-1 ratio. This change in the mix of direct application blended products provides an increasing qumtity of K 0 relative to P O as both the 7-28-28 and 2 2 5 the 1-3-6 ratio custom blend provide K20 in higher amounts relative to 19205 thm does the 1-4-1 ratio custom blend. Coupling this shifting product mix of blended fertilizers with the steadily increasing quan- tity of granular potassium chloride provides the necessary additional K20 to satisfy the relative increases in that nutrient. It is partiallarly interesting that granular potassium chloride is being utilized as a direct application fertilizer in the long run, 20 use (l-l-l nutrient ratio, for ample, see Figure 18), but this product is not used for direct even at relatively low levels of K 12The most efficient formulation for the 1-3—6 ratio custom blend requires tlm use of urea along with monoanonium phosphate and gra'mlar potassium chloride (Henderson 1971, p. 104); therefore, the prontction of urea is mquired as shown (Figure 17). Mainlflld Nil-‘IIFII ‘ Flululn e.‘ I. all. a II|.~ I ‘lhllk ail-lbw. fiudl' .114 :2 76 oonowwonm .2 mean 5" nonsense...” sedans—assoc can as gm panacea .5 0.3m: as.» sea nausea me uses 333% phone ac assessors oz can cum on one am ca 8~ one one o2 o3 o3 o3 ““11 “an I mN sang 5865 teen . Gama oEoszbnhsoonb seesaw ohm gases—Bose: NIHIH bent—”Id e ...”...le N .HIHIH H.HIHIH HIHIH Seam ascents A‘e‘-p||du \. .I .d.u|4ll H Abd‘; Qb-\ .. I.-. U ed on: v-~|4\~ .-o~1el~ ~I~I w 77 00m .53 when 5 33935 scape—.5300 emu as gouaaatom mo scavenge? 903.8 snow Hem smspom no sacs escapee—z Pecan Ho wagons 0mm 0mm oow 0mm ova ohm CNN OHN omw omH own” 0:” Goa L EN .ma enemas Oma 0.: Aeneas accesses Hueuav eases scenes sauna coauoduo asanmmpom eeaossa uncaeasea III/I, nwunwi. sundown! v 5; In 5 20 H H o spuesnoum Jx<5 but Ha J M W S 5 L“ N on TEN u bon 0 a2 a I. can a ixxem m census rone less you e.suaas ~.shaaa H.Huans chasm reassure NIHIH h . HIHIH Humna 78 application in the short run until the relative consumption of K20 increases by more than a factor of 1.2 (Figure 16). This occurs in the long run even though a combination of mixed products, such as 7-28-28 and l-3-6 ratio custom blend, exists that can satisfy the en- tire range of nutrient ratios. In fact, exclusive use of the 1-3-6 custom blend provides P205 and K20 in an exact 1-2 (P20 to K20) ratio, 5 the same as is required by the highest relative level of K20 consump- tion (at the 1-1-2 ratio level). Therefore, a combination of 1-3-6 ratio custom blend and anhydrous amonia for direct application could be used to satisfy even the highest relative level of K 0 use in the 2 long run. And it was shown that in the short run, the use of blended mixed fertilizers utilizing monoammonium phosphate as the source of phosphate is economically superior to the direct application of gran- ular potassium chloride. But even though it is possible to use all blended fertilizers to satisfy the high K20 use in the long run, this option isn't selected. This difference in the use of direct application straight potash materials between the long run and the short run can be understood by cowering the composition of the granular potassium chloride sector of the industry as it exists in the short run and in the long run (Fig- use 19). Two pertinent observations can be made: (1) in the long run, a new terminal facility is used in Michigan as a means of supply- ing potash to farms for direct application, and (2) the quantity of potassium chloride distributed to blenders for use in producing mixed fertilizers is, at all times, 133 percent of the quantity of product stored at the Saskatchewan production facilities, with the remaining quantity distributed to farms for direct application. Clad Q \- alas ,1... no: 79 con 0mm .ssm moon one pnonm as moosonosH sofioassmsoo omx as sonoom ooflaoano_sswomspom sodsssno so» Mom ngom Ho 308 94.3“sz tonm No 0333.559 0mm Ohm cow L emu ovm L L ohm CNN OHN cow I? L omH owH ova and .ms enemas OmH O¢H nllhltrfilv. row roe wow for ma flood m toad m moi—V." W. Toma m. food t room roam po¢m .oww #08 1.oon town .oen .omm roam rOO¢ towe r0¢¢ tome r00¢ ganpoaa JO suom axons tenuuv NIHIH thIHIH ¢.thua mosses escapees QTTHHJMA Humra 80 The first observation implies that, in the short run, the lack of teminaling facilities in Michigan is a deterrent to the use of di- rect application potash. Such terminaling capacity is critical to the most efficient supply of K20. The implications of the second observation are more difficult to ascertain. Because potassium chloride is produced continuously throughout the year and blended fertilizers are produced on a sporatic basis only during the periods when mixed fertilizers are being used, it is necessary to store a relatively large quantity of the potassium chloride that is used in producing blended fertilizers. It has been assumd for the purposes of this study that 75 percent of the materials that are produced on a continuous basis but used in producing blended fertilizers must be stored at some point in the industry.13 But, in general, the application season for straight materials does not cor- respond exactly with the periods when mixed fertilizers are used, thus extending the relevant application season for all products to about six months. This correspondingly reduces the need to store all plant nutrient-bearing materials to about 50 percent rather than the 75 per- cent required for inputs to blended products. Therefore, some straight products can flow directly from the producers to fame for direct ap- plication without being stored. 13Based on seasonal sales patterns reported by Mr. William Cal- lum of the Michigan Farm Bureau, it appears that blended fertilizers are produced and applied for about two months in the spring and one month in the autumn, for a total of three months per year. Assuming that the materials used in blending are produced 12 months per year, but used by blenders during only three months, the equivalent of nine months, or 75 percent, of this production for use in blending must be stored. 81 This is what occurs in the case of granular potassium chloride. It is more efficient to supply K O for application in the form of 2 blended products than as a straight material for direct application as 20 is demanded in order ,to reconcile nonseasonal basic production with seasonal use long as no more than the required minimum storage of K in blending. But, as additional K 0 is supplied beyond this, it is 2 less costly to use the granular potassium chloride for direct appli- cation with no product storage than to continue to supply K20 in a blended product and store excess quantity of that nutrient. There- fore, of the potassium chloride required to satisfy the level of K20 consunption at any particular point, enough is distributed to blenders so that the 75 percent that is stored will just satisfy the require- ments on the system to store K 0. The balance will be distributed for 2 application as a straight product. Thus, the quantity of this product that is used in blended products is 133 percent of the quantity re- quired for storage (100/75 = 1.33). Over this range of long-run adjustments, the average incremental costs for supplying N and K20 at the related levels do not change, while the cost for supplying P decreases over the range between the 205 l-l-l.4 and l-l-l.7 nutrient ratios (Table 11). The cost of N does not change because, as has been the case for long-run relative in- creases in both nitrogen and phosphate, N is being supplied in the low-cost form of anhydrous ammonia for direct application. Likewise, additional quantities of K 0 can be supplied within the relevant range 2 in the form of direct application granular potassium chloride, the -cost of which doesn't vary over this range. But the only form in which P205 is supplied is mixed fertilizer, and, therefore, the cost for If 5., J! 82 supplying this nutrient is tied to the cost of supplying the entire mixed product or products containing P205. group of mixed products changes over the range from l-l-l.4 to l-l-l.7 The composition of the as 1-3-6 ratio custom blend is introduced. This mixed product, it has been noted, contains some urea as a source of N in addition to the N provided by the monoammonium phosphate used in the blend. The N sup- plied by urea is less expensive than that provided in the monoammonium phosphate. Thus, the cost of N in the mixed product decreases, lower- ing the cost of the mixed product as a whole, and therefore, decreasing the cost of supplying the P205 in the mixture. Table 11. Average Incremental Cost Per Nutrient Ton as K 20 Consumption Increases in the Long Run (Dollars) Average Incremental Nutrient Ratio Cost Per Ton Of 8 1-1-1 l-l-1o4 l-l-le7 1-1-2 N 87.92 87.92 87.92 87.92 P205 148.36 148.36 144.94 144.94 K20 91 . 91 91 . 91 91 o 91 91 . 91 Source: See Appendix B (Table B—34). Overall, it can be concluded that the organization of the fer- tilizer industry is sensitive to relative changes in the consummion of potash in both the short and long run. In particular, the short- run adjustments implied for the industry are tied closely to the types of phosphate products utilized in producing mixed fertilizers, and the implied long-run adjustments are related directly to the nature of the 83 requirements for potash storage. The lack of terminaling facilities in Michigan for handling granular potassium chloride appears to be a critical factor preventing the lowering of the cost of supplying this nutrient in the short run as compared to the long run, and priority is implied for this type of facility as new investment enters the indus- try . Adjustment to a ?.3-l.O-l.8 Nutrient Ratio An additional problematic situation was imposed upon the indus- try in the long run, within the framework of the model, to determine the sensitivity of the most efficient organization of the industry when nutrient consumption changes to a most likely ratio. It was shown earlier that expectations are for the consumption of N to increase relative to both P O and K O, and for K 25 2 2 P205. It was also shown that the nutrients are removed by the major crOps harvested in Michigan in a 2.3-l.0-l.8 (N'PZOS'KZO) ratio (Table 3). Therefore, constraints were modified within the model in order to O to increase relative to determine the complexion of the industry for the purpose of supplying nutrients in this 2.3-1.0-l.8 ratio in the most efficient manner. De- tail on the results of this investigation are presented in Appendix B (Tables B-50 through B-55), and a summary of the products and costs incurred for supplying this ratio, along with the benchmark l-l-l mtrient ratio, is also presented in Appendix B (Table B-49). No unexpected sensitivities were found in the industry in either the basic products used (Figure 20) or in the fertilizers used for direct application (Figure 21). The adjustments that occurred are exactly those that could have been predicted based on the preceding 84 l l2.3-l.O-l.8 Nutrient Ratio a 1-1-1 Nutrient Ratio K\\\\\\\\\ P \\\\\\\\\\\\\ \\\\\\\\\\\\‘ K\\\\\\\‘ 4204 400- 0 a 3804 a 360- ‘“ 340- 320‘ 44m 0 555 6655 555 ésasg aazggwré suoq, iroqs mummy 3:0 spuesnoqq, Granular Potassium Chloride Monoammonium Acid Phosphate Phosphoric Urea Anhydrous Ammonia Figure 20. Product Summary for l-l-l and 2.3-l.O-l.8 Nutrient Ratios in Long Run. 85 .nsm moon 3 mousse ssoflssz méuoéunn one Tend to.“ fiouuflfiom seasonal: possum Am casual moaodm aspmso mmlmmlw nonficafl ouanoano aaammdpom Headache 01.319}! 9‘5’1: \\\\\\\\\\\\\‘ ,8 .9. .8 vow 63 toad L. a: .OmH .oma \ \ g at \\ \ 51% .omm seem bow bow r00m rONm oases psoflssz D ”WWW m.H..o.H..m.~ 10mm 0%.”?me toOiv #flfifihfifiz dldlflmwmw ENV lO'flpOJJ $0 8110,]; 1JOQS m JO SPU'BSTIOQJ, 86 analyses of relative increases in N and K20 consmnption. That is, to satisfy the relatively high N requirement, relative increases are called for in the quantity of anhydrous amonia produced in Michigan for distribution to, and direct application on, Michigan farms (see Appendix 3, Tables B-5 and B—50). To satisfy the relatively high K20 requirement, relative increases are called for in the production of granular potassium chloride and in the amount of that material used for direct application. Also required are larger (quantities of blended 7-28-28 and a shift in the custom blended materials away from the 1-4-1 nutrient ratio to the 1-3-6 ratio custom blend. At the same time, small quantities of urea are required for use in the 1-3-6 ratio custom blend. These are the enact changes indicated by the analysis of long-run changes in the relative consumption of K O, and the levels 2 2O consumption (1.8 relative to 1.0 for 2205) are identical with those shown at the corb of products utilized to satisfy this level of K O in that long-run responding nutrient level of 262,800 tons of K2 malysis (Figures 17 and 18). Just as the organizational changes followed a predictable pat- tern, so do the costs for providing the nutrients (Table 12). The av- erage incremental cost for supplying a ton of N over the range of the experiment remains constant, as does the cost for K O. In both cases 2 this occurs because additional quantities of these nutrients can be supplied in the form of straight, single nutrient materials for direct application. As would be enacted from the long-run analysis of rela- tive K20 changes, the average incremental cost for supplying a ton of P205 drOps from its level in the range of the l-l-l nutrient ratio 87 solution to a lower level in the range of the 2.3-l.0-l.8 ratio solu- tion, due to the lower cost of supplying the 1-3-6 ratio custom blend as compared to the 1-4-1 ratio material. Table 12. Average Incremental Cost Per Nutrient Ton at the l—l-l and 2-3-1.0-l.8 Nutrient Ratios, in the Long Run (Dollars) Average Incremental Nutrient Ratio Cost Per Ton of : 1-1-1 2-3-1 . 0-1 .8 N 87 .92 87 . 92 P205 148 . 36 144 . 94 K20 91 . 91 91. 91 Source: See Appendix B (Table B-49). This experiment verifies the sensitivities discovered in the preceding analysis and tends to confirm the types of adjustments that are desirable in the industry for the purposes of achieving and main- taining the most efficient supply of nutrients to Michigan farmers. The short run and long run comparisons of the preceding sections have also helped to chart out the path of adjustments for the industry, over time, in order to effect these long-run Optimum supply conditions. Sumary-Relative Nutrient Changes A number of important relationships within the industry have been estimated based upon the study of relative changes in the levels of consumption of the three basic plant nutrients. Implications have been drawn concerning the adjustments that are desirable in the industry, in both the short run and long run, in order to effect the most 88 efficient supply of these nutrients as consumption patterns change. These findings are smmarized here briefly. 1. 2. 3. 4. 5. 6. 7. Excess capacity currently exists in the industry supplying fertilizers to Michigan farmers to the extent that the short- run optima product mix of the existing 1.009-1.04.051 nu- trient ratio can be expanded up to 19'4 percent of the cur— rent level vithout an organizational change. The composition of the industry organization is more sensi- tive to relative changes in the consumption of nutrients than to absolute changes in the consumption of a given ratio of nutrients. Expectations are for the consumption of nitrogen to increase relative to phosphate and potash, and potash relative to phosphate. Reorganization of the industry to conform to the long-run Optimum can result in lower costs for plant nutrients, com- pared to the short-run optinnnn, amounting to about a 4 per- cent reduction in phosphate costs, about 10 percent in potash costs and 19 percent in nitrogen costs. Only the anhydrous atmnonia sector of the industry is sensi- tive to changes in the relative consumption of nitrogen. The limitations to the existing capacity to produce anfmrdrous ammonia in Michigan for distribution to farms is the most critical restriction to the low—cost supply of nitrogen. A significant number of adjustments are indicated for the industry as phosphate consumption increases in the short run due to limitations on existing capacity to produce phosphoric 8. 9. 10. 12. 89 acid and dimonium phosphate in Michigan, but these facil- ities should not be expanded and should be phased out in the long run. In the long run, increases in phosphate consumption can be met most efficiently by expansion in the monoammonium phos- phate sector of the industry. The large number of wall—scale blending plants in Michigan (1000 to 2500 tons per year) can't compete economically with the existing granulator/mixers in the state in the short run, but additional large-scale blenders (around 9000 tons per year) should replace the granulator/mixers in the long run. The lack of teminaling facilities in Michigan for granular potassium chloride is a short run detriment to supplying the lower cost potash in Michigan that can be provided with the use of such a facility in the long run. In the short run, granulated mixed fertilizers utilizing high-analysis phosphate materials and blended fertilizers utilizing ammoniated phosphates are economically superior to the direct application of straight potash materials while granulated mixtures using low-analysis phosphate materials and blended fertilizers using straight phosphate inputs are not. The prcper balance in the long run between the quantities of potash supplied in mixtures and as straight materials for direct application is a function of the storage requirements for potash. CHAPTER III ECONOMICALLY SUB-OPTIMUM PRODUCT USE Introduction Sme of the most significant excess costs in the fertilizer in- dustry arise from the use of economically inferior products, that is, from the supply and consumption of fertilizers that impose costs above the minim necessary to satisfy the demand for plant nutrients. Armed with the mix of products that minimize nutrient costs it is possible to detemine the excess costs imposed upon the industry in general, and farmers in Michigan in particular, by the use of economically sub- optimum products. The consequences of continued use of selected sub- optinmm products in Michigan are subjected to investigation and anal- yses in this chapter. Important Sub-Optimum Products The optimum products for use on Michigan farms in both the short and long run, for the purpose of satisfying the current demand for the three major nutrients at the lowest possible cost, were specified when the short run constrained optimum and long run aptimrm organizations of the industry were determined (Appendix A, Tables A-l through A-31). A number of products that were actually consumed in Michigan in 1970 are not included in either the short or long run optimum mixes. Like- wise, some of the products included in the short-run Optimum are 90 91 nonoptimum products in the long run (Table 13). There may be noneco- nomic preferences in.the market for some of these sub-optimum.products, particularly in view of the fact that many of these products were used in.substantial quantities in.l970. In particular, ammonium nitrate, nonpressure nitrogen solutions, urea, granulated.mixed fertilizers, and liquid mixed fertilizers were all sold in relatively large quany tities in 1970, each accounting for 2 percent or*more of all direct application materials, but are not included in short run and/or the long run. In addition to these established products, there is one relativ- ely new type of mixed fertilizer, suspended liquids, or suspensions, that is being used in substantial quantities in a leading fertilizer consuming area, Illinois, but has not yet entered the Michigan.market in detectable quantities. This product is not included in the long- run optimum product mix because it is a relatively high cost material, nor is it included in the short run as there are currently no known facilities in.Michigan equipped to produce or distribute suspensions. It can.be considered a potential entry into the Michigan.market, howa ever, because of its popularity elsewhere. It appears, therefore, that there are six economically sub-opti- mum products that are or'may be preferred by sellers and/or buyers in the future: liquid.mixee, suspensions, nonpressure nitrogen solutions, granulated.mixes, ammonium.nitrate, and urea, all of which are not in the Optimum.preduct mix in the long run. Three of these products are also not utilized in the short-run optimum even though capacity cur- rently exists to handle them. These are liquid mixtures, nonpressure nitrogen solutions, and urea. It is appropriate, therefore, to single .h.‘ Eric v‘. VI 1— Ir 92 Table 13. Fertilizers‘Used for Direct Application in Michigan: 1970 Actual, Short Run 0pti1m1m and Long Run Optimum Tons per year Product 1970 Short-run Long—run actual optimum Optimum Anrwdrous amnonia 62,08; 128,338 129,942 Aqueous amnonia 3,897 -O- -0- Ammonium nitrate 27,701! .0»1 —o- Nonpressure nitrogen solutions 39,803 -0- -0- Low pressure nitrogen solutions 2,155 -0- -0- Urea 24,0147 -0- -0- Ammonium sulfate 2,790 -o- -0— Nomal superphosphate 371 -0- -0- Granular triple superphosphate 3,608 -0-1 -0- Diamnonium phosphate 6,838 —o-1 —o- Nkmoarmloniun phosphate 3,269 -o—1 «0'.2 Rock phosphate 277 -O- -0- Potassium chloride 61,996 —o--l 68,319 Granulated mixed fertilizer 388,555 303,655 -0- Dry blended fertilizer 203,213 185,535 329,689 Custom blends 27,785 86,1465 133,601 Liquid mixed fertilizer 19,083 -0— «0- — Source: See Appendix A (Tables A—2 through A-31) 1These products that were used as direct application mterials in 1970 appear as intermediate products in the short-run Optimum pr oduct mix, but not as direct application products. 2I‘llonoatrmonium phosphate is used as an intermediate product in the long-run optimum but not for direct application. 93 out these latter three products for short run analyses and all six products for long run analyses of the consequences of contimled sub- optimum use. Method of Experimentation In order to study the effects upon the industry of consumption of fertilizer products for which there may be strong buyer and/or seller preferences but which are economically inferior products, the linear programming model is used to simulate consumption of these products over a range of levels. First, a probable level of consump- tion for each product in the long run, given existing product prefer- ences, is determined. These projections assume that buyer and seller preferences will continue to be influenced by the same factors as in the past, but that they are not affected by the relative economies of different products as reported in this study. That is, these probable levels of product consumption are based on the assumption that the market participants have learned nothing from this study. Otherwise, there would be little economic basis for projecting the future use of these sub-Optimm products. For the three products studied in the short run, their actual levels of consumption in 1970 serve as the basis for investigation. Once a projected consumption level is determined for each prod- uct, the controls in the linear programming model are manipulated in such a manner that quantities of each product over the range from zero to the projected level are forced into the solution. In all cases, these products are forced to be used as direct application fertilizers, thus, simulating their actual consumption on farms. The aggregate levels of nutrient consumption are left the sane as in the rt. 94 corresponding short run constrained Optimum and long run optimm solu- tions, as reported in Appendix A. This facilitates a direct comparison of the resulting solution when each sub-optimum product is forced into use with the "best" or most efficient solution for accomplishing the same basic task, that is, supplying the demanded levels of major plant nutrients to Michigan farms. The organization of the industry that provides the specified quantities of nutrients at the lowest cost when each product is forced to be used is recorded at selected points over the range of quantities of each sub-optima product. With the exception of granulated mixed fertilizers, the changes occur in linear fashion over the entire rele- vant range for each product. Only two points are presented (Appendix 0), therefore, to reflect the entire range: a relatively low level and the upper limit to each range. An additional point is included for granulated mixtures to reflect the nonlinearity. Detail is presented for only those activities that change from their respective short and/or long run optimlm levels as the use of a sub-optimum product changes. Summaries are also included in Appendix C that show a com- parison of the levels of all products used in the system under Optimum conditions and with each respective sub-Optimum product used at the quantity corresponding to the upper limit of its range. The corre- sponding change in the level of each activity or product for a one unit change in the level of each sub-optimum product used is also recorded in Appendix C. In the process of controlling the linear programing model to simlate the use of specified quantities of these products, a row, or constraint, was utilized that accumulated the quantities of each 95 product applied on farms and assured that these quantities totaled to the desired level specified by the right-hand side value for this con- straint. A shadow price was then recorded for each such constraint within the model. This shadow price represents (the excess costs14 in- posed upon the system for using an additional unit Of the forced prod- uct rather than using exclusively the Optimum product mix for meeting the N, P205, and K20 requirements. The excess costs associated with each ton of the sub-Optimum products are also recorded in Appendix C, and provide information relevant to this study. The analysis is pre- sented on a product-by-product basis. Mixed Liquid Fertilizers Of all the products actually used in 1970 but not included in either the short or long run Optimum product mixes, mixed liquid fer- tilizers are quite possibly the most important fran the standpoint of buyer/seller preferences. Several studies have been reported which demonstrate that mixed liquids are a higher cost source of plant nutri— ents than are dry mixtures (Wallmp 2131., 1960, and Douglas .e_t_a_l_., 1963, for example). The same conclusion can be reached on the basis of the 1970 actual and Optimum product mixes (Table 12). In spite of this, the pepularity of liquids has grown rapidly, with the relative ease of handling commonly cited as an important reason for its use.:LS 14The term excess cost as used herewithin refers to the costs realized in the industry above and beyond the minimm achievable cost for supplying the demanded levels of nutrients. ”These are m reasons that have been put forth for the popu- larity of this material, including ease of handling, adaptability, newness, and the relatively low initial cost for entering the liquid fertilizer business. For a complete discussion of the properties of this product, see Abell, 1967. 96 For example, between 1960 and 1969, the consumption of liquid mixtures in Michigan increased at a compounded annually rate of 3.2 percent While the total tonnage of fertilizer consumed increased at a rate of only 1.75 percent (Hargett, 1970, p. 56). In Illinois, generally con.- sidered to be the leading area in the Midwest with regard to patterns of fertilizer use, the use of liquids increased at a conspounded anp nually rate of 14.3 percent while total tonnage increased by only 9.5 percent over the same nine—year period (Hargett, 1970, p. 54). In view of the relative increases in the consumption of this economically sub-optimum product, a' study of the consequences of its continued use is particularly important. The ecmomic inpact of continued consumption of liquid mixtures in Michigan in the short run was studied by forcing the 1970 level of liquid consumption, 19,083 tons, into the short run constrained Optimum product mix, along with quantities intervening in the range between zero and this level. The changes that this forced conMption impose upon the organization of the industry are presented in detail in Ap- pendix 0 (Tables 0-2 through C-Zl) and a summary of all products in the industry is also included in Appendix C (Table C-l). The actual grades and formulations of liquid fertilizer used were not forced; the progran was free to select the grade or grades that minimize the cost of using mixed liquids. In this case, the only grade Of mixed liquid selected is a 4—12-24 (Appendix C, Table 0-21), utilizing ammonia'ced polyphosphate (lO-34-0), standard grade potassium chloride, and non- pressure nitrogen solution as inputs (Henderson, 1971, p. 1.14). If other grades were actually used, the excess costs would be somewhat higher than with the 4-12-24 product, but the effects on the 97 organization of the industry should not be substantially different as there would centinue to be similar displacements of other products by the mixed liquids. The major impact of the forced short-runnuse of liquids is felt by granulator/mixers. Each ton of mixed liquid fertilizers cansumed in Michigan will displace 0.77 ton of granulated 6-24-24 (Table 14). At a level of 19,083 tons of liquid, the total use of granulated 6-24-24 decreases by 14,669 tons, or 4.8 percent of the total 6-24-24 in.the short-run.Optimum.product mix. This implies a correspanding decrease in the average level of operation of each of six granulator/ mixers Operating in.flichigan.in.the short run.frcm.50,600 tans per year to about 48,200 tons per year (Table 15). Table 14. Direct Application of Fertilizers as Mixed Liquids Consumption Increases in the Short Run Tons Per Year 0 Tans 19,083 Tons Change Per Product Liquid Liquid Ton Liquid Anhydrous ammonia 128,338 128,334 -0- Grannlated 6-24-24 303,655 288,986 -0.77 Blended 7-28-28 185,535 198,221 +0.66 Gustan blends (1-3-6 ratio) 86,465 73,779 -0.66 Liquid 4-12-24 -0- 19,083 +1.0 Source: See Appendix C, Tables C-2, C-19, C-20, and C 21. 98 Table 15. Utilization of Mixing Facilities in Michigan as Mixed Liquids Consumption Increases in the Short Run Optimum Number of Number Approximate Facilities Used Existing in Annual Capacity 0 Tons 19,083 Tons Type of Facility 1970 (Tons) Liquid Liquid Granulator/mixers 10 50,000 6 6 Central blenders 1 20,000 1 1 Large blenders 28 9,000 28 28 Small blenders 84 2,500 0 0 Hot liquid mixers 6 5,000 0 0 Cold liquid mixers 12 3,000 O 7 Source: Compiled from Appendix C, Tables C-19, C-20, and C—21, and Appendix B, Table B-3. There is essentially no change in the application of anhydrous ammonia and there are offsetting changes implied for the blenders Op- erating in the state in the short run. The quantity of 7-28—28 blended increases by 0.66 tons for every ton of liquid mixed fertilizer used, while the quantity of custom blends decreases by a like amount, 0.66 tons (Table 14). Overall, therefore, there is no change in the total quantity of blended fertilizers produced. The 7-28-28 blended ferti- lizer replaces the higher cost granulated 6-24-24 as an increasing share of total nutrients are supplied by the 4-12-24 liquid, and the quantity of the 1-3-6 nutrient ratio custom blend decreases by an amount equivalent to the increasing share of nutrients that are plovided in the same ratio by the 4-12-24 product. Essentially, the 4-12-24 displaces the 1-3-6 ratio custom blend which, in turn, frees some . Pi ‘a .~‘ .1“ \\ .\. V.\\ 99 blending capacity that is than utilized to produce the lower cost 1-4-4 ratio 7-28—28 blended product. This displaces the higher cost 1—4—4 ratio 6-24-24 granulated product. At the 19,083 ton level, about half of the existing cold process liquid capability in the state can be utilized, accounting for just slightly more than one third of the total (hot and cold) liquid mixing capability currently in exis- tence (Table 15). This implies that the existing capability is, cur- rently, substantially underemployed. I The changes in the mixed fertilizers used as the use of liquids increases brings about some changes in the supply of intermediate prod- ucts used in the production of these mixed fertilizers (Appendix C, Table C-l). The most substantial of these changes are the increases in amoniated polyphosphates (10-34-0) and standard potassium chloride used in producing the liquid fertilizers, and a change away from triple superphosphate and diammonium phosphate used as phosphate sources in the granulated 6-24-24 to monoammonium phosphate used in producing the blended 7-28-28 fertilizer. The excess cost imposed upon the system for using each ton of mixed liquid fertilizer in the short run is 84.10 (Appendix C, Table C-l), or about 9 percent above the minimum cost of nutrients per ton. For the 19,083 tons of liquid in total, this amounts to a $78,240 pne- mium that must be paid by Michigan farmers for continued use of the current level of liquid mixes rather than adapting the optimum short- run product mix. This additional cost associated with the use of liquid fertilizers at the 1970 level is about the same as would be experienced for hiring 44,450 man hours of farm labor at April, 1970 farm wage rates in Michigan (Michigan Agricultural Statistics; 1970). .u . arm “K .... ...e ...r... ex 3134,. ...a bus MN ....\ \...\ , ‘ I "‘ \\\ .. «N. ..~.\ 100 In the long ruun, the quantity of mined liquid fertilizer con- sumption is forced over a range from zero to 151,766 tons per year. The 151,766 ton upper limit to the range reflects an optimistic esti- mate of the consuunption of mixed liquid fertilizers in Michigan in 1980.16 Detail on the resulting long run organization of the indus- try, for those activities that change from the long run optimum solu- tion, is presented in Appendix 0 (Tables 0.2 through 0.21) along with a product summary comparing the levels of all products in the long run optimum solution with their corresponding levels when 151,766 tons of mixed liquids are forced into the solution. As was the case for the short ruun analysis, the actual grade of mixed liquid fertilizer used was selected within the model as the least-cost grade of liquid to use in the long run. In this case, the product used is also a 4-12-24, 16This and other estimates of the maximum long-run consumption of the products of concern in this chapter are based upon an assump- tion that the total tonnage of fertilizer consumed in Michigan will continue to grow at the same average annual rate between 1970 and 1980 as it did between 1960 and 1970. This assumption leads to a projected total tonnage of fertilizer in 1980 of 1,214,124 tons. The tonnage estimates for individual products are based on a percentage of this 1980 tonnage. The share of the total tonnage comprised by each product is assumed to be the same as the share that each type of product was of the total tonnage in Illinois in 1970. This assumes that the pat- tern of product consumpiion in Illinois is about ten years in advance of the consumption pattern in Michigan. This is about what has been experienced in the past. For example, straight materials constituted about 20 percent of the total Illinois tonnage in 1960, a percentage not achieved in Michigan until 1970 (Hargett, 1970, pp. 54, 56). Fluid materials constituted almost 7 percent of the Illinois product mix in the mid to late 1950's, a share not realized in Michigan until the late 1960's. Therefore, it is reasonable to assume that the cur- rent consumption pattern in Illinois is a guideline to what the pat- tern in Michigan will be ten years or so in the future. In 1970, mixed liquids accounted for 12.5 percent of the total Illinois tonnage; 12.5 percent of the projected Michigan tonnage yields the 151,766 tons of mixed liquids used in this analysis. 101 but uses white phosphoric acid as the source of phosphate rather than ammoniated polyphosphate (lO-34-0) as was used in the short run. The major impact of the forced long ruun use of mixed liquids is felt by the blenders in Michigan. Each ton of 4-12-24 liquid that is consumed in the long run displaces 1.023 tons of blended 7-28-28 fer- tilizer for direct application. This decrease in blended 7-28-28 is partially offset by a corresponding increase in the use of custom blends (1-4-1 nutrient ratio) of 0.391 ton, making a.net decrease in blended fertilizers of 0.632 ton per ton of liquids used (Table 16). There is also a small relative decrease in the quantity of anhydrous ammonia and a very slight increase in the quantity of potassium chlo- ride used for direct application, changes which are necessary in order to provide the prcper balance of N, P205, and K20. Table 16. Direct Application of Fertilizers as Mixed Liquids Consumption Increases in the Long Run, ca. 1980 Tons Per Year 0 Tons 151,766 tons Change Per Product Liquid Liquid Ton Liquid Anhydrous ammonia 129,942 128,123 -o.012 Potassium chloride 86,319 86,575 +0.002 Blended 7-28-28 329,689 174,372 -1.023 Custom blends (1-4-1 ratio) 113,601 173,005 +0.391 Liquid 4-12-24 -0- 151,766 +1.0 Source: See Appendix 0, Tables C-2, C-20, and C-21. 102 These changes in the mix of products used for direct application require corresponding changes in the canplexion of the mixing industry in Michigan. The number of blending facilities required decreases from 50 to 39, While the number of hot process liquid mixing plants increases from none up to 16 (Table 17). Table 17. Mixing Facilities nequired in Michigan as Mixed Liquids Consummation Increases in the Long Run, ca. 1980 Optimum Number of Facilities Approximate Annual 0 Tons 151,766 Tons Type of Facility Capacity (Tons) Liquid Liquid large blenders 9,000 50 39 Hot liquid mixers 10,000 0 l6 Source: Compiled from Appendix C, Tables C—20 and C-21, and _B_g_l_l_, 1971. The changes in the mix of direct application products require changes in the industry providing inputs into these mixtures. The most significant of these changes is the development of capacity to produce white phosphoric acid which is used in producing the liquid fertilizer. An additional 0.222 tons of white acid must be produced for each ton of mixed liquids used (Appendix c, Table C-8). This re- quires the production of elemental phosphorous (0.052 tons per ton of liquid) and results in a decrease in the production of green phosphoric acid by a like amount (0.223 tons per ton of liquid). The reduction in the requirements for green acid comes about because less monoammonium phosphate is produced (reduced by 0.231 tons for each ton increase in liquids), in which green acid is used. The decline in demand for V! d: «.... 1‘ \N ..f‘ 103 monoammonium.phosphate stems from the reduction in.the use of the blended fertilizers in which it is used (Appendix c, Table 0.1). The excess cost imposed upon the industry in the long run.f0r continued use of this economically sub-Optimum product, rather than using the Optimum.longhrun.product mix exclusively, amounts to $6.14 per ton.of liquid used over the entire relevant range (Appendix C, Table C-l). This is about 14 percent above the minimum.nutrient cost, per ton. If the entire 151,766 tons of 6-12-24 mixed liquid were to be used, replacing blended materials as indicated (Table 16), the ad- ditional costs nmposed on fertilizer users would total to almost $932,000. This is over 3/10 of a percent of net farm.income in Michi- gan in 1968 (Michigan Agricultural Statistics, 1970). The excess costs imposed upon the industry for each ton.of mixed liquids used in the long run, $6.14, is higher than the $4.10 exper- ienced in the short run. This occurs because mixed liquids displace granulated.mixed fertilizers in.the short run but displace blended fertilizers in the long run. It is more costly to use granulated fer» tilizers than blended fertilizers, as evidenced by the choice of blended over granulated products in the long run 0ptimum.product mix. Therefore, there is less difference between the cost for supplying mixed liquids and the cost for supplying granulated mixtures than be- tween liquids and the relatively lower cost blends. When liquids dis- place the relatively high cost granulations, there is less additional cost added to the system than when they replace the lower cost blends, as occurs in.the long run. Even though capability currently exists to produce liquid ferti- lizers by both the hot and cold processes, the existing hot process 104 facilities were not utilized in the short run. But in the long run, when either type of facility can be constructed, the hot process is used rather than the cold process. This shift in processes is tied to the size of the existing facilities. Existing hot process plants have an effective limit to their cqracity to distribute fertilizers of about 5000 tons per year, whereas the new hot process facilities utilized in the long run can distribute up to 10,000 tons annually, each. The existing cold process facilities can distribute about 3000 annual tons each, although, in the long run, cold process facilities can be constructed that can feasibly handle up to 6000 tons annually. Because the 3000 TPY cold facilities are used rather than the 5000 TPY hot facilities in the short run, but the 10,000 TPY hot facilities are used in preference to cold-type facilities once the larger plants can be buuilt (in the long run), it is concluded that the cold process for producing and dis- tributing liquid mixtuures is economicale superior to relatively small hot process facilities, but is economically inferior to large-scale hot process systems. In general, it can be concluded that there are reasonably high excess costs associated with the continued use of the economically sub-optimum liquid form of mixed fertilizers. Therefore, criteria other than minimum costs would have to be used as the bases to support continued use of this type of product. These excess costs are higher in the long run than in the short run due to the lower achievable costs for supplying plant nutrients in counpetitive products in the long run. The dry fertilizer mixers in Michigan, granulator/mixers in the short run and blenders in the long run, are most directly affected by the (a I.) ’1 [f .2 1.x 105 economically sub-Optimum consumption of mixed liquid fertilizers, and a slower rate of expansion of large-scale blending facilities over the 1013 run is implied if Michigan farmers contimue to use mixed liquids. Suspension Fertilizers Suspensions are the newest major product development in the fer- tilizer induustry. This is a hybrid product in that it is a cross be- tween clear liquids and solid fertilizers. Essentially, it is a liquid fertilizer in which undesolved solid fertilizer is suspended. Because this product may be introduced and capture a siguificant share of the market in Michigan, even though it did not enter the long-run Optimum product mix (Table 13), it is important to explore the consequences of such an occurrence. There are currently no known facilities in Michigan equipped for the production and distribution of suspensions. The lack of such fa.- cilities prevents this type of product from being utilized in the short run, therefore, a short-run analysis of this product is meaningless. But in the'long ruun, facilities can be develOped to handle suspensions, if the demand for the product exists, and some meaningful insight can be obtained by studying the long mm impact of the use of this product rather than the exclusive use Of the Optimm long run product mix. Because there is no history on the use of this product in Michi- gan, it is difficult to arrive at an estimate for the maximum likely long-run consumption of suspensions. Further complicating the matter is the fact that the fertilizer tonnage reports, by states, dO not single out suspension fertilizers in their breakdoum Of the total tonnage figures. There is, therefore, no way to determine what share 106 of the total fertilizer tonnage is made up by suspension fertilizers. Thus, Illinois can't be used as a guide to determining future con- sumption patterns in lichigsn for this product. Due to the lack of specific guidelines, and because suspensions is a fluid-like mixed material and would probably be viewed by farmers and suppliers as a fluid or liquid rather than a solid, it is assumed that this product would partially substitute for liquids and that its tomage could go as high as about one-third of the estimated meadJnum long-run use of mixed liquid fertilizers. This yields a madman long-run use of sus- pensions of 50,689 per year, for purposes of this investigation.17 The consumption of suspensions was forced into the long-run cp- timum product mix at various intervals between zero and 50,689 tons per year. As was the case for forced mixed liquid use, the linear programming model was free to select the most efficient grade and for- mulation of suspension fertilizers to use. The only additional con- straint imposed upon the long-run Optimum conditions was the use of specified quantities of suspensions. The nutrient demands were un- changed. The resulting organization of the industry for supplying constant quantities of nutrients and an increasing quantity of 1”It is important to note that the actual level used for the maxim long-run consumption of this and other products is primarily a benclnark, establishing the upper bound to the range over which use of the products are forced. Because of the linear nature of changes implied for the industry organization due to such forced use, and be- cause, once a product has entered the solution at a relatively low level, there are no further changes in the types of activities that have to be performed in order to supply increasing quantities of the product (although the relative levels at which the activities are per- formed do change), the per ton consequences of such forced use remain constant over the entire relevant range. It is, therefore, the con- sequences per ton of forced product that are the most relevant find- ings of this investigation. 107 suspensions, for two representative levels of suspensions, is presented in detail for all activities that are subject to change from their long run optinlum levels as the use of suspensions increases, in Appendix 0 (Tables 0-23 through 0-35). A summary of the levels of all products, both intermediate and direct application, comparing the long run Opti- mum without suspensions to the solution with suspension use at the maximum 50,689 tons per year, is also included in Appendix C (Table c-22). When suspensions are forced into use in the long run, the optimnn suspension grade is a 26-13-0 using nonpressure nitrogen solutions and annnoniated polyphosphate (ll-37-0) as prenary inputs. This product is produced in, and distributed from, cold blending type facilities 0p- erating at annual levels of about 4000 tons per year each (Appendix C, Table 0-35). The use of this 26-13-0 suspension has a significant im- pact on the other products that are used for direct application in the long run optimum product mix, with the exception of potassium chloride (Table 18). Table 18. Direct Application of Fertilizers as Suspensions Consumption Increases in the Long Run, 0a. 1980 Tons Per Year 0 Tons 50,689 Tons Change m Product Suspensions Suspensions Suspensions Anhydrous ammonia 129,942 115,903 -o.277 .Potassium chloride 68,319 68,319 -0- Blended 7-28-28 329,689 337,876 +0.162 Custom blends (1-4-1 ratio) 113,601 92,726 -o.412 Suspension 26-13-0 -0- 50,689 +1.0 Source: See Appendix C, Tables C-23, C-34, and C—35. 108 The quantity of anhydrous amonia used for direct application decreases by 0.277 tons for each ton of the relatively high N 26-13-0 suspension used. This decreases the quantity of ammonia that is pro- tmced in Michigan, a decrease that is partially offset by an increase in the quantity of Michigan-prochmed ammonia that flows into nitric acid, anmonium nitrate and urea, products that are used for producing the nonpressure nitrogen solutions used in suspensions (Appendix C, Table 0-23). Each ton of suspensions used also displaces 0.412 tons of custom blends (1-4-1 ratio), and brings about a 0.162 ton increase in the use of blended 7-28-28 (Table 18), for a net decrease of 0.25 tons of blended fertilizer. The relative increase in blended 7-28-28 is necessary to provide additional K 0 as another source of K 2 2 custom blends (1-4-1 ratio), decreases as the use of suspensions with 0, no K20 content (26-13-0) increases. These changes in the mixed products used for direct application have some consequences for the composition of the mixing industry in Michigan, but the changes are not of the magnitude indicated in the previous section for the increased long run consumption of clear liq- uids. As the use of suspensions increases to its maximum level, the number of large-scale blending and distribution enterprises required decreases by only two from those used when no suspensions are supplied (Table 19).a relatively minor adjustment in blending. A total of 13 plants would have to be constructed for the production and distribution of the manmum 50,689 tons per year of suspensions (Table 19). — r J V - ‘--‘h ww- 3: d 109 Table 19. Mixing Facilities Required in Michigan as Suspensions ConMption Increases in the Long Run, Ca. 1980 Approximate thimum Number of Facilities Annual Capacity 0 Tons 50,689 Tons Type of Facility (Tons) Suspensions Suspensions Large blenders 9,000 50 48 Suspension mixers 4,000 0 13 Source: Compiled from Appendix 0, Tables 0-34 and 0-35, and Bell, 1971. The shift in the product mix away from blended fertilizers toward suspension fertilizers causes a corresponding shift away from the mono- ammonimn phosphate used in blends to ammoniated polyphosphate (ll-37-O) used in suspensions as a source of phosphate (Appendix 0, Tables 0-22, 0-31 and 0.32). This change in basic phosphate materials requires a shift in phosphoric acid production away from the less expensive green, or wet process, acid to the more costly white, or furnace process, phosphoric acid. These are similar to the adjustments required in the phosphate sector of the industry when clear mixed liquids are forced into the long-run Optimum product mix. That is, as either clear liq- uids or suspensions are used instead of the Optimum product mix, the use of monoammonium phosphates decreases and white phosphoric acid be- comes increasingly important relative to green acid. The suspension grade selected as the most efficient in the long run is a 26-13-0, containing a total of 39 percent plant nutrients. One of the primary advantages that has been attributed to suspensions by their supporters is the fact that suspensions can contain more than 40 percent total plant nutrients in fluid form (Strauss, 1967), a level 110 of nutrient concentration not technically feasible in clear liquid mixtures. Yet, even though there are several fornmlations for suspen- sion fertilizers included in the model with total nutrient contents higher than 40 percent, some as high as 48 percent in total (Henderson, 1971, pp. 116-7), none of these high-analysis products are used. All of the suspension grades that contain more than 40 percent total nu- trients contain some K 0 while none of the grades with no K 0 contain 2 2 as much as 40 percent total nutrients. It appears, therefore, that it is not economically feasible to supply potash in suspension fertiliz- ers, at least given the formulations in the study. This tends to con- tradict the claimed advantage for suspensions of providing relatively high K20 concentrations (Strauss, 1967). The excess cost imposed upon the industry for the use of this sub-optimum product in the long run amounts to $6.89 per ton of sus- pensions used (Appendix C, Table 0-22), amounting to 16 percent in excess of minimum nutrient costs per ton. This is $0.75 per ton more than the excess costs associated with the long run use of clear mixed liquids, indicating that suspensions are less attractive, eco- nomically, to Michigan farmers than are clear liquids. In summary, it has been estimated that the use of suspension fertilizers in Michigan in the long run would not have as extensive an impact on the industry as would be the case for liquids, but the per ton excess costs would be higher. The basis for popular support for suspensions, high nutrient content, does not appear to be an economi- cally supportable basis, and it is less costly to use clear mixed liquids than suspensions as a four of mixed fluid fertilizer for direct application. lll Grammated Mixed Fertilizers Granulated mixed fertilizer is the remaining form of mixed fer- tilizer to be studied that is not included in the long run Optinnnn product mix for direct use by Michigan farmers. This product is in- cluded in the Optimum short-run product mix; therefore, it can be con- sidered to be an economically sub-optimum product only when it is used in the long run. In the mart run Optimum, a substantial quantity of this product is used, totaling 303,655 tons per year in the fem of granulated 6—24-24 (Table 13). In 1970, about 388,500 tons of granu- lated mixed fertilizers were used in Michigan. In the long run, it has been shown that blended fertilizers replace granulated mixes as the existing capacity to produce gramlated products in Michigan is depreciated and as the large-scale blending and distribution activities are expanded. It is difficult to project the quantities of granulated mixed fertilizers that would continue to be consumed in Michigan in the long run because most statistics on fertilizer use lump granulated products together with blended grades. In fact, the two products are very similar. Both dry products have about the sane handling and use char- acteristics, varying only in that one, granulations, is a chemically mixed product while the other, blends, is a physically mixed product. There is, therefore, no way to determine the quantities of granulated products alone that have been used over time in key states such as Illinois. There are indications, however, that the share of the total tonnage of fertilizer consmned in Illinois comprised by granulated mixes has declined in recent years. For exmnple, mixed dry fertil- izers, including both granulations and blends, have accounted for a 112 constant share of the total Illinois tonnage since 1965 (Hargett, 1970, p. 54) while the number of blending plants in that state has increased by about 50 percent (Barre, 1969, p. 74). It can be assumed that blenders are supplying an increasing share of the dry mixed products. Granulators, therefore, must be supplying a declining share. It is probably reasonable to assume that the share of the total tonnage made up by granulations is declining as rapidly as the total use of dry mixed products is increasing, particularly in view of the fact that no new granulators have been built in the last several years, while the number of blenders has increased substantially. It is prob- able, therefore, that the use of granulations will not increase from its current level. The 1970 level of granulated mixed fertilizer con- sumption in Michigan, 388,555 tone, is used as the upper limit to the range over which the use of this product is forced in the long run. One change in the activities utilized in the industry is detected as the use of this product type increases from zero up to the 388,555 ton limit, a change that occurs at a level of 384,637 tons per year. Detail is presented on these activities at representative points be- twaen zero and 384,647 tons and at 588,555 tons in Appendix 0 (Tables 0.37 through 0—48), along with the changes in the levels of these activities per ton of forced granulated mixtures. A smmnary of all products and the respective changes in the quantities of these products used is also presented in Appendix 0 (Table 0-36). As with the other sub-optimum mixed products studied, the actual grade and formulation of granulated mixed product used was selected within the linear pregram, and represents the least cost fomrlation 113 to use in the long run. The grade used is 8 6-24-24, the same grade of granulated product that is included in the short run Optimum product mix. As would be expected when one form Of dry mixed fertilizer is forced into the solution, the major impact is felt on the other form of dry mixtures that is currently in the long run Optimum product mix, blended fertilizers. At levels Of granulation use up to 384,637 tons, each ton Of granular 6-24—24 displaces 0.867 tons Of blended 7-28—28 (Table 20). This is a straight-forward substitution of one mixed product with a 1-4-4 nutrient ratio for another. One ton Of the lower analysis 6-24-24 contains the same quantity Of plant nutrients as does 0.857 tons of 7-28-28. Because there is no change in the ratio of nu- trients supplied as this substitution takes place, there are no other changes required in the mix Of the remaining products that are used for direct application. When 384,637 tons Of granulated 6—24-24 are used, all of the 329,689 tons of blended 7-28-28 in the long-run Optimnn product mix are displaced. Further increases in the level of consumption of granulated mixed fertilizer cannot, therefore, displace additional quantities of this material. As the use of granulated 6-24-24 in- creases above the 384,637 ton level, it begins to displace both custom blends (1-4-1 nutrient ratio) and direct application potassium chloride (Table 20); each ton Of granulated material displaces 0.586 tons of custom blends and 0.668 tons of potassium chloride for direct applica— tion. No changes are required in the quantities of anhydrous amonia used for direct application. 114 enm.ou Hmm.saa no: mne.msa mne.msa Assess aneuav neseas.seonso no: no: smm.on no: mme.mmm emanate oneness o.a+ mmm.nnm o.a+ ene.enm no: ewuemue senescence meme... mafia Io: namdn mafia 3.30.20 gamnnpom ac: Hem.mma :ou mem.mms mem.mms chooses nsoaesass 333.955 333.953 maoaesdadau agendas encepmdssmhc panacea ace mom mace nos Hem 389 £39 9 assess mmm.nnm sundae sme.emn Hoes new moon. ones .eo .ssm uses one.ss neoscsosH dosage Magicians ooh—.2 coughs no uneasiness Ho messages? #033 .ON eases 115 This change in the products used for direct application generates changes in the industry that supplies intermediate materials for use in blended and granulated fertilizers. The most significant changes occur in the phosphate sector where 0.462 tons of the monoamonium phosphate used in blends is diSplaced by 0.362 tons of run-of-pile triple superphosphate and 0.160 tons of diammonium phosphate, both used in granulations, for each ton increase in the use of granulated fertilizer (Appendix c, Table 0-36). The potash sector must adjust to offsetting changes in its products, a 0.40 ton decrease in granular grade potassium chloride and a 0.40 ton increase in run-of-mine grade product for each ton increase in granulated 6-24—24 supplied. The nitrogen sector of the industry must also respond with a small in- crease in its production of nitrogen manufacturing solutions, 0.065 tons per ton of granulations, as consumption of granulated 6-24-24 in- creases. The impact of continued long run use of granulated mixed ferti- lizers on the Optimum composition of the fertilizer mixing industry is substantial. For each 10,500 tons of granulated materials used, one less large blending and distribution complex is required. If the maxi- mum 388,555 tons of granulations were used, only 13 blending and dis- tribution facilities would be required rather than the 50 required in the long run optimum (Table 21). 116 Table 21. Mixing Facilities Required in Michigan as Granulated Mixed Fertilizer Consummion Increases in the Long Run, Ca. 1980 Appropriate Optimum Number of Facilities Annual 0 Tons 388,555 Tons Type of Facility Capacity Granulations Granulations Granulator/mixers 50,000 -0- 8 Large blenders 9,000 50 13 Source: See Appendix 0, Tables 0-47 and 0-48, and Bell, 1971. The excess costs imposed upon the industry for using this eco- nomically sub-optimum form of mixed product in the long run is less than that associated with the other sub-optimum mixed products studied, clear and suspended liquids. At levels of consumption up to 384,637 tons per year, an extra $1.96 per ton of granulations used must be borne by participants in the industry, which amounts to about a 3.3 percent increase in nutrient costs. Above that level of use, the ex- cess costs increase slightly to 81.99 per ton. While the per-ton prelim that is associated with the use of this type of product is relatively low, the large potential tonnage that may be used can cause the total excess costs to become simificant. Over 8760,000‘would be added to the animal total fertilizer costs in Michigan if Michigan farmers continue to use granulated mixed fertilizers in the long run at the same level as in 1970. In summary, it has been shown that the cost for using granulated mixed fertilizer in the long run in place of the Optimum product mix is less than for the fluid forms of mixed fertilizers. The major impact of such use is felt by the blending sector of the mixing industry in 117 Michigan. Bit, because the form of this product is the same as that of the product it displaces, that is, both granulations and blends are dry fertilizers, and no special handling or use advantages can accrue to this product that are not shared by the product it displaces, there appears to be no basis for supporting the long-run use of this econom- ically sub-optimum product. Nonpressure Nitrogen Solutions Three types of straight materials that are currently being used for direct application in significant quantities in Michigan, but that are not included in the Optimim product mixes, are subjected to inves— tigation in this study. All three products are straight nitrogen fertilizers; no sub-Optimum straight phosphate or potassium products are currently being used as direct application materials in significant quantities (2 percent or more of the current total tonnage, see Table 13). The first of these products to be analyzed is nonpressure nitro- gen solution, the only fluid product among the three. As the name implies, this product is a solution with no free gas in it, and, therefore, has no vapor pressure. Thus, it can be handled the same as any gas-free liquid, making it both easier and safer to handle than other forms of liquid nitrogen that contain free gas. The ease of handling has been the primary basis for the use of this product over anhydrous amonia, the other product that is used in substantial quan- tities for the direct application of nitrogen. Ammonia is a gas and must be handled as a high-pressure material. Ammonia, however, is used in both the short and long run optimum product mixes as the source 118 of supplemental nitrogen for direct application. Nonpressure nitrogen solution is an economically sub-Optimum product in both time horizons. The popularity of nonpressure solution has grown rapidly over the past 10 to 15 years. In 1955, for example, less than 900 tons of this material were used in Michigan. In 1960, this product accounted for about 1 percent of the total Michigan tonnage, and by 1965, its share had increased to 4 percent (Hargett, 1970, p. 56). In 1970, there were 39,803 tons of this product used, accounting for about 4% percent of the total tonnage of direct application in products (Table 13). In Illinois, the consumption of this product increased from about 2 percent of the total Illinois tonnage in 1960 to about 8 percent in 1965, and has leveled off at about 6% percent of the total since then (Hargett, 1970, p. 54). For the purposes of this study, the maximum likely short nan consumption of nonpressure nitrogen solutions is assumed to be the same as the 1970 level, 39,803 tons per year. In the long run, it is as- sued that this product could account for as much as 6% pereentl8 of the total 1980 projected tonnage of 1,214,124 tons of material, or 78,918 tons per year of solution. The constraints in the linear pro- graming model were manipulated in a manner that forced specified quantities of this product into use as a direct application fertilizer over the range frat zero to 39,803 tons in the short run and to 78,918 tons in the long run. Detail is presented in Appendix c (Tables c-so through G-54) on the activities that change in level of Operation as 18This is equivalent to the share of the total Illinois tonnage that was comprised of nonpressure nitrogen solution in 1970. 119 the use of this product increases. A smary of the levels of all products used in the system in both the short and long run, including those not subject to change as the use of nonpressure solution in- creases, is also presented in Appendix C (Table C-49). Nonpressure nitrogen solution displaces anhydrous amenia as a direct application materiel. Each ton of solution forced into use substitutes for 0.341 tons of direct application annonia. No other changes occur in the products used directly by farmers in Michigan (Table 22). The greatest impact due to the use of this product is felt in the sector of the industry that supplies basic nitrogen prod- ucts. Because solutions substitute only for anhydrous amonia, another straight nitrogen material, there is no effect upon the phosphate and potassium sectors of the industry (Appendix C, Table 0-50). The pro- duction of nonpressure nitrogen solution requires monium nitrate and urea as factor inputs, therefore, the production of both of these nitrogen-baring materials must increase (Table 23). Likewise, the production of nitric acid, used in producing amoniun nitrate, also increases. All three intermediate products use anhydrous ammonia as an input, and the increased use of amonia for producing these products offsets the decrease in demand for this product for direct application, causing mania production to remain relatively constant (Table 23). No other changes are implied in the short run.19 19There was a slight change in the activities in the short run solution at 15, 217 tons of nonpressure solution due to a control in the constrained optimum model that allows realistic geographic repre- sentation of production facilities. This affected nitrogen manu- facturing solutions only, and has no direct bearing on the results presented herewithin. 120 Table 22. Direct Application of Fertilizers as Nonpressure Nitrogen Solution Consumption Increases in the Short Run Tons Per Year 0 Tons 39,803 Tons Change Per Product Solution Solution Ton Solution Anhydrous amonia 128,338 114,780 -o.341 Nonpressure nitrogen solutions -0- 39,803 +1.0 Granulated 6-24-24 303,655 303,655 -0- Blended 7-28—28 185,535 185,535 -0- Custom blends (1-3-6 ratio) 86,465 86,465 -0- Source: See Appendix 0, Tables C-49, C-50 and 0-53. Table 23. Production of Nitrogen Fertilizers as Nonpressure Nitrogen Solution Consumption Increases in the Short Run Tons Per Year 0 Tons 39,803 Tons Change Per Product Solution Solution Ton Solution Anhydrous monia 177,894 172,154 +0.001 Nitric acid 10,539 22, 353 +0.29? Amonimn nitrate 13,777 29,220 +0.388 Maznrfacturing solution 19,737 19,737 -0- Urea -0- 12, 539 +0.310 Nonpressure solution -0- 39,803 +1.0 Source: See Appendix 0, Tables C-50, C-51, 0-52, 0-53, and 0-54. 121 The major implication of these changes is that existing facil- ities in the Midwest for producing nonpressure solution and in the Midwest and Gulf Coast regions for urea production would not be phased out in the short run, as would be the case if the use pattern of fer- tilizers was adjusted to the short run optinmm product mix. The en- monia producers are not affected, and nitric acid and armonium nitrate producers would have to expand “their output over that indicated for the short run optimmn. There are significant excess costs associated with the use of this economically sub-Optimum product in the short run, mounting to $26.36 per ton. That is, a premium of 826.36 is placed on the supply of plant nutrients for each ton of nonpressure nitrogen salution that is used directly by farmers (Appendix C, Table 0-49). This is equal to one-fourth of the entire cost per ton of elemental nitrogen in the short run (see Appendix B, Table B-4, for exanple). For every 2.6 tons of this product that Michigan farmers use in the short run, and pay this additional premium, they are foregoing the equivalent of one ton of dairy feed.20 That is, the additional cost to Michigan farmers in the short run for consuming the current level of 39,803 tons of non- pressure eolution is equivalent to the cost for purchasing over 15,300 tons of dairy feed. In the long run, the impact of continued use of this product is much the sane as in the short run. Again, each ton of solution used for direct application directly displaces 0.341 tons of direct 20This is based on the average price on July 15, for the years between 1965 and 1970, paid by Michigan farmers for 14 percent protein dairy feed (Agricultural Prices, 1970 Annual Summary, p. 143). 122 application anhydrous amonia (Appendix c, Table c-so). The only other changes required in the long run Optimm industry organization are con- cerned with the production and distribution of the intermediate ni- trogen products used in producing nonpressure solutions: nitric acid, monium nitrate, and urea (Table 24). In the long run, however, fa- cilities for producing these intermediate products are not required when the optimmn product mix is consumed; therefore, the long run con- sumption of solution requires, in addition to the facilities in the long run optimum industry organization (see Appendix A), facilities for producing nonpressure solutions and the three intermediate prod- ucts as well. As is the case in the short run, the additional use of monia for producing the intermediate products offsets the decrease in use of direct application ammonia. Table 24. Production of Nitrogen Fertilizers as Nonpressure Nitrogen Solution Consumption Increases in the Long Run, Ca. 1980 Tons Per Year 0 Tons 78,918 Tons Change Per Product Solution Solution Ton Solution Anhydrous monia 172,828 173,343 +0.00]. . Nitric acid -0- 23,424 +0.29? Amonium nitrate -0- 30,620 +0.388 Urea -0- 24,465 +0.310 Nonpressure solution -0- 78,918 +1.0 Source: See Appendix 0, Tables 0-50 through C-54. 123 Of particular interest is the location of facilities for pro- ducing the intermediate products in the long run compared to their actual locations as reflected in the short run results (Appendix 0, Tables C-51, 0.52, and c-54). re facilities currently exist in prox- imity to the Michigan mrket for producing these products. All such facilities are located in the Midwest or at the Gulf Coast. In the long rim when new facilities can be constructed, the production of these products shifts to Michigan. The same pattern holds true for the nonpressure solution production facilities (Appendix C, Table C-53). Because these products are produced in Michigan in the long run when new facilities can be utilized, but not in the short run due to the lack of such facilities, it can be concluded that it is more efficient to promos these products in areas close to the points of constmption rather than in areas close to the supply of basic raw materials.21 Therefore, if these products are going to be used in the long run even though they are economically sub-optimum products, priority should be placed on the development of production facilities close to the areas of consumption rather than in the Gulf Coast region. These long run changes in the location of production facilities, and corresponding distribution changes, result in a decrease in the excess costs associated with the long run use of nonpressure solution compared to the short run. In the long run, a premium of 815.98 is 21The basic raw material used in the production of nitrogenous fertilizer materials is natural gas which is converted into monia for use in producing other nitrogen products. The Gulf Coast area for the production of nitrogen products is in proximity to large supplies of natural gas. 124 experienced for each ton of this sub-Optimal product forced into use (Appendix C, Table 0-49), or an amount equivalent to 52 percent of the total nutrient costs per ton. Even though this is 810.38 less than the corresponding short run costs, it still represents a substantial excess drain on the financial resources of fertilizer users. If the total of 78,918 tons of solution was consumed in the long run, over 81.2 mil- lion would be added to the fertilizer bill in Michigan each year. This is equivalent to the entire cost for more than 14,000 tons of anhydrous monia applied on Michigan farms in the long run, a quantity that would supply more than 8 percent of the current total consumption of nitrogen in the state. In smry it has been shown that there are substantial excess costs associated with the continued use of the economically sub-Optima». product nonpressure nitrogen solution in both the short and long run. Use of this product by Michigan farmers changes only their use of anhydrous monia for direct application; the use of all other direct application products does not change from the Optimum mix. Total monia use does not decrease because more is used in producing the intermediate products used for manufacturing nonpressure solutions. In the long run, if this product is going to be consumed for other reasons, the production of both this product and the intermediate products should shift away from their current locations toward areas in proximity to consumption. Amonitm Nitrate The second type of straight fertilizer product to be studied is ammonium nitrate, a dry product containing 33.5 percent nitrogen by 125 weight. While this product is not used for direct application in the optimum short run product mix, it is produced and used as an interme- diate (Appendix A, Table A-5). A solution does exist, therefore, where ammonium nitrate is being produced in the short run, and no further short run investigation is made. This product does not appear in the long run optimum product mix, however, even though a substantial quan- tity, 27,704 tons, was used by richigan farmers in 1970 (Table 13). Amonium nitrate is one of the oldest forms of nitrogen fertil- izers that have been used by farmers for direct application. This ma— terial was being applied as a straight fertilizer as early as 1945, a time when 90 percent or more of all plant nutrients were being applied in the form of mixed products (Hargett, 1970, p. 6). By 1965, the use of this product for direct application had leveled off at about 3 and 3/10 percent of the total fertilizer tonnage in Michigan (Hargett, 1970, p. 56), and at a similar level in Illinois (Hargett, 1970, p. 54) and other midwestern states. This prcportion has remained about the same since then. For the purposes of this analysis, the maximal: likely consumption of monium nitrate in Michigan is asstmed to be 3 and 3/10 percent of the projected 1980 total tonnage, or 40,066 tons per year. The constraints in the model were modified in a manner that forces specified quantities of ammonium nitrate, over the range from zero to 40,066 tons, into the mix of products for direct applications in the long run. As was the case with forced nonpressure nitrogen solutions, only a limited number of activities within the industry are sensitive to the use of this product. Detail is presented on these activities at representative points over this range, along with the changes in the activities per ton of forced ammonim nitrate, in Appendix C (Tables . 126 C-56 through (3.58). A summary of all products in the system with no annonium nitrate used and with 40,066 tons used is also included in Appendix C (Table C-SS). Each ton of ammonium nitrate that is used for direct application in the long run displaces 0.431 tons of anhydrous ammonia used for the same purpose (Table 25). No other products used directly by farmers are affected. Nitric acid, which is not in the long run Optinmm solu- tion, is required for producing ammonium nitrate, therefore, facilities for the production and distribution of both nitric acid and amonium nitrate must be added to the industry in order to supply the latter to farms (Table 26). As was the case when these products were used in the long run in the production of nonpressure nitrogen solution, the production facilities are located in Michigan rather than in the mid- west or Gulf Coast where they are currently located. This lends fur- ther support to the conclusion reached in the previous section that, if these economically sub-optimm products are going to be used in the long run, they should be produced close to the consuming areas. The use of ammonia for producing nitric acid and ammonium nitrate offset the decline in use of ammonia for direct application, causing very little change in the total production of ammonia as amonium nitrate consunmtion increases (Table 26). The excess costs associated with the sub-Optimum economic use of each ton of ammonium nitrate in the long run is $21.90 (Appendix C, Table 0.55), higher than that associated with the consumption of any other sub-Optimum long-run product studied. This is equivalent to in- creasing the per ton cost for nutrients by 56 percent for those nutri- ents supplied by this material. This premium for each ton of amonium 127 Table 25. Direct Application of Fertilizers as Ammonium Nitrate Consumption Increases in the Long Run, Ca. 1980 Tons Per Year 0 Tons 40,066 Tons Change Per Ton Ammonium Ammonium Ammonium Product Nitrate Nitrate Nitrate Anhydrous monia 129,942 113,613 -0.431 Amonium nitrate -0- 40,066 +1.0 Potassium chloride 86,319 86,319 -0- Blended 7-28-28 329,689 329,689 -0- Custom blends (1-4-1 ratio) 113,601 113,601 -0- Source: See Appendix A, Tables A-25 and A-30, and Appendix C, Tables C-56, C-57, and 0-58. Table 26. Production of Nitrogen Fertilizers as Ammonium Nitrate Consumption Increases in the Long Run, Ca. 1980 Tons Per Year 0 Tons 40,066 Tons Change Per Ton Ammonium Amonium Ammonium Product Nitrate Nitrate Nitrate Anhydrous ammonia 172,828 173,783 +0.024 Nitric acid -0- 30,650 +0.765 Ammonium nitrate -0- 40,066 +1.0 Source: See Appendix C, Tables C-56 thr'cmgh C-58. 128 nitrate consumed in the long run is great enough to hire about 12.5 hours of farm labor at 1970 wage rates in Michigan (Michigan Agricul- tural Statistics, 1970). That is, the additional costs associated with the long run use of 40,066 tons per year of this economically sub- 0ptimum product would, if used instead to hire farm labor, provide a total of almost 500,000 man hours of labor to Michigan farms. In general, it can be summarized that the economically sub-Opti- mum consumption of ammonium nitrate has only a minor impact upon the organization of the fertilizer industry in the long run, requiring only the addition of facilities in Michigan for producing nitric acid and for producing and distributing the ammonium nitrate. The costs asso- ciated with consuming this product are substantial—higher per ton than for any of the other sub-Optimum products studied in the long run. Thus, while this product does provide a dry material as a source of supplanental nitrogen in contrast to the Optimum use of gaseous an- hydrous ammonia, the excess costs associated with its use are extremely high. Ursa The final sub-Optimum product to be studied is urea, a dry, straight nitrogen fertilizer containing about 45 percent actual ni- trogen by weight. The use of urea for direct application is a rela- tively new phenomenon as little was used prior to 1955. The use of this material has not been very substantial in some areas, including Illinois where it currently accounts for less than one half of l per- cent of the total tonnage (Hargett, 1970, p. 54). In the eastern Corn Belt states, including Michigan and Ohio, for example, direct applica- ation urea has accounted for about 2% percent of the total fertilizer 129 tonnage over the past few years. In 1970, 22,689 tons of this material were applied on Michigan farms (Table 13). Urea is not included in either the short or long run Optimum product mixes (Appendix A, Table Ap9), therefore, the consequences of economically sub-Optimum use of this product are investigated within both time horizons. In the short run, the consumption of urea was forced into the product mix at specified levels in the range between zero and 22,689 tons, the actual 1970 consumption level. For the long run analysis, quantities of urea were used over the range from zero to 30,353 tons per year, the latter representing 2% percent of the pro- jected total fertilizer tonnage in Michigan in 1980. The only activ- ities in the system that change as urea consumption is forced in both the short and long run are those activities associated with the pro- duction and distribution of urea and anhydrous ammonia. The nature of the changes in these activities is detailed in Appendix 0 (Tables C-60 and C-6l), and a summary of the qumtities of all products utilized in the industry when no urea is used and when urea consumption is forced is also included in Appendix 0 (Table c-59). As was the case for the two other straight nitrogen fertilizers studied, direct application of this product displaces direct applica- tion ammonia; 0.548 tons for each ton of urea used (Tables 27 and 28). No other changes occur in the quantities or types of fertilizers used directly by farmers in either the short or long run. Anhydrous ammonia is used in the production of urea, and such use of amonia offsets the decreases in the use of ammonia for direct application, causing very little change in the level of ammonia production as the use of urea increases (Appendix c, Table 0.60). 130 Table 27. Direct Application of Fertilizers as Urea Consumption Increases in the Short Run Tons Per Year 0 Tons 22,689 Change Per Product Urea Tons Urea Ton.Urea Anhydrous ammonia 128,338 115,917 -0.548 Urea -0- 22,689 +1.0 Granulated 6-24-24 303,655 303,655 -0- Blended 7-28-28 185,535 185,535 -0- Custom blends (1-3-6 ratio) 86,465 86,465 -0- Source: See Appendix A, Tables A-28 and A.30, and Appendix C, Tables C-60 and C-61. Table 28. Direct Application of Fertilizers as Urea Consumption Decreases in the Long Run, Ca. 1980 Tons Per Year 0 Tons 30,353 Change Per Product Urea Tons Urea Tons Urea Anhydrous ammonia 129,942 113,325 -O.548 Urea .0- 30,353 +1.0 Potassium chloride 86,319 86,319 .0. Edended 7-28-28 329,689 329,689 ~0- Custom.blends (1-4-1 ratio) 113,601 113,601 -0- Source: See Appendix A, Tables A—25 and A—30, and Appendix C, Tables C-60 and C-61. 131 The major relevant change that occurs in the industry as the use of urea increases in both the short and long run is an increase in the level of urea production and distribution activities. The interesting change is the shift in both location and type of facilities used for producing urea from the short run to the long run (Table 29). In the short run, urea is produced in existing facilities in both the midwest and Gulf Coast areas, and all three basic types of urea production technologies are used: gas separation, monium carbamate slurry, and water absorption, reflecting the existing distribution of plants uti- lizing these technologies. In the long run, the production of urea is shifted to Michigan, and a single technology is singled out for use: ammonium carbamate slurry. These shifts indicate that the ammonium oarbamate slurry process for urea production is economically superior to the two other technologies included in the model, at least when urea is produced in Michigan. Also confirmed is the desirability of producing urea in proximity to the construing area rather than near the basic source of raw material. Table 29. Production of Urea in the Short Run and in the Long Run Type of Production Tons of Urea Produced Area/location Technology Short Run Long Run Gulf Coast Gas separation 15,126 -0- Gulf Coast Ammonium carbamate slurry 3,025 -0- Gulf Coast Water absorption 2, 269 -0- Midwest Water absorption 2,269 -0- Central Michigan Ammonium carbamate slurry -0- 30,353 Total 22, 689 30,353 Source: See Appendix C, Table C-61. 132 These shifts also have a substantial impact on the excess costs associated with the economically sub-optimum use of urea in the long run compared to the short run. In the short run, each ton of urea creates additional costs in the system of $23.16 over the costs for supplying the same quantities of plant nutrients in the short-run Opti- nmm product mix, or a premium per nutrient ton of 43 percent. In the long run, in comparison to the long-run Optimum product mix, the excess cost per ton of urea falls to $9.69 (Appendix C, Table C-59), or a 19 percent increase in per ton nutrient costs. While the excess short- run costs are substantial, the long-run premium is less than is the long run preMum for consuming ammonium nitrate (821.90 per ton). As both urea and ammonium nitrate provide alternatives to the use of gaseous anhydrous ammonia for supplemental application of nitrogen in the form of dry products, it appears that urea is the less costly means of pursuing this alternative. In concluding this section on the economically sub-Optimum con- sumption of urea it can be pointed out that, if farmers prefer to use some form of dry material as a source of supplemental nitrogen in place of anm'drous ammonia, urea is a less costly choice than is ammoniwn nitrate in the long run. If urea is to be used, it should be produced close to the consuming area utilizing the ammonium carbamate slurry production technology, in order to minimize the excess costs associated with the use of this sub-Optimum product. Smary—Sub-Optimum Product Use The impact of the continued use of several economically sub-Opti- mum products on both the organization of the fertilizer industry and on costs for supplying plant nutrients to farms has been explored in 133 some detail. In all cases, the long run consequences have been dis- cussed and the short run effects have been analyzed for the relevant products. 1. 2. 3. 4. 5. 6. The major findings of this research are sumnarized here. There are five products that currently account for over 2 percent each of the total tonnage of fertilizer consumed in Michigan that are economically sub-optimum products in the long run: clear liquid mixtures, granulated mixtures, non- pressure nitrogen solutions, ammonium nitrate and urea. Ad- ditionally, suspended liquid fertilizer is a sub—optimum product that may enter into farmers' use patterns. There currently exists capacity in Michigan to produce three times as web liquid mixtures as are currently consumed. When liquid mixtures are used, the least cost grade to use is 4-12-24. The use of this product displaces the use of granulated mixtures in the short run and blended products in the long run. The premium for using liquid mixtures is greater in the long run than in the short run even though production and dis- tribution costs can be lowered in the long run by utilizing large-scale hot process facilities rather than the existing smaller scale cold process facilities. In the long run, it is more expensive for Michigm farmers to use suspensions than clear mixed liquids as a source of fluid mixed fertilizer. The least cost formulation of suspended mixed liquid fertil- izer to use in Michigan is 26-13-0, casting doubts on the 7. 80 9. 10. 134 validity of the two major advantages claimed for this prod- uct: its ability to contain more than 40 percent total plant nutrients in fluid form, and its capability to contain relatively high quantities of potash. Granulated mixtures have the lowest excess cost of any sub- optimum product, but they replace only a product with similar handling and use characteristics, blended fertilizers. The three sub-Optimum: nitr0gen products, nonpressure nitrogen solutions, ammonium nitrate and urea, displace only anhydrous ammonia as a direct application product, and total monia production is not affected by the use of these products. It is less expensive to produce straight nitrogen fertilizer materials, including anhydrous ammonia, close to the areas of consmnption rather than close to the supply of the basic raw material, natural gas. The lowest cost alternative to the use of gaseous anhydrous ammonia for supplanental nitrogen in Michigan is urea. And the most efficient technology for producing urea in Michigan is the ammonium carbamate slurry process. CHAPTER IV SUMMARY, CONCLUSIONS AND IMPLICATIONS The Problem In the past there has not been a clear delineation of the inter- relationships between suppliers and consumers of fertilizers. Desir— able responses by the supplying industry to changes in consumption patterns have not been well specified nor given prOper consideration in the develOpment of the industry as it exists today. Likewise, farmers have not adjusted to the types of fertilizer products that minimize the costs of plant nutrients, given the existing compliment of prochiction and distribution technology. These factors have given rise to over capacity and excessive costs in the fertilizer industry. Research has been undertaken in this study in order to trace the changes that are necessary in order to reduce these costs. The Results A linear programing model was utilized to determine the organi- zation of the activities in the industry that minimizes the costs for supplying plant nutrients to Michigan farms under conditions repre- sentative of the short and long run time horizons. Variations imposed upon the model generated information concerning the chalges in the in- dustry necessary to supply changing patterns of nutrient consumption 135 136 in the most efficient manner and on the costs associated with the use of fertilizer products that are not included in the optimum product mix. The results of specific changes imposed upon the system have been smarized in the preceding chapters. This surmnary provides an over- view, from the vieWpoint of the industry as a whole, of these results. Potential for Cost Reduction The quantities of plant nutrients that are currently being used on Michigan farms can be supplied at a substantially lower cost by reorganizing the industry, even when no new facilities are added. Overall, the cost of supplying these nutrients can be reduced by al- most 819 million in the short run by such a reorganization. This would reduce plant food costs by about 26.4 percent, compared to the actual 1970 costs. In order to realize this short run saving, a number of changes must be made in both supply and consumption activities. In particu- lar, only four of the 17 major fertilizer products currently being used by Michigan farmers are needed. These are anhydrous ammonia, granulated 6-24-24, blended 7-28-28, and custom blends with an average nutrient ratio of 1-3-6. Because each set of products used by farmers requires a specific group of activities, changing to this new product mix requires a num- ber of shifts throughout in the industry. Of primary importance are: increased utilization of existing amonia production capacity in Michigan, with this product distributed directly to farms; a decrease in the use of ammonia retailing facilities; production and distribution of substantially larger quantities of monoammonium phosphate and 137 granular grade potassium chloride; elimination of the use of bagged and liquid forms of fertilizer; a decrease in activities associated with the retailing of straight materials; a shift away from a large number of small blenders to a smaller number of relatively large blenders; and, of course, a complete halt in to-the-farm distribution Of nonOptimum products. In the longer run, when new facilities can be added to the in- dustry, the cost for supplying nutrients to Michigan farms can be lowered even further. These costs can be reduced by more than 823 million, a savings amounting to 32.4 percent compared to 1970. A sub- stantial change in the organization of the industry, from both the existing organization and from the short run Optimum, is necessary if these long term gains are to be realized. Only two mixed products are needed in order to reach the long run Optimum: blended 7-28-28 and custom blends with an average nutri- ent ratio of 1-4-1. These must be supplemented with the direct appli- cation of anhydrous amonia and granular grade potassium chloride in order to achieve the prOper balance of nutrients. To supply these products at minimum cost, a number of new facilities mist be added, while many of the existing facilities and activities nnlst be deacti- vated. The most important long run adjustments include the expansion of ammonia production capability near the Michigan market, along with distribution directly to farms; the development of a network of large scale blending and distribution facilities throughout the state, dis- placing both existing small blenders and granulator/mixers; construc- tion and Operation of large terminal facilities in the market area — 138 from.which potassium chloride is distributed directly to farms; a shift to monoammonium phOSphate as the major source of fertilizer phosphate; and the demise of local retailing facilities throughout the state. Within the sc0pe of the model, the short and long run.Optimum organizations of the industry are not sensitive to changes in.the ab- solute level at which the reapective Optimum.product mixes are sup- plied. The levels at which the activities are Operated change simul- taneously but not relative to each other as the consumption of the Optimum product mix changes. Different quantities of a specific prod- uct mix will supply different levels of plant nutrients as long as the nutrients are used in the same ratio. When the ratio of nutrients changes however, some change must also occur in the product mix: ei- ther a change in products or a relative change in the quantities of products included in the mix. There is adequate capacity in the industry to supply substantial quantities of the short run Optimum.mix of products in excess of re- quirements for supplying the quantities of nutrients that are currently being used. A 54 percent increase in nutrient consumption can be ac- commodated by increasing the supply Of the Optimum short run product mix before the bounds on existing capacities limit the supply Of even one of the products contained therein. In the longer run, existing capacity does not limit the supply of the Optimum products because necessary new facilities can be built, as needed. When.the product mix changes from the Optimum, either because participants prefer to use some type of economically sub-Optimum.prod- not or because the ratio of nutrients used on farms changes, changes 139 are required in the organization of the industry. There is reason to believe that both factors can, and will, occur. It is likely that nitrogen consuznption will increase relative to phosphate and potash, and that potash consumption will increase relative to phosphate, bring- ing about a substantial change in the nutrient ratio of fertilizers used on farms. Additionally, there are six products not included in the Optimum mix that may be used in significant quantities even though they are economically sub-Optimum products. These factors have sub- stantial impacts upon the organization of the industry, in both the short and long run. Nitrogen Fertilizers Relative increases in nitrogen use require only minor adjust- ments in the industry, all of which are in the anhydrous ammonia sec- tor. Increasing the quantity of amonia applied directly is the most efficient means Of supplying additional N to Michigan farms. In the short run, the limit on current ammonia production and distribution capacity in Michigan is a constraint on the low cost supply of this product. The cost for supplying relatively high levels of nitrogen can be reduced by about 28 percent by expanding such capacity in the long run. There are three major products, in addition to anhydrous ammonia, that have been used as sources of N, supplemental to mixed fertilizers. One of these products, nonpressure nitrogen solution, supplies nitrogen in a liquid form while the other two products, almonium nitrate and urea, are dry nitrogen fertilizers. Substantial costs are imposed upon the industry for using these alternative products: in the long run, 140 each ton of nitrogen costs $57.07 more when supplied in nonpressure solution than in ammonia, $65.37 more with ammonium nitrate, and $21.57 more with urea. If these products are used in Michigan however, it is less costly to produce them near Michigan as compared to the Gulf Coast alternative. Potash Fertilizers In order to supply more potash relative to phosphate, a wider segment of the industry is subjected to change in both the short and long run. In the short run costs can be minimized by applying as much potash in mixed fertilizers as possible. The limited number of large scale blending and distribution facilities (about 9,000 annual tons capacity each) that currently exist effectively constrain the quantity of K20 that can be economically applied in mixed products in the short run. Furthermore, the lack of a potassium chloride terminal in Mich- igan makes it uneconomical to use any potassium chloride for direct application. In the long run, additional facilities of these types are important to the low cost supply of potash. Use Of such facili- ties results in lowering the cost of supplying relatively high levels of potash by about 15 percent. Because it is least costly to supply most potash in the form of mixed products, the economics of potash supply are tied closely to the production and distribution of mixed fertilizers which also contain phosphates. The availability of monoammonium phosphate for use in blended fertilizers and of run-of-pile triple superphosphate for use in granulated mixtures is essential to the low cost supply of both phosphate and potash in mixtures. If these phosphate products are not available for mixed fertilizers, it is less costly to supply potassium 141 chloride for direct application through existing retailers than to supply large quantities of potash in mixed fertilizers. Mined Fertilizers There are three major types of mixed products that can be used to supply potash, as well as nitrogen and phosphate, that increase nu- trient costs when used in the long run: clear liquid mixtures, sus- pensions, and granulations. The first two are also sub-Optinmm in the short run. There is a relatively small premium associated with the long run use of high potash granulated 6-24-24, mounting to $3.68 per nutrient ton. This product, when used, displaces a similar product, blended 7-28-28 fertilizer, as a primary source of potash and phos- phate. Because of the similar handling characteristics of the two products, there is little reason to use the granulated product in the long run, however. 0f the two fluid forms of mixed fertilizers, only clear liquids appear to be economically feasible for supplying relatively high quan- tities of potash. A high potash grade, 4-12-24, appears to be the most efficient grade of liquid to use in Michigan. This product can be produced in existing cold process liquid mixing plants in the state, although, in the long run, it is more efficient to produce it in new, large scale hot process facilities. liquid 4-12-24 when used, displaces blended products and direct application potassium chloride, adding a total of $15.35 to the cost of each ton Of nutrient supplied by this product in the long run. The least cost grade of suspensions is a 26-13-0, containing no potash. Thus, even though there are tech- nical advantages to supply relatively high quantities of potash in the 142 form of suspension fertilizer, there appears to be no economic support for this product as a source of K20. Phosphate Fertilizers While the possibility of a relative increase in the use of phos- phate appears to be lower than for nitrogen or potash, the desirable adjustmnts in the industry would be substantial if such a change did materialize. The supply of phosphate is tied even more closely to mixed fertilizers than is potash. All phosphate used on farms is in either a mixed product or a basic N-P product in the Optimum 205 product mixes, and basic N-P materials are included only in the 205 short run when the limited number of large scale blenders place a con- straint on the use of blended fertilizers. In the short run it appeared that the limited capacity to pro- duce diammonium phosphate in Michigan was a constraint on the rela— tively low cost supply of 1’20‘5 to fame. But, in the long run none of this product is used. As blending capacity is expanded, phosphate re- quirements are met by using the lower cost products produced therein. The primary phosphate material used in blmding is monoammonium phos- phate. Production of this product and the phosphoric acid used in its manufacture shifts entirely away from Michigan and the midwest in gen.- eral to locations near the Florida phosphate rock mines. When these long run adjustments are made, the cost of supplying relatively high levels of P205 decreases by about 9 percent. Long Run Optimum The Optimum mixed products in the long run are blended 7-28-28 and custom blends averaging a 1-4-1 nutrient ratio. Granulated 143 6-24-24 can be substituted for the 7-28-28, but total per ton nutrient costs increase by about $3.68. Clear liquid mixtures are not an at- tractive alternative to blended fertilizer as a source of relatively high quantities of P as the Optimum liquid grade, 4-12-24, is low 205 in phosphate relative to potash. 0f the fluid mixtures, suspensions is best alternative for additional P205 due the high phosphate content relative to potash in the least cost 26—13-0 grade. The use of sus- pensions adds $17.67 to the per ton costs of nutrients supplied by this material. Over-all, if the relative use of nutrients approaches the ratio of 2.3-l.0-l.8, equivalent to the nutrients moved by the major har- vested crops in Michigan, the costs of providing plant nutrients in Michigan can be lowered substantially by a long run reorganization of the industry. The average incremental cost for supplying a ton of nitrogen can decrease by 23.6 percent, by 16.2 percent per ton of potash and by 6.0 percent per ton of phosphate, from the short run optimum. The costs associated with the use of Specific economically sub-optimum products, above and beyond the minimum achievable cost for simplying the nutrients, have also been determined. In the long run these amount to 821.90 per ton of ammonium nitrate, 815.98 per ton of nonpressure nitrogen solution, $9.69 per ton of urea, 86.89 per ton of suspensions, 86.14 per ton of clear mixed liquids, and 81.96 per ton of granulated mixed fertilizers. Conclusions and Implications There are several conclusions that can be reached, based upon the findings summarized above, concerning changes in the organization 144 of the fertilizer industry that will tend to reduce the cost of sup- plying fertilizer in Michigan. These conclusions have important im- plications for a number of the participants in the industry. Contrary to findings by other researchers, neither straight ma- terials nor mixed fertilizers, per se, have a clear economic advantage over the other. The economically optimum mix of products include both. Among products, the advantage rests with specific straight products (anhydrous amonia and potassium chloride) over other straight mate- rials and with certain types of mixed fertilizers (blended grades and custom blends) over other types of mixed products. The adjustments necessary in order to exploit the economic advantages obtainable from the use of these products are significant as are the impacts of imple- menting such adjustments. The implications of these adjustments for different groups will be explored in this section. Basic Producers There are a number of findings that are particularly relevant to basic producers. These concern both the products that should be pro- duced and the general geographical areas where production facilities should be located in order to minimize costs. The most economical nitrogen fertilizer in Michigan is anhydrous ammonia for direct application. Additionally, some nitrogen can be economically supplied in the form of mixed fertilizers providing such mixtures utilize an ammoniated phosphate product as their source of phosphate. Alternative sources of nitrogen, including urea, nonpres- sure nitrogen solutions and ammonium nitrate, impose extra costs on 145 the industry, above the costs when ammonia and mixtures are used ex- clusively. It was found that, in the short run, the existing capacity to produce ammonia in Michigan is under utilized. Using this capacity to produce ammonia for direct application on Michigan farms will reduce total costs. An offsetting decrease in the amount of Gulf Coast am— monia used in Michigan is implied. Over the longer run, costs can be further reduced by the develOp- ment of large scale ammonia production facilities in.or near Michigan. This indicates a long run decrease in the importance of ammonia pro- duction.at the Gulf Coast. This is contrary to the trend in the inp dustry over the last 10 years. Most of the new ammonia production capability that has been.constructed in the United States in the re- cent past has been built in the Gulf Coast region rather than.near the major consuming areas. Most basic manufacturers have located at the Gulf Coast due to the abundant supply of natural gas in.that area. The results of this study imply that it is more efficient to produce ammonia.near the consuming areas and ship natural gas into these areas than to produce ammonia at the Gulf Coast. This does not mean that all ammonia capacity should be located in the midwest, however. Some production capacity is important in the southern United States in order to provide ammonia for use in the production of ammoniated phos- phates. This analysis indicates that roughly one fourth of the total ni- trogen used by farmers can be most economically supplied in the form of ammoniated phosphates. Ammoniated phosphates can be produced at lowest cost near the rock phOSphate mines in Florida. A supply of 146 ammnia produced nearby may be critical to this location. The move- ment of moniated phosphate production to Florida is a reflection of the trend that has develOped in the industry over the recent past. There is also evidence of a substantial trend away from superphosphate and concentrated superphosphate in favor of diammonium and monoammonium phosphates as a basic source of phosphate in fertilizer. Accompanying the trend toward the use of ammoniated phosphates has been the relocation of phosphate benefication facilities closer to the Florida rock mines. The study results indicate that this trend is economicth justified. At the same time, it has been revealed that the geographic trend in the amonia sector may not be based on sound economic judgement. From an operational standpoint the implications of these find- ings are clear. High priority on the deactivation of superphosphate and concentrated superphosphate facilities in the midwest is war- ranted. If the existing capacity to produce ammoniated phosphates at and near the Florida rock mines is used more intensively for the pro- duction of monoammonium phosphate, overall costs can be reduced. As existing capacity becomes a constraint in the industry, investment in new moniated phosphate facilities in the southeast should be con- sidered. The implications for the nitrogen sector are more substantial. It has been shom that a reversal of present trends is implied for this sector. In fact, some amonia production capability in the mid- west has been deactivated by producers in the recent past in favor of Gulf Coast production. The reactivation of amonia plants near the 147 major areas of fertilizer consumption, where technically feasible, de- serves careful consideration. This relocation has a direct impact on the distribution of amp monia. It is most efficient to produce amonia in the consuming areas only when that ammonia is distributed directly from the plant to farms. That is, no intermediate handling point such as an ammonia retailer is used. In cases where local ammonia retailers are essential for han- dling ammonia intermediate between production and consumption, geo- graphical considerations change. Gulf Coast ammonia is the least ex- pensive source when ammonia is diverted to a retailer. It would require improved coordination in order to ship amonia directly from producers to farms. Until this is effected, Gulf Coast amnonia for direct application is still feasible. The cost for sup- plying ammonia to farms can be reduced by over $20 per ton, however, with direct distribution. High priority placed on the develOpment of improved coordination of ammonia distribution will help achieve this cost reduction with direct producer-to-farm distribution. Until a large share of the total ammonia is distributed directly, existing ammonia plants in the Gulf Coast region can be used to supply direct application ammonia. This ammonia can most economically be distributed through existing retailers. In the long run, however, as distribution coordination improves, the Gulf Coast capability becomes less efficient compared to expanded production in the consuming area. Just as the phosphate sector has shown a trend away from sub- optimum products, a similar trend has occurred in the nitrogen sector. Considerably more emphasis has been placed on the production and dis- tribution of azmnonia in the recent past than on other nitrogen 148 fertilizers. There has been, however, the development of some new facilities for producing urea, ammonium nitrate, and nitrogen solu- tions. This study revealed that all three products are sub-optimum. If these sub-optimum fertilizers are going to be used, costs can be minimized by producing them near the consuming areas. In the recent past, there has been no clear trend in the location of production fa- cilities for these products, with the exception of urea. The produc- tion of urea is technologically tied to theproduction of anlwdrous ammonia, therefore most new urea plants have been located near ammonia plants at the Gulf Coast. This analysis indicates that these products, and in particular, urea, can be produced and supplied to farmers at a lower cost if they are produced, along with feedstock anhydrous am.- monia, near the consuming area. Basic nitrogen producers can lower costs in the long run by env- phasizing the develOpment of ammonia production and distribution fa- cilities in lieu of facilities for other nitrogen products. If, how- ever, there continues to be a demand for the economically sub-Optinmm products, they can be supplied at lowest cost from plants located near the areas of consumption. 0f the three products, urea is the least costly alternative to anhydrous ammonia as a source of supplemental nitrogen. In addition to the implications for nitrogen and phosphate pro- ducers, there are findings important to the potassium sector. It was found that, in the short run, a combination of granular grade and run- of-mine grade potassium chloride are the optimum products. In the longer run, only the granular grade product is included. The short run mix of run-of-mine and granular grades should provide no handicap 149 for potash producers. Various grades are produced by screening-off different sized materials as it comes out of the benefication process. To some extent, the ratio of run-of-mine to granular material can be controlled within the refining process itself. This provides flexi- bility to produce the grades in different ratios. In the short run, these adjustments in production processes enable production of the prOper ratio of these two grades. In the longer run it would be more difficult to meet product specifications. To produce only granular grade product requires a modification in benefication technology. Therefore, potash producers need to be concerned with the develOpment of improved refining pro- cesses in order to produce relatively large quantities of granular grade product. The relatively high use of granular material depends upon two other critical develOpments. One is the development of a network of large scale bulk blending facilities. This will be discussed in more detail in a following section. The second is the construction of terminaling facilities for handling potassium chloride for direct ap- plication. It was shown that the low-cost supply of potash in Mich- igan is dependent upon the use of a terminal in the state for potash distribution. This terminal would be an intermediary between the pro- ducers and farmers. Large scale shipments would be made from the Saskatchewan producdrs to this central Michigan terminal. Potash would then be distributed from this terminal directly to farms. This distribution pattern would bypass the conventional retailers for potassium chloride. In order to effect this distribution scheme, 150 improved.means of to—the-farm.coordination are essential. The cost for supplying potash to farms in Michigan can be reduced by over 10 percent; that is, by more than $10 per ton.of nutrient if this new distribution system is used. Therefore, there is a strong incentive to potash producers to place priority on the development of large, centrally located terminaling facilities and on improved coordination of to-the-farm.distribution. This would require a substantial change in the distribution activities of potash producers. In the past, much of the coordination reaponsibilities for potash distribution has rested in the hands of local retailers. With.their displacement by the large terminal facilities, much of this responsibility would be shifted to the basic producers. This is a responsibility that the basic producers have been reluctant to accept in the past and may provide a bottle- neck in.the develOpment of more efficient distribution. Carriers The changes in the production.and distribution activities al- luded to earlier have important implications for fertilizer carriers. In particular, railroads, trucks, and pipelines would be substantially affected. The expansion of phosphate production in Florida requires ad- ditional rail capability for shipping phosphate products into the conp suming areas. Corresponding with the trend over recent years to the development of more phosphate facilities in.Florida has been a shortage of rail equipment for transporting phosphate products. The implied continuation.of this trend would place even greater demands upon the rail industry. The transportation of these products is complicated by 151 the seasonal nature of fertilizer movement. Most rail cars used for transporting phosphate products .are used only six months of the year. This has necessitated the develOpment of dual purpose cars, cars that haul both phosphate products and other commodities, primarily grain. A dedicated effort would be required in order to expand the fleet of dual purpose cars available to the phosphate industry during the peak fertilizer season as the regional relocation of the phosphate sector continues. A leveling in the seasonality of potash movement would somewhat offset the demand for rail cars during the peak fertilizer season for phosphate products. The utilization of large potash terminaling fa— cilities allows potash shipments from Saskatchewan to be spread out over a longer period of time. This enables greater utilization of rail cars used for potash movement and frees some cars that were pre- viously used for peak seasonal potash movement for the expected in- crease in seasonal phosphate transportation. The implied shift in ammonia production away from the Gulf Coast has implications for both rail and pipeline carriers. Most of the Gulf Coast ammonia that is shipped to Michigan has been transported by rail. If the nitrogen industry shifts geographically there would be less demand for this service. However, a regional shift in almnonia production would require a corresponding shift in the transmission of natural gas. Natural gas is moved primarily by pipeline. Limited pipeline capability has been a factor in the reported shortage of natural gas in the Michigan area. Therefore, in order to effect this regional shift in ammonia production, means would have to be developed for increasing the supply of natural gas in Michigan. Two alternatives 152 are available for exploration. The first is to increase the capability of the pipeline system. The second is to convert some of the carrier capability that is currently being used for ammonia to natural gas transportation. Trucks are the third type of carrier affected. Both the dis- tribution of ammonia from producers directly to farms and potash from the terminal to farms requires trucks. This is relatively short haul, occurring largely within the consumption area itself. This truck movement would, however, be highly seasonal in nature because trans- portation of these products to farms must be implemented primarily during the period of fertilizer use. This requires shifting trucking resources that have in the past been used for interstate transporta- tion.of these products to intrastate transportatione Because of the seasonal nature of these deliveries, truckers would be under economic pressure to find alternative uses for their capital facilities during the off season. There are a large number of alternatives available to the potash truckers. This is a bulk product and can be handled by trucks suit- able for any other dry bulk material. There are fewer alternatives available for ammonia truckers, however. Only high.pressure gases such as natural gas and liquified petroleum.can be readily trans- ported in ammonia equipment. Fortunately the LP Gas season overlaps very little with the ammonia season. It would appear, therefore, that ammonia carriers may find the complimentarity between these products to be economically advantageous. 153 Local Suppliers Some of the most sweeping changes implied for the industry af- fect local distributors most directly. These include, in this cone text,both local mixing facilities and retailers. The adoption of distribution patterns for ammonia and potassium. chloride directly from.producers and/or terminals in Michigan to farmers would have a substantial impact upon retailers of these prod- ucts. Most of these currently distribute products through some type of retailing facility which usually includes a warehouse for product storage as well as office and handling facilities. With direct dis- tribution, these facilities would no longer be required. The retail salesman, on the other hand, would be heavily involved in the coordi- nation of this direct distribution. That is, the individuals that have made direct sales to farmers from retailing facilities would quite likely act as sales coordinators for the basic producers. There currently exists about 135 retail outlets for anhydrous ammonia and about 100 for bulk potassium chloride in the state. All of these would be phased out if direct distribution is achieved. The implications for retailers are clear. They would no longer be rela— tively independent businessmen operating their own retailing enter- prise, but would be more concerned with the coordination of product distribution from central facilities to farms, quite possibly in the employment of basic producers. There are more serious implications for retailers that currently handle sub-optimum.products. Firms whose business consists primarily of retailing nitrogen solutions, liquid fertilizers, and bagged forms of dry fertilizers would likely be phased out in the long run. These I r w 154 retailers would be well advised to seek alternative employment op- portunities for their resources. Substantial changes are implied for fertilizer mixers. These have particularly important implications for firms in Michigan. One of the most pressing needs, for the purpose of achieving and maintainp ing the least cost supply of fertilizers, is the develOpment of ad- ditional large scale fertilizer blending and distribution systems throughout the state. It was shown that costs are minimized when these types of facilities are used to supply all of the mixed ferti- lizers used in Michigan, in the form of either blended grades or cus- tom blends. Each such system includes a blender capable of handling about 9,000 product tons per year along with a satellite warehouse through which about one-half of that volume is distributed. In.the long run, at least 50 such systems are needed throughout the southern two-thirds of Michigan's lower peninsula if farmers use the Optimum mix of products. As many as 65 or more may be required as total fertilizer consumption increases over the next 10 years. It is estimated that about 28 of the existing 112 blenders in.Michigan have sufficient capacity to operate near the 9,000 annual ton level. This implies that an additional 22 to 37 such facilities would need to be developed. Even if this expansion of large blenders utilizes re- sources existing as smaller blenders, between 47 and 65 of the exist- ing small blenders would not be needed. The satellite warehouses used in this system are similar to the types of facilities that currently exist for retailing dry bulk fertilizers and these existing outlets ..- ltl if 5mm 1'? 155 can.be used in many cases. But again, only 50 to 65 of the current 200 or so bulk retailing outlets would be required. In addition to displacing a large number of small scale blenders and bulk retailing facilities, the ten existing granulator/mixers in the state would have to be phased out as would the 19 liquid mixers that currently exist in.Michigan. In the short run, seven of the ten existing granulators can.eco- nomically continue in.0peration, producing a 6-24-24 product using nitrogen manufacturing solutions, runpofapile triple superphosphate, and run-ofemine potassium chloride as primary inputs. In.the longer run, however, these facilities would be phased out as the large scale blending and distribution facilities are constructed. Blenders can most economically produce and distribute a 7-28-28 and custom blends with a l-4-1 average nutrient ratio. The primary inputs utilized would be monoammonium phosphate and granular grade potassiumichloride, with relatively small quantities of urea also used if the consumption of potash increases relative to phosphate. These blended fertilizers can be most economically distributed to farms in the same vessel used for application, thus eliminating the cost involved in rehandling the fertilizers at the farm. A reorganization of the mixing sector along these lines would have important implications on performance in this industry. Because there would only be one basic type of mixed product produced, there would be greater specialization.in.the production of mixed fertilizer. This would allow perfection of a.blending process, resulting in.imp proved product quality, less waste, and lower costs. 0n the other 157 soil several inches below the surface to prevent product loss. This can be handily accomplished prior to planting, either at the time of plowing or with special knife-in equipment as a.preplant application. Ammonia.can.also be applied post-plant to row crepe. It cannot be used, however, as a top dress fertilizer on.cover crOps such as wheat and grasses. If it is to be used on.these crepe, therefore, it must be applied before the seeding is established. This requires altering current application procedures and effectively prevents the use of supplemental nitrogen on those crepe after they are planted. While the change in.application.timing would prevent a change in.fertiliza~ tion intentions after the crOp is planted, there is no indication that crOp response to the fertilizer applied would change appreciably. Many farmers, realizing the cost advantage of anhydrous ammonia, have altered their fertilizer practices to accommodate this use pat- tern. Other farmers, less responsive to cost-reducing changes, have been unwilling to change their use patterns to this extent. Of course, the necessity to convert to application equipment for’ammonia and to learn to handle a high pressure gas are factors that might prevent farmers from.making a rapid adjustment to ammonia. If tap dress applications of supplemental nitrogen are going to be used, some sub-Optimum.product must be used in lieu of ammonia. All sub-Optimum products add substantially to costs. For example, each ton of nitrogen costs about $22.00 more in the form of urea than in ammonia. Other'nitrogen fertilizers add even.more to costs. In order to utilize the Optimum product mix, farmers would have to forego the use of many types of mixed products as well as specific 156 hand, the existence of only a limited number of rather large blending and distribution facilities would result in a greater share of the market held by each participant and a corresponding reduction in com- petitive forces. Furthermore, larger capital investments would be re- quired in order to enter this industry. This might reduce the pos- sibility for independent entrepreneurs to enter the fertilizer busi- ness. Relatively large throughputs would be required of these blending facilities. Therefore, improved marketing and merchandising programs would have to be implemented. This would require a higher degree of management sOphistication and might further reduce the Opportunities for independent businessmen. If supply c00peratives are going to re- main viable in this environment, they must provide services and man- agement assistance to their local distributors commensurate with that provided by the major independent firms to their local blending and retailing affiliates. Farmers The results of this study indicate that a substantial change must be made in the products used by farmers in order to realize the potential cost reductions in the industry. This changing product mix has important inplications for fertilizer use. Additionally, the will- ingness of farmers to adapt to the Optimum mix of products is a crit- ical factor to realizing these potential gains. The exclusive use of anhydrous ammonia as a source of supple- mental nitrogen requires certain changes in fertilization practices. Because ammonia is a high pressure gas, it nnist be injected into the 158 straight fertilizers. In particular, they would not use dry granup lated mixtures, clear liquid mixtures, or suspensions if they change to the optimum. mixed product, blended fertilizers. The most important consequences of such a change would be felt by those farmers currently using liquid mixtures. There are hidden costs not reflected in this analysis concerning a conversion from.liq- uids to dry fertilizers. liquids have certain handling characteristics not shared with dry products. These require specialized handling and application equipment. Farmers that have geared up to handle and ap- ply liquids would find it an expensive task to convert to dry ferti- lizer capability. Some might be very reluctant to do so as there may be a natural resistance to convert from the easily handled liquids to dry products that are somewhat more difficult to handle. The cost as- sociated with equipment obsolescence due to this type of change is not reflected in this study, nor is a.noncost value assigned to the dif- ference in handling characteristics. Additionally, there may be some benefits to the use of liquid fertilizers that are not included in this analysis. For example, if it required an equivalent number of hour skills to handle the same quantities of nutrients in dry form as in liquids, both of these prod- ucts would have the same cost functions in the model for product hanp dling. Thus, there would be no advantage reflected for one or the other of the products. However, the job may be less tiring when.liq- uids are handled. This could render a personfis succeeding labor at another task more productive than it would be had he handled dry prod- ‘ucts. The additional succeeding productivity would add economic value to liquids not reflected in this analysis. 159 In the short run these hidden costs and benefits may offset much of the $4.10 per ton excess cost associated with liquids over this time horizon. In the long run, however, as current handling and ap- plication equipment for liquids depreciate, there is less reason.to believe that these hidden factors would offset the long run.36.l4 per ton excess cost. It appears advisable, therefore, for farmers that are currently using liquid fertilizers to continue this practice in the short run, particularly if they have made recent investments in liquid facilities. As their liquid equipment depreciates and as ca- pacity to produce and distribute blended fertilizers expands, there appears to be economic justification for farmers to convert to the dry materials. There are few hidden costs and benefits related to the long run change from dry granulated mixtures to bulk blends. Both products are dry materials and can be handled and applied interchangeably with the same equipment. In fact, many farmers may not be able to detect any difference between the two materials. There have been, in the past, some complaints that blended map terials tend to separate when handled and applied, thus yielding a less uniform application than achievable with granulated products. This does not appear to be a valid criticism of the findings of this study, however. All blended fertilizers hn this study were formulated using intermediate materials compatible in particle size. This greatly reduces the possibility of segregation and tends to assure uniform application of these blends. 160 In the short run, of course, granulated products would be used along with blended products. As blending and distribution capacity increases in the longer run, however, the 82.00 per ton excess cost for granulations is not justifiable. Farmers would find the change from granulated products to blended fertilizers a relatively easy ad- justment to make because of equipment and handling compatibility. As there are currently no suspended fertilizers being used in Michigan, there are no serious implications for this product due to a change in product mix. It is not economically attractive for farmers to invest in any handling or application facilities for this product. The economic attraction of suspensions is further diminished by the revelation that the two most important technical advantages attributed to this product, its ability to contain more than 40 percent total plant nutrients in fluid form and to contain relatively high levels of potash, are not economically supportable advantages. The logistics of fertilizer distribution might provide an ad- ditional barrier to complete adjustment by farmers to the Optimum product mix. For example, in the absence of very good coordination in the supply industry, there might be a bottleneck in peak season distribution. When all mixed fertilizers are supplied through a rela- tively few bulk blenders, there would be little excess capacity in the industry to supply farmers during the period of peak seasonal consump- tion. If, due to unusual weather conditions or other factors, the pe- riod for fertilizer application would be shorter than normal, there might not be enough capacity in the industry under the cptinmm long run organization to adequately supply all of the farmers' needs. In 161 order to realize all of the potential cost savings from the long run Optimum reorganization, farmers would need to be particularly careml in timing their fertilizer deliveries. There are additional economic implications for farmers if the reductions in costs achievable through this reorganization are passed on to them in the form of lower fertilizer prices. Assuming that the .total value function for farm production doesn't change, a decrease in the cost for this factor of production will result in profitable uti- . lization of larger quantities of fertilizers. Thus, the total use of fertilizers by farmers would increase. At the same time, crop pro- duction would likely increase, due to increased fertilizer use. Educators The changes that have been implied for the organization of the fertilizer industry, for the mix of products used on farms, and for fertilizer application practices, have important implications for edu- cators and extension workers. Of particular importance are the im- plications for those working in the areas of farm management, agri- business, and public policy. From the vieWpoint of farm management, emphasis needs to be placed upon the types of products included in the Optimum product mix and upon the potential savings that can be realized from using these products. It is important to direct efforts toward, for example, gaining acceptance for the use of anhydrous atmnonia as the primary source of supplemental nitrogen and for bulk and custom blends as the major types of mixed fertilizer. Substantial efforts would be required in bOth areas. 162 There has been some concern on the part of farmers about the safety of handling anhydrous ammonia. This might be the single most serious impediment to the widespread adaption of ammonia. EXperience over recent years has shown that it can be handled safely when.pr0per precautions are exercised. Therefore, some educational efforts need to be aimed at the safe handling of this material. Once again, the substantial savings in costs that can be realized by using this prod- uct as compared to alternative types of nitrogenous fertilizers make a convincing argument, from the economic vieWpoint, in favor of am- monia. Concerning bulk and custom blends, two obstacles must be over- come. First, emphasis needs to be placed upon demonstrating the homo- geneity of bulk blended fertilizers. That is, it needs to be shown that segregation, a problem when bulk blended fertilizers were rela— tively new, has been overcome. For custom blends, the major problem will be familiarizing farmers with this product. It has only been in the past two years that the production and sales of custom blends have been legal in Michigan. Therefore, many farmers are not familiar with this product nor with its advantages. The fact that nutrients can be blended together in the exact combination required by a specific cropping situation, coupled with the fact that no inert ingredients are included in custom.blends, provide sound, economically supportable reasons for the adaption of this product. At the same time, extension workers need to de-emphasize the use of economically suboptimum prod- ucts, particularly liquid fertilizers. 163 Farm management advisors also need to be prepared to assist farmers in.shifting resource use as the relative cost of fertilizers declines. That is, farm.producers should be informed of the types Of adjustments to be made in.the use Of fertilizer and other factors due to lower fertilizer costs. Educators in the agri-business arena must be concerned with the changes in.the organization of the supplying industry and the implica— tion Of these changes. One Of the primary areas for emphasis is imp proved.management, marketing, and merchandising programs on the part of bulk blenders. Effective marketing and management practices are essential tO the develOpment Of the relatively large levels Of product throughput necessary if these bulk blenders are to be economically superior. If independent entrepreneurs are going tO continue to be involved in this sector Of the industry, much Of the responsibility for management training will fall upon public educators. Additional emphasis needs to be placed in the distribution.chan- nel for straight fertilizer products, primarily anhydrous ammonia and potassiumrchloride. Here, the phase-out from independent retailing Operations to distribution coordination is important. That is, agri- business educators need tO be prepared to assist firms that are curb rently retailers Of these products with the transition to the Optimum distribution scheme. One of the primary difficulties that retailers would encounter in making this transition stems from the change in distribution.points from.which to—the-farm.deliveries are made. Retailers would not have a local facility from which they can deliver products to farms. Thus, it would take somewhat longer to de- liver a farmer's order. The implications Of this are clear; the 164 retail sales agents must do an improved job of planning and coordi- nating tO-the-farm distribution in advance of actual product delivery. This would be a substantial change in the mode of Operation for many Of these retailers. Therefore, management training with this group needs to emphasize means of improved advance product distribution and sales coordination. And, of course, agri-business educators dealing with basic producers in the industry need to emphasize the long-run benefits, particularly in terms Of the potential for cost reduction, that are available through a re-organization Of the activities in the industry along the lines indicated in this study. Two types Of concerns are revealed in this study for those con- cerned with public policy. The first deals with industrial organiza- tion and competitive forces. The second concerns agricultural or farm policy. This study has revealed relatively little about the number of firms that should be engaged in various activities in the industry. While the types and relative sizes Of facilities that constitute the most efficient industry have been delineated, the degree of monOpOly power resulting from such a re-organization has an important influence upon who becomes the beneficiary of such efficiency and cost reduction. hypothetically, there is nothing in the results of this study to indicate that anything short of a one firm industry is needed in order to realize these potential savings. Therefore, a relatively high de- gree Of monOpOly power might result from a re-organization Of the in.- dustry along the lines indicated by this study. If this were to Occur, fanners could well find themselves being penalized for adjusting to the Optimum mix Of products. That is, farmers might, in the and, pay 165 monopoly prices and the benefits Of the cost-reducing re-organization would accrue to the profit accounts of suppliers. The social costs arising from such market power could be as high, or higher, than the potential cost savings from re-organization. Persons concerned with market organization and policy, therefore, need to be particularly cognative Of the competitive pressures in the fertilizer market as a more efficient industry evolves. Those concerned with agricultural policy need to be particularly aware Of the consequences of relative reductions in fertilizer costs. Over-all, as fertilizer costs decrease, fertilizer use increases and agricultural output increases. This is particularly important from the standpoint of agricultural policy and farm price maintenance. Present farm policy utilizes a restriction in the output of agricul- tural commodities as a means of maintaining farm prices. These limi- tations on agricultural production have been achieved primarily by restricting the quantities of land resource that farmers can use in crop production. But lower fertilizer prices result in increased pro- duction of agricultural commodities. lower fertilizer prices also makes it profitable to substitute fertilizers for land removed from crop production due to the acreage control prOgram, partially Off- setting the effect Of land use restrictions. This renders acreage controls less effective as a supply management tool. It would appear, therefore, that the present policies for agri- cultural price maintenance will become less effective as increased ef- ficiency is realized in the fertilizer industry, provided, Of course, that these cost reductions are passed on to farmers. CHAPTER V EVALUATION AND RESEARCH RECOMMENDATIONS Evaluation and Limitations There were a number of assumptions made in develOping this study and the simulation model. These assumptions place limitations on the applicability and extension of the findings herein. This section.inp cludes a discussion of these assumptions and the limitations implied. One Of the most critical assumptions in the study concerns mar- ket shares. It was assumed, for purposes of the study, that there are no limitations on the share of market that can be held by a single firm. Thus, a feasible solution with a single firm in each market exists within the scOpe of the model. There does not have to be any overlap between the market areas Of the various firms reflected in the Optimum solution. This leads to a concern.about monOpOly power in the fertilizer market, as discussed in the preceding chapter. A second assumption that warrants discussion concerns fertilizer use patterns. Only plant food nutrients used on farms were considered. That is, fertilizer used for lawns, gardens, and other specialties such as golf courses, parks, and so forth is not included in this analysis. The demands for fertilizers for these specialty uses may be substantially different from.those of commercial farms. Therefore, the Optimum.organization and product mix cannot be interpreted as being 166 167 applicable to fertilizer supply for specialty uses. Supply capability in addition to that reflected in the Optimum solution will be neces- sary tO serve the specialty markets. Additionally, a uniform nutrient use pattern is assumed for all farms and crOps throughout the state. That is, it is assumed that all acres fertilized will receive applications Of all Of the products in the Optinmm mix, in a constant ratio. It should be recogrized that the various soil conditions and wow in Michigan require differential application Of the three major nutrients. The various products in- cluded in the Optimum product mix can, in actuality, be applied in different ratios to each other. This will supply almost unlimited ratios Of the three nutrients to satisfy almost any crop or soil re- quirement. Overall, the quantities of the products used as the ratio varies for specific acreages would be the same as reflected in the model, although the application would not be uniform, as assumed. With a nonunifom application Of these products, the delivery and ap- plication costs reflected in the model are inappropriate. The costs for delivery and application in the model reflect the costs for applying each product in the Optimum mix to all of the fertilized land in Michigan. When the mix Of products actually ap- plied is juggled, not all of the Optimum products would be applied to all fertilized acres. Therefore, the costs for delivery and applica— tion would actually be less than reflected in the model. This implies that the cost for these activities are actually over-stated when non- uniform application patterns are used. While the consequences of over-stating these costs are not clear, it seems reasonable to 168 assume that if these products are Optimum.when.costs are overbstated they would certainly be Optimum when lower costs are considered. Another assumption is implied by the use Of a cost minimization model to study Optimum.performance. In order for the point Of minimum costs to correspond with the point where marginal costs and marginal returns are equated, perfect competition.must be assumed. That is,each firm must be facing a perfectly elastic demand curve and, therefore, a perfectly elastic marginal revenue function. When each firm.is orga- nized at the point corresponding to the minimum average costs, the point where its average costs are equal to its marginal costs, its marginal costs will be equated with its marginal revenue. In the case of imperfect competition, firms face a downleping demand curve and a marginal revenue function with a negative lepe. In.that case, the minimum point on a firmls average cost curve does not necessarily cor- respond with the point where marginal costs are equated with marginal revenue. In fact, it would be an unusual case where marginal costs and.marginal revenues are equal at the point Of minimum average costs. Thus, the assumption of perfect competition is essential to equate cost minimization with Optimization. The last assumption to be discussed concerns carrier capacity. It was assumed, for purposes Of the study, that there are no restric- tions on the capacity Of carriers to transport fertilizer materials. In the long~run, when.the transportation industry has Opportunity tO adjust, this is not a restrictive assumption. In the short-run, hows ever, there may not be adequate capacity tO transport the products via the modes indicated in.this study during the relatively short period 169 of time available for product movement. In the short-run, therefore, subOptimum modes Of transportation may have to be utilized in order to effect timely product distribution. Recommendations for "rurther Research There are a number of variations that can be made in the model that would help to overcome some of the limitations inherent in this study due to the asswptions discussed above. first, restrictions on market shares can be built into the model. This would allow determi- nation Of the effects of market share restrictions on the organization of the industry. Kloth and Blakley have presented a modeling tech- nique for including limitations on market shares in the basic linear programming format (Kloth and Blakley, 1971). By imposing the market restrictions on fertilizer firms, more realistic representation Of actual market conditions would be possible. This would also help to render the model consistent with the perfect competition assumption necessary for cost minimization studies. A second modification in the model deals with the potential for regional expansion and adaption to other areas Of consumption. The basic supply and distribution functions included in the model are ap- plicable to almost any fertilizer consuming region in the United States. From a consumption standpoint, however, this study is spe- cific to the density of fertilizer use in Michigan and the proximity of Michigan to the primary source Of raw materials for fertilizer manufacture. Adapting the model to regions with different consumption densities and in different physical proximity to raw material sources 170 would allow determination of the sensitivity Of the Optimum industry organization to these factors. Additionally, only a limited amount of resources would be required in order to expand the model regionally, compared to the resources required for initial develOpment. In addition to allowing determination Of Optimum industry orb ganization in other geographical areas, regional expansion also would allow reflection Of more realistic capacity constraints for large scale facilities. That is, the assumption, that production at large-scale facilities in excess of that utilized in the study area will be used in surrounding areas, can be eliminated. When a larger geOgraphical consumption area is considered, the entire product Of these large- scale facilities must be used in the consuming area of study in order to justify their use. An additional modification that can be made in the model conp cerns carrier capacities. If limitations are placed on carrier ca- pacities, additional insight can be gained by using the model into in- vestment priorities for carriers. That is, bottlenecks in product distribution would be revealed if adequate capacity to transport ma- terials via the Optimum modes did not exist. In fact, such bottle- necks may in reality be sufficient to alter the short run Optimum solution as determined in this analysis. Research Opportunities exist, in addition to the modifications suggested, for extending the application of the model. One important possibility is the use of this model in conjunction with other studies. For example, this supply model could be integrated with a demand anal- ysis to yield an equilibrium analysis Of the fertilizer market. Conp siderable insight has been gained in this study into the costs and l7l achievable efficiencies for supplying fertilizers in Michigan. But the actual organization of the industry that corresponds with any sets of costs and resulting efficiencies is sensitive to the levels of nu- trient demand. Other research (see Railing, 1966; and Bee, 1969; for example) has pointed out the sensitivity of nutrient demand to price. NO equilibrium levels of nutrient consunmtion have been determined in these studies dealing with price/demand responses, nor was an equi- librium level determined within this supply analysis. An integration Of the two types of studies would lead to an equilibrium supply/demand situation and would provide valuable assistance to the industry, par- ticularly with regard to the absolute levels at which the various activities therein will likely need to be Operated in the future. An extension Of the findings of such a study could yield valuable insight into future fertilizer prices and the quantities Of fertilizers that will be used by farmers. This would be important to determining both future levels of agricultural output and the substitution of ferti- lizers for other production resources. This supply model would also be useful in the analysis of vari- ous projects and prOgrams aimed at changing seasonal fertilizer pur- chase patterns. There are a number of factors that could bring about such a change. For example, forward supply contracts could be utilized as a means of improved coordination of product distribution. At the same time, price incentives could be incorporated into such contracts in order tO encourage fertilizer deliveries over a longer period Of time. By altering the periods of time over which fertilizer materials must be stored, within the scOpe of the model, the potential for cost reductions can be determined. These potential cost reductions can be 172 interpreted as the potential financial incentives available to par- ticipants in return for altering seasonal delivery patterns. The imp pact Of new products, such as slow release fertilizers, and of differ- ent crOpping patterns on the seasonality Of use and storage require- ments can also be traced out utilizing this capability Of the model. The last point to be mentioned concerns the use Of this model for training purposes. Teaching simulators that train managers in basic management principles based upon theoretical relationships have been developed. These models are useful in.demonstrating theoretical responses to various management decisions. By coupling such tech. niques to this model, it would become possible to trace out the conp sequences to fertilizer suppliers as they would actually occur in the industry in response to various policies and.management decisions. BIBLIOGRAPHY BIBLIOGRAPHY Abell, Nelson D. "New Developments in Liquid Fertilizers," paper pre- sented at the Tennessee Valley Authority Fertilizer Production and Marketing Conference, the Impact Of New Technology, Knox- ville, Tennessee, October 4-6, 1967. Bell, David M., Dennis R. Henderson and George R. Perkins. A Simila- Elfin Of the Fertilizer Industry in the United States: With fiecial Emphasis on Fertilizer Distribution in Michigan. Mich- igan State University, E. Lansing, Agricultural Economics Report NO. 189, forthcoming. Douglas, John R., Jr. and E. L. Johnston. Advantggs and Disadvantges of Conventional, Bull: Blended; and Liquid Fertilizer From An Economic View. Tennessee Valley Authority Technical paper NO. 50, November 1963. Douglas, John R., Jr. and Harold G. Walk-up. "Rounding the Corner to Profit in the U.S. Fertilizer Industry," paper presented at the Annual Program of the Michigan Plant Food Council, Michigan State University, E. Lansing, December 3, 1970. Ferguson, C. E. Microeconomic Theory. Homewood, Illinois, Richard De IrWin, InCe’ 1966e Hargett, Norman R. 1910 Fertilizer Summary DataJ National Fertilizer DevelOpment Center, Tennessee Valley Authority, Muscle Shoals, Alabama, 1970. Harre, Edwin A. Fertilizer Trends -- 1969. National Fertilizer De- velopment Center, Tennessee Valley Authority, Muscle Shoals, Alabama, 1969. Hee, Olman. A Statistical Analysis of U.S. Demand for Phosphate Rock, PotashL and NitrogenJ United States Department Of the Interior, Bureau Of Mines Information Circular 8418, 1969. Henderson, Dennis 3., George R. Perkins and David M. Bell. Simulating the Fertilizer Industry: Data. Michigan State University, E. Lansing, Agricultural Economics Report NO. 190, forthcoming. Kloth, Donald W. and Leo V. Blakley. "Optinnzm Dairy Plant location with Economies of Size and Market-Share Restrictions," American Journal of Agricultural Economics, Vol. 53, NO. 3 (August, 1 1971 ’ pp. 461-466e 173 174 Lucas, Robert E. "Fertilizer and Limestone Usage in 1980," Field Crops Market Firms and Farm Supply, Project '80, Rural Michigan Now and in 1980, Michigan State University Agricultural Experi- ment Station and Cooperative Extension Service, E. lensing, Re- searCh Report “be 44, Pp. 14.17e Markham, Jesse W. The Fertilizer Industzgz, Study of an Igpgrfect Market. Nashville: Vanderbilt University Press, 1958. McVickar, Malcohn H. Using Comercial Fertilize_r_‘§_. Danville, Il- linois: The Interstate Printers and Publishers, Inc., 3rd ed., 1970. Michigan Department of Agriculture. Michigan AgLiculuaral Statistics JLly 1910, Michigan Crop Reporting Service, Lansing. Michigan Department Of Agriculture. Togage of Fertilizer Sold in Michigan From Janu_a_11 1 throggg December 21, 1210. Compiled by the Laboratory Division from reports suhnitted by fertilizer companies, undated. Michigan Department of Agriculture. Michigan Agg’ cultural Statistics, July 1211, Michigan CrOp Reporting Service, Lansing. Nevins, Jon Lion. A Model for Calculatggg' the thinmm Analysis of Mixed Fertilizer, North Carolina State University at Raleigh, Ph.D. thesis, December 1970. Optima. Michigan State University Agricultural Experiment Station, E. Lansing, AES LP Description 1, August 1969. Reiling, Eldon Alvin. Demand Analysis for Commercial Fertilizer in the United States, By States, Michigan State University, E. Lansing, unpublished Ph.D. thesis, 1966. Strauss, John L. "New DevelOpments in Suspensions, " paper presented at the Tennessee Valley Authority Fertilizer Production and Marketing Conference, The Mpact of New Technology, Knoxville, Tennessee, October 4-7, 1967. Tennessee Valley Authority. Fertilizer Trends, Division of Agricul- tural Relations publication NO. T-60-2-FD, Knoxville, Tennessee, January 1960. U.S. Department of Agrictflmre. Consumption of Commercial Fertilizers in the United States, Year hiding June 30, 1966, Statistical Reporting Service, May 1967. U.S. Department Of Agriculture. Agricultural Prices, 1910 Annual m, CrOp Reporting Board, Statistical porting Service publication no. Pr 1-3 (71), June 1971. 175 U.S. Department of Agriculture. Fertilizer Situation, Economic Re- search Service report no. ES-l, March 1971. U.S. Department of Commerce. 1164 United States Census Of ficulture, Vol. 1, Part 13, Michigan, Bureau of the Census. U.S. Department of Commerce. 1967 Census Of Manufactures, Bureau Of the Census, 1967. Walkup, H.G. and H.C. Spencer. "Cost Of Producing liquid and Solid Mixed Fertilizers," Commercial Fertilizer and Plant Food Indus- m, May 19600 APPENDIX A PRODUCTION AND PRODUCT mow FOR 1970 ACTUAL, CONSTRAINED (SHORT RUN) OPTIMUM AND (LONG RUN) OPTIMUM Table A—1. Produce Use Summary for 1970 Actual, Constrained Optimum, and Optimum (in Tons) 1970 censtreined Product actual optinum Optima Total cost (in dollars) 71. #425, .567 52.555. 2"? I*8, .237: .763 Anrwdrous atmonia ,309 171,891! 828 Aqueous We 3 897 .0. .0- Nitric acid 59,832 10,539 .0- Amnonium nitrate 78, 210 13,777 -0- Nomressure nitrogen solution ‘40,912 —0- -0- Lou pressure nitrogen solution 28,171 _0. .0- Nitrogen Wacturing solution 16,067 19 ,737 .0- ‘h'ea 52, 006 .0- ~0- Granular mim sulfate 35, 628 .o. .0. Elenrental phosphorous 18:00" -0- -0- White phosphoric acid 16,866 .0. .0. Green phosphoric acid 195,165 236 ,7108 260,565 Superpmsphoric acid 207 .0. -o- Annrmium polyphosphate liquid (10-34-0) u .832 -o— -0- Anurmiun polyphosphate liquid (ll-37-0) A02 .0- -0- Neural swer'phoaphate 53 .791 .0- .0- Run—of—pile triple superphosphate 138 ,9115 115,303 .0. Gramlar triple superphosphate 26,598 5.27“ -o- Diamnonium phosphate 105,205 77 ,810 .0. Momamroniun phosphate 26, 2m: 99,910 270,576 Rock phosphate 277 -0- —0- Error-4m potassium chloride 111,166 121,106.? -0- Standard potassium chloride 1,877 ~0— -0— Granular potassium chloride 95,919 137,590 259 032 Coarse potassimn chloride 50, 000 --0- -0- Granulated mixed fertilizers 388,555 303,655 ~0- Bulk blended fertilizers 203, 213 185 ,535 329,689 Custom blended fertilizers 27,785 86,1865 113,600 Hot process clear mixed liquids 11,1850 -0- -0- Cold process clear mixed liquids 7 .633 -0— -0— Suspension liquids ~0- -0- -0- N supplied 1141,932 1141.932 1171.932 P205 supplied 1&0 ,650 1180,650 1160,650 K20 supplied 155,1541 155.14% 155.4161 176 177 302693 noun—8a» .5. at; 9.5.8 2062 .378 558m 28.62 8338 .o- 399. «San 3338 due Euthanasia. no.8 .35 «Passage 58.? 83a 25.2 Samoa omen Saoofiong peace .35 $982.93 has» .o. 5.3;. $5.8 ooooo .35 SIB oases p.38 .35 53:3: 35% .5. .7 I... eased 898». .98: g ..o.. :6.» no. ..I. 3:30.30 gone .95: egg .5: 39m: manna ul 35585 .583. .28: 3.8 .35 533: no. 31.5.. 89% ..l Sofia Seasoned Sauces gate: «353 ..o.. ..o. l.. gusto 83252.. 3:8 uou 9.191 25.5.. ..I gag—8 833.95 noses. no: .7 mom. 2 I... 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Mixed Fertilizers Consumed in Michigan in 1970, as Simlated Product Tons Product Tons Dry grades 3919758 Dry gades (cont'd.) 0—10-30 3 ,131 15-30-15 1412 0-14-32 3 ,256 16-8—8 6 , 846 0-18-36 60“ 16-16—16 01,953 0-20.20 831 18-18-18 09,033 0—20-30 13,875 20-10-10 1,967 0.26.26 3,1143 Dry custom blends 27,785 0-30—20 5,532 5_10_10 86 0446-0 3,855 5-20-20 37,505 18’“6’0 6’3“? 6-12—12 300 13‘52‘0 37 6—18-36 259 ”5‘0’0 0 6.20—12 2,759 0‘0‘60 17’5"2 6-20—20 158,109 L1qu1d.mixtures 19,083 7-28—28 0,266 0-10-10 751 8'8“8 101 0-12-29 2,875 8—16-16 38,773 6-18-6 1,320 8—2u—8 26,905 _ 8—32-16 82,396 :_::_g 2’::: 9‘36"18 2’157 10-20-10 2,780 10‘6““ 10,933 10-30-0 u,260 10-10-10 3,767 10-3u-0 2,380 10-20-10 21,586 10-20—20 11,190 10—80—10 1,093 12—12-12 58,996 213 214 Table B-2. Straight Fertiliser “Burial! Gounod in Elohim in 1970, as Simulated Product Tons Dry materials 130,280 Ammnium nitrate (33.5-0-0) 27,7014 Amnonium sulfate (2l-O-O) 2,1470 Urea (HS-O—O) 2h,0h7 Superphosphate (0-20-0) 371 Triple superphosphate (O-H6-O) 3,608 Mcmoarmzium phosphate (13-52-0) 3,2148 Diamntmium phosphate (1846-0) 6 ,838 Mu'iate of potash (0-0-60) 61,9914 Liquid.materials (including gases) 107,929 warms armnnia (82.2-0-0) 62,071: Aqueous amnonia (214.2-0-0) 3,897 Low pressure nitrogen solutions (37-0-0) 2,155 Nonpressm'e nitrogen solutions (28-0-0) 39,803 215 Table 3-3. Fertilizer Facilities in Michigan in 1970: Actual Use and Maximum Capabilities Total Maximum Total Level Ammal General of Operation Capacity Type of Facility Location(s) in 1970 (Tons) (Tons) Anhydrous ammnia production Central 34,000 68,000 White phosphoric acid production Central 16,866 121,900 Diamnonium phosphate production Central 19 ,800 19 ,800 Superphosphate Central 32 ,000 32 ,000 Granulator—mixers Central 2142 , 8117 250 , 000 Granulator-mixers Outstate 105,708 250,000 Dry blender Central 19,3146 20,000 Dry blenders Outstate 211,652 u62,000 Liquid mixers Outstate 19,083 66,000 Amnonia retailers Outstate 62,071! 714,800 Straight liquids retailers Outstate 115,855 55,100 Dry products retailers Outstate 538,1458 687,300 _._— Conpiled Fran: 1970 Farm Chemicals Directory, Meister Publishing Conpany, Willoughby, Ohio, December 1970. Michigan Fertilizer Blending Plants, canpiled by the Laboratory Division, Michigan Dept. of Agriculture, East Laming, April 30, 1971. 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