Vital nourishment - First Quarter 2009
From the world’s most lifeless place comes an ingredient essential to all life. And the form in which it exists here is especially beneficial for tobacco plant growth.
Fertilizers are essential to tobacco production. So when prices skyrocket, as they have in recent years, everybody in the supply chain feels the pain. How are fertilizers made and why are they more expensive now than they were before? We traced the origins of one widely used tobacco nutrient, nitrate nitrogen—and ended up in one of the strangest places on earth.
“Welcome to Calama,” says a sign in the airport arrival hall of this mining town in the far north of Chile. But it might as well have read “Welcome to Mars,” for the landscape and environment of the surrounding Atacama Desert resemble those of the red planet more closely than any other place on Earth. The similarities are such that NASA tests its equipment here. If a vehicle survives a test drive in the Atacama Desert, the American space agency reckons, it will likely survive the inhospitable environment on other planets as well.
The most striking feature of the region is its complete lack of moisture. In some areas, no rain has been recorded since humans starting measuring it. Based on soil studies, scientists even speculate that these areas have seen no precipitation for more than 200,000 years. Strictly speaking, the word “soil” is also inaccurate in this context. Soil comprises a mixture of organic and inorganic material, but there is no organic material here—it’s too dry even for microbes.
The lack of cloud cover has two other effects—unusually high levels of UV radiation and crystal-clear skies. Astronomers from around the world come to observatories in the Atacama Desert to take advantage of the unobstructed views at night. But during the day, they must slather themselves in sunscreen because the sunbeams are merciless, especially at the higher altitudes where the observatories are located.
The second most striking feature of the Atacama Desert must be its absolute silence. There are no birds that sing, crickets that chirp or mosquitoes that buzz. Outside the centers of human population, it is so quiet that, after a while, you start questioning your faculties—first your hearing and then your sanity.
Perhaps surprisingly, given the inhospitable environment, thousands of people live and work in the Atacama Desert, which starts at the southern Peruvian border and dips 500 miles south into Chile. While poor in flora and fauna, the region is rich in natural resources, which, at least until the recent financial meltdown, have been in hot demand.
Spending a night at the Park Hotel in Atacama is like attending a mini-United Nations convention of the mineral extraction industry. Miners from Congo, investors from the United States and equipment manufacturers from Europe mingle in the breakfast area before they’re off to hone their skills or maximize their returns in the pits of the Atacama. The desert is home to the world’s largest manmade hole, the Chuquicamata copper mine, which reportedly is visible from outer space.
Because of the hardship associated with life in the mining towns, many Chilean workers “commute” from Santiago—a two-hour flight away—and other cities. Four days on, three days off; two weeks on, one week off; or whatever other schedule makes life more bearable for human beings.
A rare find
For the tobacco industry, the Atacama Desert is interesting because of its nitrate nitrogen deposits; nitrogen being the most important nutrient affecting tobacco yield and quality. If applied appropriately, it can help increase yields and leaf sizes.
While nitrogen is the largest single constituent of the earth’s atmosphere, it cannot be used directly by plants or animals but needs to be converted, or fixed, into compounds such as potassium nitrate (saltpeter) or sodium nitrate (Chile saltpeter). Nitrogen is also a large component of animal waste, but because the nitrate form of nitrogen readily dissolves in water, deposits are rare. Due to its extreme drought, the Atacama Desert is one of the few places in the world where nitrate nitrogen has been able to accumulate. And it is the only location where nitrate nitrogen deposits are present in commercially exploitable volumes.
Before the advent of modern fertilizers, local Indians already knew a white substance in the Atacama Desert helped their crops grow. They threw it onto fields near the river and watched their corn thrive. Europeans first encountered the stuff in the 1500s, when the Spaniards moved from Peru into what is now Chile. The explorers built campfires, and to their surprise, the soil spontaneously combusted.
While the superstitious among them quickly blamed demons, scientists eventually learned the fires were caused by chemical reactions. Due to its strong molecular bond, the conversion of nitrate nitrogen compounds into reduced nitrogen form is accompanied by high energy release, making it an ideal ingredient for gunpowder. So, while there were no evil spirits at play, the Atacama’s soil provided raw material not only for those wishing to work the land, but also for those wanting to destroy it.
When World War I broke out in 1914, demand for sodium nitrate exploded (pun intended) and the area grew wealthy. But the run-up to the war had also accelerated the development of alternative methods to produce nitrate nitrogen. While the Allied powers had access to Chile’s deposits, Germany had to produce its own. In 1910, the German chemists Fritz Haber and Carl Bosch patented and then commercialized a process to produce synthetic nitrogen compounds from natural gas, using high-pressure technology. Demand for nitrate nitrogen dropped after World War I and through the Great Depression but skyrocketed again during World War II.
In the post-war period, fertilizer once more became the main application for nitrate nitrogen, but the Atacama Desert mining industry suffered strong competition from companies using the Haber-Bosch method. For many customers, it was cheaper and more convenient to purchase locally produced synthetic nitrogen fertilizers than to have it extracted in Chile and shipped around the world. And with the exception of a peak in the 1970s, the price of natural gas, which follows the price of oil, remained comparatively low throughout the second half of the 20th century.
Unable to compete, many mine operators were ready to close shop by the 1950s. Concerned about the tens of thousands of workers in a region with no alternative employment, the Chilean government took over, consolidating the mines and creating a company that would later become SQM. It also set up a marketing agency with branches in Europe and the Far East, but revenues continued falling short.
During the 1970s, the Chilean government gave the Atacama mining industry $50 million and an ultimatum: become profitable within two years or cease operations. Management wasted no time. It sold its downtown Santiago skyscraper, moved to a modest two-story building and cut operating expenses to a bare minimum. On the revenue side, it started looking for niches where Chile’s sodium nitrate enjoys an advantage over synthetic nitrogen.
One of those niches turned out to be flue-cured tobacco.
While nitrogen is one of the most important elements for tobacco growth, the amounts must be carefully controlled. Too much nitrogen produces a dark-colored, quick growing plant that ripens late, cures poorly and burns badly. Nitrogen deficiency, on the other hand, produces a retarded plant that yellows prematurely, especially in the lower leaves. Ideally, flue-cured tobacco should receive nitrogen in the first 30 to 40 days after transplanting. After that, any remaining nitrogen must be flushed out of the soil.
Due to its composition, Chilean nitrogen can be more accurately administered than synthetic nitrogen. When the plants no longer need nitrogen, the farmer can simply leach it from the soil by applying moisture. This is not possible with urea because synthetic nitrogen bonds to soil particles. As a result, the tobacco keeps absorbing nitrogen even after it is no longer desirable. Agronomists say tobacco produced with urea tends to have a lower leaf quality than that produced with nitrate nitrogen.
Today, SQM exports sodium nitrate, potassium nitrate and a mixture, known as SPO, to tobacco producers worldwide. Brazil is the biggest customer because that country’s proximity to Chile keeps down the cost of transport. The company operates five mines in the Atacama Desert—María Elena, Pedro de Valdivia, Nueva Victoria, Pampa Blanca and SQM Salar. It also produces iodine and lithium, which started as byproducts but have over the years become significant profit centers. Iodine has applications in areas such as pharmaceuticals, x-ray contrast media and polarizing film for LCDs, while lithium is an increasingly important component of batteries.
At María Elena, ore is crushed into half-inch rocks. The rocks then move to a leaching plant that dissolves the sodium nitrate. From there, the solution proceeds to a crystallizing plant. After crystallizing, the product is sent to Coya Sur for prilling. Prill (beadlike pellets) is the best shape for tobacco fertilizers because it can be thrown directly onto the soil and be blended with other fertilizers. It also allows for easy transportation because it doesn’t stick like crystals do. Crystals are more suitable for soluble applications.
At this stage of the process, the material looks like a white cake. After drying and classifying, the product is melted at a temperature of between 662 and 752 degrees Fahrenheit and pumped to the top of the prilling tower. There, at a height of 230 feet, the liquid is poured into a round container with holes. As the product encounters colder air on its way down, heat exchange takes place and the stream turns into droplets, which then harden into pellets. At the bottom it proceeds as a fluidized bed to holding vessels, where it will await transportation to customers.
While the SQM Salar facility relies largely on solar power, the crushing of ore at María Elena and the melting of crystal in Coya Sur require greater amounts of energy. Given that fuel represents an important input cost in the production of fertilizer, the price of fertilizer is affected by the price of fuel, but the cost of synthetic nitrogen is tied even closer to that of energy because its source is natural gas, and synthesis requires energy. Thus, the rising price of oil in recent years has contributed significantly to the increases in fertilizer prices, and buyers of Chilean nitrogen must also take into account higher shipping expenses.
Energy, however, is not the only culprit. Demand for farm products has skyrocketed in recent years, due to population growth and rising disposable incomes, especially in developing countries. Developed countries, meanwhile, have been vigorously pursuing oil substitutes such as ethanol and biodiesel, further boosting demand for fertilizers to produce the required crops.
The recent economic slowdown has reduced demand for oil, but it will likely be a while before that translates into lower fertilizer prices. As every motorist knows, rising fuel costs are generally passed on more quickly than declining ones. And global demand for agricultural products—and thus fertilizer—is unlikely to slow, as people will have to eat during a recession too.
Regardless of the fluctuations in the world economy and the price of fuel, SQM will continue extracting the desired fertilizer components and looking for niches where it can add value to its unique product—while working in one of the most alien-looking places on earth.