##### 



EXHIBIT 99.2 (AGRIUM LOGO) 2005 Managements
Discussion & Analysis of
Operations and Financial Condition




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(PICTURE)

MD&A: TABLE OF CONTENTS

Managements Discussion & Analysis ofOperations & Financial Condition


February 22, 2006


This managements discussion and analysis (MD&A) of operations and financial condition focuses on
long-term vision, strategy and growth opportunities, as well as historical performance for the
three years ended December 31, 2005. The discussion should be read in conjunction with the
cautionary statement with regard to forward-looking statements on page 17 and the consolidated
financial statements and related notes on pages 64 to 92. Dollar amounts refer to United States
(U.S.) dollars except where otherwise stated.

The Companys quarterly and annual financial information and its Annual Information Form (AIF) are
available at SEDAR (www.sedar.com).




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MD&A: FORWARD-LOOKING STATEMENTS
 Forward-looking Statements
  ■
    
    disclosures made under the headings Outlook and Royster-Clark Acquisition;
 ■
    
    our 2006 key corporate goals;
 ■
    
    key drivers for our business and industry trends;
 ■
    
    the amount and type of future capital expenditures and capital resources;
 ■
    
    future cash requirements and long-term obligations;
 ■
    
    business strategies and plans for implementing them;
 ■
    
    goals, expansion and growth of our business and operations;
 ■
    
    future seed volumes, prices and sales;
 ■
    
    availability of raw materials, particularly gas availability or gas price relative to nitrogen prices;
 ■
    
    risk mitigation activities; and,
 ■
    
    our future results and plans respecting our recent acquisitions.
 ■
    
    General economic, market and business
conditions, including: supply and demand for crop
nutrients, seed and crop protection chemicals;
supply and demand for grain and other agricultural
crops; changes in government, agricultural,
safety, environmental and other legislation
and policies; fluctuations in foreign exchange
rates, nutrient prices or feedstock prices or other
costs that cannot be recovered through increases
in nutrient prices; actions by competitors
and others including changes to industry
capacity and utilization and product pricing;
performance by customers, suppliers, personnel
and counterparties to financial instruments; and
changes in capital markets;
 ■
    
    Weather conditions and seasonal patterns;
 ■
    
    General operating risks associated with: investment in foreign jurisdictions; the level and
effectiveness of future capital expenditures and
reliability of performance of existing capital
assets; ability to transport or deliver product to
markets; present and discontinued mining
operations; and labor disruptions; and,
 ■
    
    Strategic risks including: our ability to implement
our business strategy; results of our risk mitigation
strategies, including hedging and insurance; our
ability to integrate any assets we have acquired or
we may acquire or the performance of those
assets; the opportunities, or lack of opportunities,
that may be presented to and pursued by us;
technological changes; and other factors, many of
which are beyond our control.
  Non-GAAP Financial Measures
   AGRIUM ANNUAL REPORT 2005
    
    17




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MD&A: EXECUTIVE SUMMARY
 Executive Summary
 Overview of 2005
 2005 Consolidated Financial Performance
  ■
    
    Consolidated net sales grew by 16 percent to $3.3-billion in 2005 compared with $2.8-billion in 2004;
 ■
    
    Consolidated gross profit was $1-billion in 2005 compared with $900-million in 2004; and,
 ■
    
    Consolidated net earnings increased to $283-million compared with $266-million in 2004.
  Financial Discipline & Strong Balance Sheet
  ■
    
    Generated record cash flow from operations of $450-million in 2005 and $440-million in 2004.
 ■
    
    Consolidated cash and cash equivalents were $300-million at December 31, 2005 compared with
$425-million at December 31, 2004.
 ■
    
    Purchased 4.7 million shares through our normal course issuer bid in 2005, which was largely offset by
options being exercised.
 ■
    
    Paid down $301-million in debt during 2005, including $175-million of preferred securities.
 ■
    
    Decreased our debt-to-capital ratio to 29 percent at December 31, 2005 from 45 percent at
December 31, 2004, and our debt-to-market capitalization to 14 percent at December 31, 2005
from 26 percent at December 31, 2004.
  Significant Growth Through Acquisition & Expansion
  Market Strength Continues
 18
    
    AGRIUM ANNUAL REPORT 2005




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MD&A:
OUR BUSINESS & PRODUCTS/OUR STRATEGY
 Our Business & Products
 Our Strategy
  A top tier globalcorporation providing diversified agricultural, specialty and industrial
products and services in a manner that maximizes growthin shareholder value.
   AGRIUM ANNUAL REPORT 2005
    
    19




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MD&A:
CORPORATE GOALS, RESULTS & ACCOMPLISHMENTS
 Corporate Goals, Results & Accomplishments
  ■
    
    Delivery of our growth objective, with four
acquisitions in 2005 and early 2006. All four
acquisitions are expected to be accretive and we
maintained our debt-to-capital ratio at very close to
our target 40 percent level even after these
acquisitions. These acquisitions included:
 ■
    
    Royster-Clarks $1-billion in annual sales retail
and associated wholesale business;
 ■
    
    the net addition of 14 retail centers in South
America and 11 centers in the U.S.;
 ■
    
    the Nu-Gro specialty fertilizer acquisition; and,
 ■
    
    the Western Canadian distribution assets of
Imperial Oil.
 ■
    
    Improvement in five out of seven key performance
indicators for environmental, health and safety measures.
 ■
    
    Agriums 2005 shareholder return was in the top
tenth percentile of the fertilizer sector.
 ■
    
    Continued to deliver on our commitment to meet
requirements set out in the Sarbanes-Oxley Act,
including key controls identified and preliminary
testing of systems.
 ■
    
    Continued recognition for our strong corporate
governance, including being one of only 33
companies in the world to receive Governance
Metrics Internationals top rating.
   ■
    
    Record 2005 financial results, with record net
sales, gross profit and net earnings;
 ■
    
    Paid down debt of $301-million during 2005,
including redemption of $175-million in preferred
securities;
 ■
    
    Secured additional gas supplies to enable the
continued operation of the Kenai, Alaska nitrogen
facility for another year;
 ■
    
    Purchased 4.7 million shares through our normal-course issuer bid in 2005;
 ■
    
    Named one of the Top 100 Employers in Canada; and,
 ■
    
    Identified as one of the Best 50 Corporate Citizens in Canada.
  ■
    
    Integration of the Royster-Clark acquisition, with
at least $30-million in margin improvement and
cost savings realized in 2007 and beyond. We
expect to realize about 50 percent of these annual
synergies in 2006, excluding one-time integration
and transaction costs.
 ■
    
    Integration of the Nu-Gro acquisition and continued
focus on growing the environmentally friendly
specialty fertilizers market segment.
 ■
    
    Continue to grow the business through acquisition
and incremental expansion of the existing base
business. This includes the completion of
expansion projects currently under way for potash,
our controlled release ESN® product and the
further evaluation of international nitrogen
opportunities.
 ■
    
    Attempt to secure additional economic feedstock supplies for the Kenai, Alaska nitrogen facility for
the continued operation and contribution of the facility.
 ■
    
    Continue to improve environmental, health and safety measures.
 ■
    
    Start-up of the potash expansion by the beginning of the fourth quarter of 2006.
 ■
    
    Full compliance with Sarbanes-Oxley regulations and requirements.
 ■
    
    Maintain a prudent capital structure to allow us to capitalize on opportunities as they arise.
   20
    
    AGRIUM ANNUAL REPORT 2005




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MD&A:
OUR INDUSTRY & KEY DRIVERS/OUR REPORTING STRUCTURE
 Our Industry & Key Drivers
 The primary driver for our business is the
need for the worlds growers to continue to
increase global food production.
 Our Reporting Structure
    NET SALES & GROSS PROFIT BY SEGMENT & PRODUCT
 Twelve months endedDecember 312005
    
    
    2004Net
    
    
    Gross
    
    
    Net
    
    
    Gross(millions of U.S. dollars)
    
    Sales
    
    
    Profit
    
    
    Sales
    
    
    ProfitRetailFertilizer
    
    
    626
    
    
    
    141
    
    
    
    556
    
    
    
    131Chemicals
    
    
    458
    
    
    
    130
    
    
    
    416
    
    
    
    118Other
    
    
    158
    
    
    
    76
    
    
    
    142
    
    
    
    67Total
    
    
    1,242
    
    
    
    347
    
    
    
    1,114
    
    
    
    316North America WholesalePotash
    
    
    255
    
    
    
    157
    
    
    
    214
    
    
    
    106Phosphate
    
    
    313
    
    
    
    57
    
    
    
    309
    
    
    
    71Nitrogen
    
    
    1,463
    
    
    
    374
    
    
    
    1,180
    
    
    
    315Total
    
    
    2,031
    
    
    
    588
    
    
    
    1,703
    
    
    
    492South America WholesaleNitrogen
    
    
    169
    
    
    
    115
    
    
    
    143
    
    
    
    102Other inter-segment eliminations
    
    
    (148
    )
    
    
    (3
    )
    
    
    (122
    )
    
    
    Total
    
    
    3,294
    
    
    
    1,047
    
    
    
    2,838
    
    
    
    910
   AGRIUM ANNUAL REPORT 2005
    
    21




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(WATERMARK)MD&A:
RETAIL
Our Retail Business


Agrium is one of the largest agricultural retailers in the Americas, with over $1-billion in
sales from crop protection products, crop nutrients, seed and services in 2005. Furthermore, we
acquired Royster-Clark in early February 2006. This acquisition will double the number of U.S.
retail outlets we own and is expected to increase our U.S. retail sales by over 60 percent. The
following description and financial results do not incorporate Royster-Clark assets or financial
figures given the acquisition occurred in February 2006. Average annual sales in the U.S.
agricultural retail market are estimated to exceed $27-billion. Our Retail operations accounted for
38 percent of our total sales and about 19 percent of our EBIT in 2005. Our Retail business
purchases crop inputs from major manufacturers, including Agrium Wholesale, and generates value to
the grower by providing application services, crop advice and other related services.




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MD&A: RETAIL
 AGRIUM ANNUAL REPORT 2005
    
    23
 RETAIL GEOGRAPHIC DIVERSITY Western Farm            Crop Production            Agroservicios
Service            Services            Pampeanos S.A. 2005 2005 2005
Revenue $683-million (55%) Revenue $413-million (33%) Revenue $U6-million (12%)
Gross margin 29% Gross margin 30% Gross margin 18%
Key crops:fruit, vegetables, Key crops:corn, soybeans, wheat Key crops:wheat,
Wheat            soybeans, corn, fruit




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MD&A: RETAIL
 Retail Strategy
  ■
    
    committing to a strict program of performance management;
 ■
    
    growing the business in general and the seed business in particular;
 ■
    
    building relationships with leading growers;
 ■
    
    expanding only in prime agricultural regions; and,
 ■
    
    optimizing returns from economies of scale.
 ■
    
    attention to people (customers and employees);
 ■
    
    accountability at each retail outlet and for Retail as a whole;
 ■
    
    management of the details, as each retail center is its own business with its own local challenges which must be actively supervised;
 ■
    
    appropriate incentive plans to encourage desired behavior at the retail center level and reward according to contribution, which ultimately shows in earnings results; and,
 ■
    
    empowerment within a defined structure of each retail center to make appropriate decisions at the retail outlet level, avoiding cumbersome and expensive bureaucracy.
  Key Retail Developments
   24
    
    AGRIUM ANNUAL REPORT 2005




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(WATERMARK)

MD&AP: RETAIL


Royster-Clark Acquisition

Agrium acquired control of Royster-Clark as of February 9, 2006. Royster-Clark, with annual
revenues exceeding  $1-billion, is a major retail distributor of agricultural fertilizers,
chemicals and seed and provides agronomic services to growers principally in the Midwestern and
Southeastern U.S. In addition to its 254 retail farm centers, Royster-Clark operates more than 30
seed processing, fertilizer granulation and fertilizer blending facilities. It also operates over
70 storage warehouses, distribution terminals and other storage capacity exceeding one million
tonnes. Royster-Clark operates two small nitrogen manufacturing facilities which supply nitrogen
fertilizers to its retail distribution business, third-party retailers and industrial customers.
The larger of the two production facilities, the East Dubuque, Illinois nitrogen plant, is
currently under a contract for sale.
The acquisition of Royster-Clarks 254 retail farm centers is an excellent strategic fit with very
little market overlap with our existing locations in the Midwestern U.S. The acquisition will add
further geographic and product diversity to our existing 254 facilities located in the U.S.,
Argentina and Chile. The addition of Royster-Clark is expected to increase our U.S. retail revenues
by over 60 percent and significantly increase our retail earnings. This aligns with our corporate
strategy of increasing the more stable components of our earnings profile, thereby reducing
cyclicality and increasing Agriums bottom-of-the-cycle earnings. In addition, Royster-Clarks
distribution terminals will provide storage and throughput capacity to facilitate the expected
increase in importation of nitrogen fertilizer over time.




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MD&A: RETAIL
 Retail Products & Services
 Fertilizer
 Crop Protection Products
  Seed, Other Products & Services
   26
    
    AGRIUM ANNUAL REPORT 2005




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MD&A: RETAIL
 RETAIL PERFORMANCE
    
    Year Ended December 31
    
    
    
    
    
    
    Variance Analysis2005
    
    
    2004(millions of U.S. dollars)
    
    2005
[a]
    
    
    2004 [a]
    
    
    2003 [a]
    
    v.2004
    
    v.2003FertilizersNet sales
    
    
    626
    
    
    
    556
    
    
    
    468
    
    
    
    70
    
    
    
    88Cost of product
    
    
    485
    
    
    
    425
    
    
    
    351
    
    
    
    60
    
    
    
    74Gross profit
    
    
    141
    
    
    
    131
    
    
    
    117
    
    
    
    10
    
    
    
    14Crop protection productsNet sales
    
    
    458
    
    
    
    416
    
    
    
    399
    
    
    
    42
    
    
    
    17Cost of product
    
    
    328
    
    
    
    298
    
    
    
    288
    
    
    
    30
    
    
    
    10Gross profit
    
    
    130
    
    
    
    118
    
    
    
    111
    
    
    
    12
    
    
    
    7Seed and other products and servicesNet sales
    
    
    158
    
    
    
    142
    
    
    
    148
    
    
    
    16
    
    
    
    (6
    )Cost of product
    
    
    82
    
    
    
    75
    
    
    
    78
    
    
    
    7
    
    
    
    (3
    )Gross profit
    
    
    76
    
    
    
    67
    
    
    
    70
    
    
    
    9
    
    
    
    (3
    )Total gross profit
    
    
    347
    
    
    
    316
    
    
    
    298
    
    
    
    31
    
    
    
    18Selling expenses
    
    
    239
    
    
    
    222
    
    
    
    214
    
    
    
    17
    
    
    
    8General and administrative
    
    
    10
    
    
    
    8
    
    
    
    8
    
    
    
    2
    
    
    
    Depreciation and amortization
    
    
    17
    
    
    
    18
    
    
    
    19
    
    
    
    (1
    )
    
    
    (1
    )Other expenses
    
    
    (15
    )
    
    
    (13
    )
    
    
    (9
    )
    
    
    (2
    )
    
    
    (4
    )EBIT
    
    
    96
    
    
    
    81
    
    
    
    66
    
    
    
    15
    
    
    
    15
  Retail 2005 Overview of Results
  Fertilizers
 Crop Protection Products
   AGRIUM ANNUAL REPORT 2005
    
    27




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MD&A: RETAIL
 Seed, Other Products & Services
 Expenses
   28
    
    AGRIUM ANNUAL REPORT 2005




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(PHOTO)



MD&A: WHOLESALE

Our Wholesale Business


A key strength of our Wholesale business is the diversity in our product mix, as well as
geographic diversity in terms of both production and sales markets. This is illustrated in the
overview of our production and sales regions shown in the map on the following page. Our potash
sales accounted for over 15 percent of our overall gross profit in 2005. Just over half of our 2005
volumes were sold in North America and the other half was marketed to offshore markets.
International nitrogen gross profit from our Profertil facility in Argentina and our Kenai, Alaska
facility accounted for 36 percent of our total Wholesale gross profit in 2005. Our North American
nitrogen sales account for about 34 percent of our Wholesale gross profit. Our phosphate sales are
almost exclusively in Western Canada and the U.S. Pacific Northwest regions, and phosphate sales
accounted for about eight percent of our 2005 Wholesale gross profit.




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MD&A: WHOLESALE
 2005 WHOLESALE CAPACITY, PRODUCTION & SALES  (000s of product tonnes)
 Nitrogen Volumes(a)
    
    
    Phosphate Volumes
    
    
    Potash VolumesCapacity
    
    
    Production
    
    
    Sales
    
    
    Capacity
    
    
    Production
    
    
    Sales
(b)
    
    
    Capacity
    
    
    Production
    
    
    SalesInternational
    
    
    2,140
    
    
    
    2,052
    
    
    
    1842
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    751North AmericaCanada
    
    
    3,775
    
    
    
    2,989
    
    
    
    1,670
    
    
    
    680
    
    
    
    593
    
    
    
    603
    
    
    
    1,790
    
    
    
    1,720
    
    
    
    99U.S.
    
    
    1,134
    
    
    
    853
    
    
    
    2,270
    
    
    
    644
    
    
    
    485
    
    
    
    462
    
    
    
    
    
    
    
    
    
    
    
    761Total
    
    
    7,049
    
    
    
    5,894
    
    
    
    5,782
    
    
    
    1,324
    
    
    
    1,078
    
    
    
    1,099
    
    
    
    1,790
    
    
    
    1,720
    
    
    
    1,611
 (a)
    
    North America Wholesale and South America Wholesale combined, includes ammonium sulphate and other, capacity as of December 2005.(b)
    
    International phosphate sales of 34,000 tonnes were South America Wholesale
purchases and resales.
 30
    
    AGRIUM ANNUAL REPORT 2005




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MD&A: WHOLESALE
 Wholesale Strategy
  Wholesale Products & Services
 Nitrogen Products
 Nitrogen Strategy & Key Developments
  ■
    
    Optimize returns from our North American-based nitrogen assets by continuously assessing make-versus-buy decisions, while enhancing our North American import capabilities.
 ■
    
    Minimize costs and optimize product mix depending on market demands at all facilities and in all markets.
 ■
    
    Increase the proportion of our international production capability, with low cost, long-term gas contracts and secure marketing rights to associated traded product.
 ■
    
    Significantly increase our sales and markets for controlled release nitrogen products.
   AGRIUM ANNUAL REPORT 2005
    
    31




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MD&A: WHOLESALE
 ■
    
    Taking measures to increase our fertilizer import
and distribution capabilities within North America,
which may include investing in additional North
American port, transportation and warehousing
assets.
 ■
    
    Successful integration of the Nu-Gro acquisition,
and the continued growth in the important
controlled release market segment. We will
leverage the strength and expanded capacity of
our controlled release ESN® and Duration CR®
products, with the newly acquired Nu-Gro specialty
fertilizer products. We believe there is significant
growth potential for the specialty fertilizer segment
from both an economic aspect and the significant
environment benefits offered by controlled release
products.
 ■
    
    We will continue to evaluate growing our production
and distribution in South America. As part of this
strategy we are working with our Profertil partner
to evaluate the potential to produce up to 500,000
tonnes of UAN and a possible small increase in our
urea capacity at our jointly owned nitrogen facility in
Argentina.
 ■
    
    We are actively evaluating the development of a
new world-scale nitrogen facility on Egypts
Mediterranean Coast that would have an annual
capacity of over one million tonnes of urea. A
decision on whether we will proceed with this is
expected in 2006.
 Potash Products
 
   32
    
    AGRIUM ANNUAL REPORT 2005




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MD&A: WHOLESALE
 Potash Strategy & Key Developments
 Phosphate Products
    Phosphate Strategy & Key Developments
   AGRIUM ANNUAL REPORT 2005
    
    33




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MD&A: WHOLESALE
 Industrial Products
  Distribution & Storage
 Specialty Products
  ® ® ® ® ®
   34
    
    AGRIUM ANNUAL REPORT 2005




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(BACKGROUND)
MD&A: WHOLESALE

Nu-Gro®In January 2006, Agrium purchased from Spectrum Brands Inc. its Nu-Gro fertilizer technology
and professional products businesses. Nu-Gro produces and distributes controlled release and
professional turf products, with total annual sales of approximately $80-million and average gross
margins of about 24 percent. The controlled release nitrogen products include branded products -
Nitroform®, Nutralene®, SCU® and IB Nitrogen that are marketed to finished product producers for
use on golf courses, sport turf, home lawns, high yield agricultural crops, nurseries and in
greenhouses. The professional turf products, Proturf® Professional Turf Products, Nu-Gro and Par
Ex®, are marketed directly for use in golf course and lawn care applications. We funded the
purchase price of $86-million from cash on hand. This acquisition will increase our sales and
earnings in the growing specialty fertilizer segment and provide sufficient critical mass to form a
new strategic business unit.The Future Is
ESN®,
Smart Nitrogen(ESN)ESN® is our patented process, producing a controlled release nitrogen product for large acre
crops. This product encapsulates urea inside a specially designed polymer coating that permits the
release of nitrogen to match the needs of the growing plant. Polymer technology allows for nitrogen
to be released closer to when the crop needs it, making it a more efficient product and reducing
losses to the environment. As a result, ESN® has the ability to increase crop yields, improve
nutrient efficiency, allow a wider window of nutrient application and reduce fuel costs and the
growers time by lowering the number of passes over a field.

Key facts:■     University, government and on-farm grower studies show that using ESN® can increase yields by up 12-15 bushels per acre for corn (or by about 10 percent) versus conventional nitrogen;■     Nitrogen release rates are dictated by water and soil temperature, which are the same factors that regulate crop growth;■     Third party endorsement includes Farm Industry News FinOvation Award for the top product in the Crop Chemicals category, three-year research funding of $500,000 from the Government of Canada, and $450,000 from the Alberta government;■     ESN® production technology may be expanded to other fertilizers such as phosphate; and,■     We estimate the North American market demand could surpass three million tonnes over the next five to 10 years.




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MD&A: NORTH AMERICA WHOLESALE
 North America Wholesale
 NORTH AMERICA WHOLESALE PERFORMANCE
 Year Ended December 31
    
    
    Variance Analysis(millions of U.S. dollars,
    
    
    
    
    
    
    
    
    
    
    
    
    2005 vs. 2004
    
    
    2004 vs. 2003thousands of tonnes)
    
    2005
    
    
    2004
    
    
    2003
    
    
    Change
    
    
    Price
    
    
    Volume
    
    
    Change
    
    
    Price
    
    
    VolumeNitrogenNet sales
    
    
    1,463
    
    
    
    1,180
    
    
    
    1,044
    
    
    
    283
    
    
    
    278
    
    
    
    5
    
    
    
    136
    
    
    
    135
    
    
    
    1Gross profit
    
    
    374
    
    
    
    315
    
    
    
    254
    
    
    
    59
    
    
    
    58
    
    
    
    1
    
    
    
    61
    
    
    
    60
    
    
    
    1PotashNet sales
    
    
    255
    
    
    
    214
    
    
    
    160
    
    
    
    41
    
    
    
    66
    
    
    
    (25
    )
    
    
    54
    
    
    
    45
    
    
    
    9Gross profit
    
    
    157
    
    
    
    106
    
    
    
    61
    
    
    
    51
    
    
    
    62
    
    
    
    (11
    )
    
    
    45
    
    
    
    40
    
    
    
    5PhosphateNet sales
    
    
    313
    
    
    
    309
    
    
    
    261
    
    
    
    4
    
    
    
    34
    
    
    
    (30
    )
    
    
    48
    
    
    
    26
    
    
    
    22Gross profit
    
    
    57
    
    
    
    71
    
    
    
    44
    
    
    
    (14
    )
    
    
    (7
    )
    
    
    (7
    )
    
    
    27
    
    
    
    23
    
    
    
    4Total net sales
    
    
    2,031
    
    
    
    1,703
    
    
    
    1,465
    
    
    
    328
    
    
    
    378
    
    
    
    (50
    )
    
    
    238
    
    
    
    206
    
    
    
    32Total gross profit
    
    
    588
    
    
    
    492
    
    
    
    359
    
    
    
    96
    
    
    
    113
    
    
    
    (17
    )
    
    
    133
    
    
    
    123
    
    
    
    10Selling expenses
    
    
    19
    
    
    
    17
    
    
    
    15
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2General and administrative
    
    
    21
    
    
    
    22
    
    
    
    20
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    2Depreciation and amortization
    
    
    107
    
    
    
    116
    
    
    
    99
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    17Royalties and other taxes
    
    
    35
    
    
    
    22
    
    
    
    11
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    11Other expenses
    
    
    (2
    )
    
    
    52
    
    
    
    28
    
    
    
    (54
    )
    
    
    
    
    
    
    
    
    
    
    24EBIT before special items
    
    
    408
    
    
    
    263
    
    
    
    186
    
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    77Special ItemsKenai award and settlement
    
    
    
    
    
    
    (86
    )
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    (86
    )Asset impairment
    
    
    
    
    
    
    
    
    
    
    235
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (235
    )EBIT
    
    
    408
    
    
    
    349
    
    
    
    (49
    )
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    398
  North America Wholesale Results
 North America Wholesale Expenses
   36
    
    AGRIUM ANNUAL REPORT 2005




---



##### 



MD&A: NORTH AMERICA WHOLESALE
 Nitrogen Products
 NAW NITROGEN PERFORMANCE
 Year Ended December 31
    
    
    Variance Analysis(millions of U.S. dollars,
    
    
    
    
    
    
    
    
    
    
    
    
    
    2005 vs. 2004
    
    
    2004 vs. 2003thousands of tonnes)
    
    2005
    
    
    2004
    
    
    2003
    
    
    Change
    
    
    Price
    
    
    Volume
    
    
    Change
    
    
    Price
    
    
    VolumeNitrogenTotal tonnes sold
    
    
    5,182
    
    
    
    5,159
    
    
    
    5,156
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    3Total net sales
    
    
    1,463
    
    
    
    1,180
    
    
    
    1,044
    
    
    
    283
    
    
    
    278
    
    
    
    5
    
    
    
    136
    
    
    
    135
    
    
    
    1Cost of product
    
    
    1,089
    
    
    
    865
    
    
    
    790
    
    
    
    224
    
    
    
    220
    
    
    
    4
    
    
    
    75
    
    
    
    75
    
    
    
    Total gross profit
    
    
    374
    
    
    
    315
    
    
    
    254
    
    
    
    59
    
    
    
    58
    
    
    
    1
    
    
    
    61
    
    
    
    60
    
    
    
    1Selling price per tonne
    
    
    282
    
    
    
    229
    
    
    
    202Cost of product per tonne
    
    
    210
    
    
    
    168
    
    
    
    153
  Nitrogen Gross Profit
  Nitrogen Prices
 Nitrogen Production Cost
   AGRIUM ANNUAL REPORT 2005
    
    37




---



##### 



MD&A: NORTH AMERICA WHOLESALE
 Sales Volumes & Operating Rates
   AVERAGE ANNUAL GAS PRICE
 (U.S. dollars per MMBtu)
    
    2005
    
    
    2004
    
    
    2003NYMEX
    
    
    8.55
    
    
    
    6.09
    
    
    
    5.44AECO
    
    
    7.03
    
    
    
    5.23
    
    
    
    4.74Basis
    
    
    1.52
    
    
    
    0.86
    
    
    
    0.70North America Wholesale
(incl. Kenai)Average  unhedged
    
    
    5.79
    
    
    
    4.32
    
    
    
    3.79Hedging impact
    
    
    (0.13
    )
    
    
    
    
    
    
    (0.09
    )Overall weighted average
    
    
    5.66
    
    
    
    4.32
    
    
    
    3.70
   38
    
    AGRIUM ANNUAL REPORT 2005




---



##### 



MD&A: NORTH AMERICA WHOLESALE
 Potash Products
 POTASH PERFORMANCE
 Year Ended December 31
    
    
    Variance Analysis(millions of U.S. dollars,
    
    
    
    
    
    
    
    
    
    
    
    
    2005 vs. 2004
    
    
    2004 vs. 2003thousands of tonnes)
    
    2005
    
    
    2004
    
    
    2003
    
    
    Change
    
    
    Price
    
    
    Volume
    
    
    Change
    
    
    Price
    
    
    VolumePotashTotal tonnes sold
    
    
    1,611
    
    
    
    1,796
    
    
    
    1,662
    
    
    
    (185
    )
    
    
    
    
    
    
    
    
    
    
    134International
    
    
    751
    
    
    
    730
    
    
    
    570
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    160Domestic
    
    
    860
    
    
    
    1,066
    
    
    
    1,092
    
    
    
    (206
    )
    
    
    
    
    
    
    
    
    
    
    (26
    )Total net sales
    
    
    255
    
    
    
    214
    
    
    
    160
    
    
    
    41
    
    
    
    66
    
    
    
    (25
    )
    
    
    54
    
    
    
    45
    
    
    
    9International
    
    
    97
    
    
    
    71
    
    
    
    43
    
    
    
    26
    
    
    
    24
    
    
    
    2
    
    
    
    28
    
    
    
    16
    
    
    
    12Domestic
    
    
    158
    
    
    
    143
    
    
    
    117
    
    
    
    15
    
    
    
    42
    
    
    
    (27
    )
    
    
    26
    
    
    
    29
    
    
    
    (3
    )Cost of product
    
    
    98
    
    
    
    108
    
    
    
    99
    
    
    
    (10
    )
    
    
    4
    
    
    
    (14
    )
    
    
    9
    
    
    
    5
    
    
    
    4Total gross profit
    
    
    157
    
    
    
    106
    
    
    
    61
    
    
    
    51
    
    
    
    62
    
    
    
    (11
    )
    
    
    45
    
    
    
    40
    
    
    
    5International
    
    
    63
    
    
    
    42
    
    
    
    22
    
    
    
    21
    
    
    
    20
    
    
    
    1
    
    
    
    20
    
    
    
    14
    
    
    
    6Domestic
    
    
    94
    
    
    
    64
    
    
    
    39
    
    
    
    30
    
    
    
    42
    
    
    
    (12
    )
    
    
    25
    
    
    
    26
    
    
    
    (1
    )Selling price per tonne
    
    
    158
    
    
    
    119
    
    
    
    96Cost of product per tonne
    
    
    61
    
    
    
    60
    
    
    
    60
  Potash Gross Profit
 Potash Prices
   Potash Production Cost
   AGRIUM ANNUAL REPORT 2005
    
    39




---



##### 



MD&A: NORTH AMERICA WHOLESALE
 Sales Volumes
 
   Phosphate Products
 PHOSPHATE PERFORMANCE
 Year Ended December 31
    
    
    Variance Analysis(millions of U.S. dollars,
    
    
    
    
    
    
    
    
    
    
    
    
    2005 vs. 2004
    
    
    2004 vs. 2003thousands of tonnes)
    
    2005
    
    
    2004
    
    
    2003
    
    
    Change
    
    
    Price
    
    
    Volume
    
    
    Change
    
    
    Price
    
    
    VolumePhosphateTonnes sold
    
    
    1,065
    
    
    
    1,181
    
    
    
    1,090
    
    
    
    (116
    )
    
    
    
    
    
    
    
    
    
    
    91Net sales
    
    
    313
    
    
    
    309
    
    
    
    261
    
    
    
    4
    
    
    
    34
    
    
    
    (30
    )
    
    
    48
    
    
    
    26
    
    
    
    22Cost of product
    
    
    256
    
    
    
    238
    
    
    
    217
    
    
    
    18
    
    
    
    41
    
    
    
    (23
    )
    
    
    21
    
    
    
    3
    
    
    
    18Total gross profit
    
    
    57
    
    
    
    71
    
    
    
    44
    
    
    
    (14
    )
    
    
    (7
    )
    
    
    (7
    )
    
    
    27
    
    
    
    23
    
    
    
    4Selling price per tonne
    
    
    294
    
    
    
    262
    
    
    
    239Cost of product per tonne
    
    
    240
    
    
    
    202
    
    
    
    199
  Phosphate Gross Profit
  Phosphate Prices
 Phosphate Production Cost
   40
    
    AGRIUM ANNUAL REPORT 2005




---



##### 



MD&A: NORTH AMERICA WHOLESALE
 Sales Volumes
 
   AGRIUM ANNUAL REPORT 2005
    
    41




---



##### 



MD&A: SOUTH AMERICA WHOLESALE
 South America Wholesale
 SOUTH AMERICA WHOLESALE PERFORMANCE
 Year Ended December 31
    
    
    Variance Analysis(millions of U.S. dollars,
    
    
    
    
    
    
    
    
    
    
    
    
    2005 vs. 2004
    
    
    2004 vs. 2003thousands of tonnes)
    
    2005
    
    
    2004
    
    
    2003
    
    
    Change
    
    
    Price
    
    
    Volume
    
    
    Change
    
    
    Price
    
    
    VolumeNitrogenTonnes sold
    
    
    600
    
    
    
    614
    
    
    
    634
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (20
    )Net sales
    
    
    159
    
    
    
    137
    
    
    
    111
    
    
    
    22
    
    
    
    25
    
    
    
    (3
    )
    
    
    26
    
    
    
    30
    
    
    
    (4
    )Cost of product
    
    
    47
    
    
    
    38
    
    
    
    31
    
    
    
    9
    
    
    
    10
    
    
    
    (1
    )
    
    
    7
    
    
    
    8
    
    
    
    (1
    )Gross profit
    
    
    112
    
    
    
    99
    
    
    
    80
    
    
    
    13
    
    
    
    15
    
    
    
    (2
    )
    
    
    19
    
    
    
    22
    
    
    
    (3
    )Selling price per tonne
    
    
    265
    
    
    
    223
    
    
    
    175Cost of product per tonne
    
    
    78
    
    
    
    62
    
    
    
    49OtherTonnes sold
    
    
    34
    
    
    
    20
    
    
    
    19
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    1Net sales
    
    
    10
    
    
    
    6
    
    
    
    5
    
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    1
    
    
    
    1
    
    
    
    Cost of product
    
    
    7
    
    
    
    3
    
    
    
    3
    
    
    
    4
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Gross profit
    
    
    3
    
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    (2
    )
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    Selling price per tonne
    
    
    294
    
    
    
    300
    
    
    
    263Cost of product per tonne
    
    
    206
    
    
    
    150
    
    
    
    158Total gross profit
    
    
    115
    
    
    
    102
    
    
    
    82
    
    
    
    13
    
    
    
    13
    
    
    
    
    
    
    
    20
    
    
    
    23
    
    
    
    (3
    )Selling expenses
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General & administrative
    
    
    4
    
    
    
    3
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Depreciation & amortization
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expenses
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    EBIT
    
    
    84
    
    
    
    83
    
    
    
    63
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    20
  South America Wholesale Results
  Nitrogen Gross Profit
  Nitrogen Prices
 Nitrogen Production Costs
   42
    
    AGRIUM ANNUAL REPORT 2005




---



##### 



MD&A:
OTHER BUSINESS SEGMENT
 Sales Volumes
  Expenses
  Other Business Segment
 ■
    
    Impact of the strengthening Canadian dollar on our Canadian dollar-denominated general and administrative and other expenses;
 ■
    
    Costs related to evaluating potential merger and acquisition opportunities and investigation of the feasibility of building a nitrogen production facility in Egypt;
 ■
    
    Recognition of the deferred issuance cost on redemption of our eight percent preferred securities;
 ■
    
    Evaluation and improvement of our corporate governance programs and increased regulatory compliance; and,
 ■
    
    Increased salary costs due to higher incentive pay-outs and fewer staff vacancies.
 AGRIUM ANNUAL REPORT 2005
    
    43




---



##### 



(PICTURE)


MD&A: OUTLOOK



Outlook

The primary driver for our business is the need for the worlds growers
to continue to increase global food production. We also expect high energy
prices to provide support to grain prices over the next few years. Biofuels
are environmentally-friendly fuels produced from plants. Some countries use
canola or other oilseeds to produce biodiesel, while corn is the key feedstock
used in the U.S. to produce ethanol. It is expected that 17 million more U.S.
corn acres will be needed to meet the growing demand for ethanol over the next
five years.




---



##### 



MD&A: OUTLOOK
 Outlook
 Agriculture Outlook
 Retail
  Nitrogen
   AGRIUM ANNUAL REPORT 2005
    
    45




---



##### 



MD&A: OUTLOOK
 Potash
 Phosphate
   46
    
    AGRIUM ANNUAL REPORT 2005




---



##### 



MD&A: OUT KEY BUSINESSSENSITIVITIES
 Our Key Business Sensitivities
 Foreign Exchange
   KEY BUSINESS SENSITIVITIES
 EBIT
    
    
    Net EarningsChange in
    
    
    Impact
    
    
    ImpactFactor[a]
    
    
    [U.S.$ millions]
    
    
    [U.S. $ millions]North America WholesaleWholesale marginsNitrogen
    
    $
    10.00
    
    
    
    49.0
    
    
    
    30.9Phosphate
    
    $
    10.00
    
    
    
    10.7
    
    
    
    6.7Potash
    
    $
    10.00
    
    
    
    16.1
    
    
    
    10.1Exchange rate from C$ to U.S.$
    
    $
    0.01
    
    
    
    4.6
    
    
    
    2.9South America WholesaleWholesale marginsNitrogen
    
    $
    10.00
    
    
    
    6.0
    
    
    
    3.8Exchange rate from Argentine Peso to U.S.$
    
    0.3 Pesos
    
    
    1.7
    
    
    
    1.1
 AGRIUM ANNUAL REPORT 2005
    
    47




---



##### 



MD&A: OUR CONSOLIDATEDPERFORMANCE
 (PICTURE)
 Our consolidated performance




---



##### 



MD&A: OUR CONSOLIDATEDPERFORMANCE
 Our Consolidated Performance
 Results of Operations
 Net
    
    
    Net Earnings
    
    
    
    
    
    
    Cash
    
    
    
    
    
    
    Long-term(millions of U.S. dollars,
    
    Net
    
    
    Earnings
    
    
    (Loss) Per Share:
    
    
    Total
    
    
    & Cash
    
    
    Cash
    
    
    Financialexcept per share amounts)
    
    Sales
    
    
    (Loss)
    
    
    Basic
    
    
    Diluted
    
    
    Assets
    
    
    Equivalents
    
    
    Dividends
    
    
    Liabilities2005Q1
    
    
    537
    
    
    
    24
    
    
    
    0.18
    
    
    
    0.18
    
    
    
    2,677
    
    
    
    326
    
    
    
    
    
    
    
    799Q2
    
    
    1,180
    
    
    
    133
    
    
    
    1.01
    
    
    
    0.99
    
    
    
    2,694
    
    
    
    427
    
    
    
    7
    
    
    
    784Q3
    
    
    807
    
    
    
    72
    
    
    
    0.54
    
    
    
    0.54
    
    
    
    2,817
    
    
    
    415
    
    
    
    
    
    
    
    755Q4
    
    
    770
    
    
    
    54
    
    
    
    0.41
    
    
    
    0.40
    
    
    
    2,785
    
    
    
    300
    
    
    
    7
    
    
    
    722Year
    
    
    3,294
    
    
    
    283
    
    
    
    2.14
    
    
    
    2.12
    
    
    
    2,785
    
    
    
    300
    
    
    
    14
    
    
    
    7222004Q1
    
    
    435
    
    
    
    11
    
    
    
    0.08
    
    
    
    0.08
    
    
    
    2,416
    
    
    
    202
    
    
    
    
    
    
    
    978Q2
    
    
    1,011
    
    
    
    74
    
    
    
    0.56
    
    
    
    0.52
    
    
    
    2,345
    
    
    
    196
    
    
    
    7
    
    
    
    970Q3
    
    
    672
    
    
    
    83
    
    
    
    0.63
    
    
    
    0.60
    
    
    
    2,514
    
    
    
    299
    
    
    
    
    
    
    
    979Q4
    
    
    720
    
    
    
    98
    
    
    
    0.75
    
    
    
    0.71
    
    
    
    2,661
    
    
    
    425
    
    
    
    7
    
    
    
    972Year
    
    
    2,838
    
    
    
    266
    
    
    
    2.03
    
    
    
    1.91
    
    
    
    2,661
    
    
    
    425
    
    
    
    14
    
    
    
    9722003Q1
    
    
    372
    
    
    
    (11
    )
    
    
    (0.09
    )
    
    
    (0.09
    )
    
    
    2,436
    
    
    
    136
    
    
    
    
    
    
    
    1,038Q2
    
    
    929
    
    
    
    65
    
    
    
    0.52
    
    
    
    0.47
    
    
    
    2,437
    
    
    
    152
    
    
    
    7
    
    
    
    1,041Q3
    
    
    561
    
    
    
    22
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    2,434
    
    
    
    171
    
    
    
    
    
    
    
    1,038Q4
    
    
    637
    
    
    
    (113
    )
    
    
    (0.90
    )
    
    
    (0.90
    )
    
    
    2,278
    
    
    
    200
    
    
    
    7
    
    
    
    1,002Year
    
    
    2,499
    
    
    
    (37
    )
    
    
    (0.29
    )
    
    
    (0.29
    )
    
    
    2,278
    
    
    
    200
    
    
    
    14
    
    
    
    1,002
  ■
    
    Net earnings and net earnings per share in the
third and fourth quarters of 2004 included income
of $41-million and $9-million respectively ($25-million after tax or $0.17 diluted earnings per
share in the third quarter and $5-million after tax
or $0.04 diluted earnings per share in the fourth
quarter) in liquidated damages from an arbitration
panel award relating to our Kenai facility;
 ■
    
    Net earnings and net earnings per share for the
fourth quarter of 2004 included a $36-million gain
($21-million after tax or $0.15 diluted earnings per
share) on the settlement of all outstanding legal
claims relating to our Kenai facility; and,
 ■
    
    Net earnings and net earnings per share for the
fourth quarter of 2003 included a $235-million
impairment charge against our Kenai facility
($140-million after tax or $0.96 diluted earnings
per share).
 Income Taxes
   Interest Expense
   AGRIUM ANNUAL REPORT 2005
    
    49




---



##### 



MD&A: OUR CONSOLIDATEDPERFORMANCE
 Seasonality
  2005 Fourth Quarter Operating Results
 Net Earnings
   ■
    
    $(45)-million relating to Kenai award and
settlement recorded as income in the prior quarter
of 2004;
 ■
    
    $16-million pertaining to settlement of a
commercial dispute recorded as income in the
fourth quarter of 2005; and,
 ■
    
    $(3)-million relating to other income and other
expenses recorded in the fourth quarter of 2005.
 Cash Provided by Operating Activities
  Business Segment Performance
 Retail
 North America Wholesale
   ■
    
    Nitrogen gross profit declined by $39-million in
the fourth quarter of 2005 reflecting primarily a
decline in both international and domestic urea
gross profit.
 ■
    
    Higher urea prices were more than offset by lower
sales volumes. The volume decline reflected
lower opening inventory balances, turnaround at
our plants and weaker demand. Urea demand
softened as customers delayed purchase
decisions until closer to the spring season and in
anticipation that lower natural gas prices may
result in lower nitrogen prices.
 ■
    
    Our North America nitrogen margins were also
negatively impacted by a significant increase in
North American natural gas costs compared with
the fourth quarter of 2004. Previously deferred
qualifying hedge gains realized on natural gas
derivative contracts in the fourth quarter of 2005
contributed $5-million to nitrogen gross profit.
 ■
    
    Potash gross profit was relatively consistent
compared with the fourth quarter of 2004. While
potash prices were higher in the fourth quarter of
2005, our sales volumes fell due to softening
demand. This slowdown resulted in part from
purchase delays by North America-based
customers due to high product prices relative to
crop prices. Other factors contributing to the
weakness included purchase delays from our
international marketing agency, Canpotex, due to
poor conditions in the Brazilian farming economy
   50
    
    AGRIUM ANNUAL REPORT 2005




---



##### 



MD&A: OUR CONSOLIDATEDPERFORMANCE
 and purchase delays by China pending negotiation of annual supply contracts.
 ■
    
    Phosphate gross profit dropped by $14-million in
the fourth quarter of 2005 compared with the same
period last year. Phosphate prices were strong,
reflecting rising prices for the key inputs of
ammonia and sulphur, but sales volumes were
down due to lower opening inventory balances
resulting from an extended plant turnaround and
soft North America demand. Other factors
negatively impacting margin in the quarter were
higher phosphate rock mining costs and raw
material costs, and higher unit fixed costs,
reflecting lower production volumes.
  South America Wholesale
  Other
  Capital Resources
 Non-cash Working Capital
  ■
    
    Seasonality factors discussed on page 50 of this MD&A;
 ■
    
    Demand for our products and services;
 ■
    
    Selling prices of our products and services;
 ■
    
    Raw material input and other costs; and,
 ■
    
    Foreign exchange rates.
  Capital Expenditures
  (millions of U.S. dollars)
    
    2005
    
    
    2004
    
    
    2003Sustaining capital
    
    
    87
    
    
    
    69
    
    
    
    72Investment capital
    
    
    71
    
    
    
    13
    
    
    
    2Acquisition of IOL assets
    
    
    17
    
    
    
    
    
    
    
    Kenai earn-out
    
    
    
    
    
    
    
    
    
    
    25Total
    
    
    175
    
    
    
    82
    
    
    
    99
  ® ® ® ®
  ■
    
    The acquisition of the Western Canadian fertilizer
distribution assets of Imperial Oil; and,
 ■
    
    The acquisition of a South American Retail outlet
chain that complements our existing ASP
operations in Argentina and added retail assets
in Chile.
   AGRIUM ANNUAL REPORT 2005
    
    51




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##### 



MD&A: OUR CONSOLIDATEDPERFORMANCE
 ■
    
    Wholesale sustaining capital for plant sites is
expected to total $70-million. This would include
$12-million to extend the life of the gypsum stack
storage at the Red water facility; and,
 ■
    
    Retail sustaining capital is expected to total $17-million primarily for real estate improvements.
  ■
    
    Vanscoy potash operation expansion is estimated
to require an additional $50-million in 2006 to
finish the 310,000 tonnes per year expansion to
production capacity; and,
 ■
    
    We employed $86-million in investment capital
to acquire the fertilizer technology and
professional products business of Nu-Gro as of
January 25, 2006.
   Liquidity
   Financing Activities & Financial Position
 LIQUIDITY
 Currency
    
    
    U.S. Dollar(millions of U.S. dollars)
    
    Denomination
    
    
    EquivalentCash and cash equivalents
    
    U.S. dollars
    
    
    290Canadian dollars
    
    
    3Argentine pesos
    
    
    4Other
    
    
    3Short-term bank lines
(unused) (a)
    
    U.S. dollars
    
    
    461Argentine pesos
    
    
    19Other non-working capital
(b)
    
    U.S. dollars
    
    
    4611,241
 (a)
    
    Unused amounts are net of
letters of credit outstanding as at December 31, 2005.(b)
    
    As discussed on page 55 of this MD&A, this includes an asset securitization program in the amount of $125-million as of December 31, 2005 which has since
been increased to $200-million as of January 18, 2006.
   ■
    
    On February 14, 2005, we redeemed our $175-million, eight percent redeemable preferred
securities for cash. The redemption price was
equal to the principal amount of the securities plus
accrued and unpaid interest to the date of
redemption. As explained on page 59 of this 2005
MD&A, these preferred securities were
reclassified to debt, effective January 1, 2005. In
connection with the redemption, we recorded a
loss on extinguishment of debt in the amount of
$3-million, representing the unamortized portion
of the debt issuance costs, net of tax.
 ■
    
    In May 2005, we amended our $450-million three-year syndicated revolving unsecured credit facility.
In addition to extending the maturity an additional
year to 2008, we reduced our variable margin for
borrowing under the facility, reflecting our
stronger financial position.
 ■
    
    On September 30, 2005, Profertil repaid its non-recourse project financing of $153-million using
Profertils existing cash. Our 50 percent share
was $76-million. In connection with this repayment,
we recorded a loss on extinguishment of debt in
the amount of $8-million net of tax, representing
the unamortized portion of the debt issuance
costs and political risk insurance, net of tax.
   52
    
    AGRIUM ANNUAL REPORT 2005




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##### 



MD&A: OUR CONSOLIDATEDPERFORMANCE
 In conjunction with the debt repayment, Profertil entered into a $40-million credit facility to
fund working capital requirements. The new facility complements Profertils growth strategy and
provides increased liquidity and flexibility for short-term borrowings. Earnings will benefit in
future periods from lower interest and bank transaction charges as a result of the reduction in
debt.
  Cash Provided by Operating Activities
 Argentina Currency Repatriation
   Financial Covenants
  Debt Ratings
    
 Senior Unsecured Notesand DebenturesMoodys Investors Services
    
    (Baa2)Dominion Bond Rating Service
    
    (BBB)Standard & Poors Ratings Services
    
    (BBB)
   AGRIUM ANNUAL REPORT 2005
    
    53




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##### 



MD&A: OUR CONSOLIDATEDPERFORMANCE
 Outstanding Shares
    Number
    
    
    Share
    
    
    Market(millions of shares, millions of U.S. dollars)
    
    of Shares
    
    
    Capital
    
    
    ValueCommon shares
    
    
    131
    
    
    
    583
    
    
    
    3,121
 Future Cash Requirements
  ■
    
    Aggregate contractual obligations;
 ■
    
    Other obligations, including asset retirement obligations and environmental remediation liabilities, where
the extent, timing or amount of the obligations may be determined by some future event that cannot be
determined with substantial accuracy;
 ■
    
    Employee future benefit obligations;
 ■
    
    Capital expenditure commitments;
 ■
    
    General operating requirements including interest payments, income and other taxes payable and peak
seasonal working capital requirements; and,
 ■
    
    Future growth opportunities, including acquisitions.
 Obligations
 Contractual Obligations
   Payment due by period:Less than one
    
    
    One to three
    
    
    Four to five
    
    
    After five(millions of U.S. dollars)
    
    year
    
    
    years
    
    
    years
    
    
    years
    
    
    TotalLong-term debt (a) (b)
    
    
    66
    
    
    
    157
    
    
    
    195
    
    
    
    434
    
    
    
    852Operating leases (c)
    
    
    41
    
    
    
    62
    
    
    
    18
    
    
    
    12
    
    
    
    133Purchase obligations (d) (e) (f) (g)
    
    
    1,080
    
    
    
    184
    
    
    
    118
    
    
    
    98
    
    
    
    1,480Total
    
    
    1,187
    
    
    
    403
    
    
    
    331
    
    
    
    544
    
    
    
    2,465
 (a)
    
    Includes transfer payments.(b)
    
    Failure to maintain certain financial ratios and other covenants may trigger early
repayment provisions (see financial covenants on page 53 of this MD&A).(c)
    
    Includes short-term leases for railcars and distribution facilities in Wholesale,
vehicles and application equipment in Retail and computer equipment leases.(d)
    
    Includes minimum commitments for North America natural gas based
on prevailing NYMEX forward prices at December 31, 2005. We commit to
purchase a large percentage
of our production volume requirements for the next year at floating prices, and
actual prices may differ.(e)
    
    Liquid markets exist for the possible resale of Wholesale natural
gas, sulphuric acid and power purchased under the majority of these
commitments, but gains or losses could
be incurred on resale.(f)
    
    Includes our 50 percent share of Profertils annual gas purchase commitments of
$202-million.(g)
    
    Purchase obligations exclude employee future benefits, for which employer contributions
are expected to be $5-million to $11-million in 2006.
 54
    
    AGRIUM ANNUAL REPORT 2005




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##### 



MD&A: OUR CONSOLIDATEDPERFORMANCE
 Other Long-term Obligations
   Payment due by period:Less than six
    
    
    Six to 10
    
    
    11 to 15
    
    
    After 15(millions of U.S. dollars)
    
    years
    
    
    years
    
    
    years
    
    
    years
    
    
    TotalAsset retirement obligations (a)
    
    
    26
    
    
    
    9
    
    
    
    74
    
    
    
    536
    
    
    
    645Environmental remediation liabilities
    
    
    60
    
    
    
    16
    
    
    
    11
    
    
    
    21
    
    
    
    108Total
    
    
    86
    
    
    
    25
    
    
    
    85
    
    
    
    557
    
    
    
    753
 (a)
    
    Represents the undiscounted, inflation-adjusted estimated cash outflows required to
settle the asset retirement obligations in the amount of $60-million at December 31, 2005.
See note 15 to our 2005 consolidated financial statements for further discussion of asset
retirement obligations.
  Off Balance Sheet Financing Arrangements
 Asset Securitization
  Derivative Instruments
 ■
    
    Our natural gas exposure up to 75 percent of
planned gas requirements for the current year
plus the following two years and 25 percent of
planned gas requirements for the third and fourth
ensuing years; and,
 ■
    
    Our foreign exchange exposure up to 75 percent of
the estimated transactional exposure for the next
12-month period, 50 percent for months 13 to 24
and 25 percent for months 25 to 36.
   AGRIUM ANNUAL REPORT 2005
    
    55




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##### 



MD&A: OUR CONSOLIDATEDPERFORMANCE
 DERIVATIVE CONTRACT POSITIONS
 ($/MMBtu, thousands of MMBtu per day)
    
    2006As at February 14, 2006
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    2007
    
    
    2008-2010NYMEX fixed price swapsPrices
    
    
    10.78
    
    
    
    9.10
    
    
    
    8.84
    
    
    
    9.23
    
    
    
    9.75
    
    
    
    8.96Volume/day (a)
    
    
    63
    
    
    
    57
    
    
    
    42
    
    
    
    49
    
    
    
    37
    
    
    
    12Call spreadsPrices
    
    
    6.45/8.98
    
    
    
    6.45/8.98
    
    
    
    6.45/8.98
    
    
    
    6.23/8.42
    
    
    
    6.07/8.06
    
    
    
    5.61/7.44Volume/day (a)
    
    
    20
    
    
    
    30
    
    
    
    30
    
    
    
    27
    
    
    
    23
    
    
    
    8Producer collar/NYMEX fixed  price
swap combinationsPrices
    
    
    12.10/14.61
    
    
    
    8.49/10.37
    
    
    
    7.53/9.25
    
    
    
    7.53/9.25
    
    
    
    
    
    
    
    Volume/day (a)
    
    
    87
    
    
    
    60
    
    
    
    20
    
    
    
    7
    
    
    
    
    
    
    
    AECO basis swapsPrices
    
    
    0.96
    
    
    
    0.92
    
    
    
    0.92
    
    
    
    0.92
    
    
    
    0.88
    
    
    
    Volume/day (a)
    
    
    120
    
    
    
    50
    
    
    
    37
    
    
    
    23
    
    
    
    12
    
    
    
    Foreign exchange forwardsExchange rate from U.S.$ to C$
    
    
    1.18
    
    
    
    1.18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Notional amount (C$)
    
    
    79
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (a)
    
    Excluding the Kenai and Profertil facilities, our facilities use approximately 270,000 MMBtu per day of natural gas.
  
 Related Party Transactions
   56
    
    AGRIUM ANNUAL REPORT 2005




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##### 



MD&A: OUR ACCOUNTING POLICIES
 Our Accounting Policies
   Critical Accounting Policies & Estimates
  ■
    
    it requires assumptions to be made that were
uncertain at the time the estimate was made; and,
 ■
    
    changes in the estimate or different estimates that
could have been selected could have a material
impact on our consolidated results of operations
or financial condition.
  a) Plant, property and equipment
 b) Asset
retirement obligations and environmental remediation
    c) Pension plans & other post-retirement benefits
   AGRIUM ANNUAL REPORT 2005
    
    57




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##### 



MD&A: OUR ACCOUNTING POLICIES
 Non-GAAP Disclosure
 
   Wholesale(millions of U.S. dollars
    
    
    
    
    
    North
    
    
    South
    
    
    
    
    
    
    
    
    
    
    Dilutedexcept per share amounts)
    
    Retail
    
    
    America
    
    
    America
    
    
    Other
    
    
    Consolidated
    
    
    per Share2005EBITDA
    
    
    113
    
    
    
    515
    
    
    
    99
    
    
    
    (81
    )
    
    
    646Less depreciation
and amortization
    
    
    17
    
    
    
    107
    
    
    
    15
    
    
    
    7
    
    
    
    146EBIT
    
    
    96
    
    
    
    408
    
    
    
    84
    
    
    
    (88
    )
    
    
    500Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283
    
    
    
    2.12
  Wholesale(millions of U.S. dollars
    
    
    
    
    
    North
    
    
    South
    
    
    
    
    
    
    
    
    
    
    Dilutedexcept per share amounts)
    
    Retail
    
    
    America
    
    
    America
    
    
    Other
    
    
    Consolidated
    
    
    per Share2004EBITDA
    
    
    99
    
    
    
    465
    
    
    
    98
    
    
    
    (39
    )
    
    
    623Less depreciation and
amortization
    
    
    18
    
    
    
    116
    
    
    
    15
    
    
    
    7
    
    
    
    156Less special items:Kenai award and settlement
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    86EBIT before special items
    
    
    81
    
    
    
    263
    
    
    
    83
    
    
    
    (46
    )
    
    
    381Plus special items:Kenai award and settlement
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    86EBIT
    
    
    81
    
    
    
    349
    
    
    
    83
    
    
    
    (46
    )
    
    
    467Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    1.91
 58
    
    AGRIUM ANNUAL REPORT 2005




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##### 



MD&A: BUSINESS RISKS
 Wholesale(millions of U.S. dollars
    
    
    
    
    
    North
    
    
    South
    
    
    
    
    
    
    
    
    
    
    Dilutedexcept per share amounts)
    
    Retail
    
    
    America
    
    
    America
    
    
    Other
    
    
    Consolidated
    
    
    per Share2003EBITDA
    
    
    85
    
    
    
    285
    
    
    
    78
    
    
    
    (52
    )
    
    
    396Less depreciation and
amortization
    
    
    19
    
    
    
    99
    
    
    
    15
    
    
    
    7
    
    
    
    140EBIT before special items
    
    
    66
    
    
    
    186
    
    
    
    63
    
    
    
    (59
    )
    
    
    256Less special items:Asset impairment
    
    
    
    
    
    
    235
    
    
    
    
    
    
    
    
    
    
    
    235EBIT
    
    
    66
    
    
    
    (49
    )
    
    
    63
    
    
    
    (59
    )
    
    
    21Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    
    (0.29
    )
  Accounting Policy Changes
 a) Classification of liabilities and equity
   New Accounting Standards
 Financial Instruments, Hedging Relations & Other Comprehensive Income
 Business Risks
   AGRIUM ANNUAL REPORT 2005
    
    59




---



##### 



MD&A: BUSINESS RISKS
 Product Price & Margin
   ■
    
    The broad product diversity of our Wholesale
business (nitrogen, potash, phosphate and
specialty products) reduces the impact of poor
supply and demand fundamentals that can be
experienced by a particular product category;
 ■
    
    The geographic diversity of our customer base
(North America, South America, international)
reduces the impact of poor economic, crop or
weather conditions in any one region;
 ■
    
    We may take advantage of the recently introduced
forward contract market to hedge nitrogen and
phosphate product prices when we believe it may
be beneficial;
 ■
    
    Our customers have diverse end-uses for our
products (agriculture and industrial), with some of
our industrial sales prices based on a cost of
production plus margin basis;
 ■
    
    We have an extensive Retail business that provides
stability to our cash flows and earnings;
 ■
    
    We also make prepay forward sales and may lock
in nitrogen margins using forward gas price
hedging; and,
 ■
    
    Within our Retail business, we have further
mitigating factors including:
 ■
    
    product and service diversity (fertilizer, chemical,
seed and application services); and,
 ■
    
    geographic diversity that helps spread risk
associated with regional weather and crop
variables (broad regional U.S. and South
American markets).
 Raw Materials
 ■
    
    Our Kenai and Profertil nitrogen facilities have
fixed-price gas contracts that are not tied to North
American gas or global oil prices;
 ■
    
    In the short-term, we use derivative instruments
and other contractual arrangements to attempt to
reduce the risk of gas price volatility;
 ■
    
    Our practice of adjusting our production rates and
sourcing supply for our customers from purchased
product when conditions dictate reduces our
exposure to high natural gas costs;
 ■
    
    The majority of our nitrogen sold in North America
is produced in Western Canada, which has lower-cost gas than most other competitors who produce
and sell in North America;
 ■
    
    In the long-term, our goal is to increase our
nitrogen capacity in areas where long-term
supplies of lower-cost trapped natural gas are
available; and,
 ■
    
    For sulphur, we have medium-term highly
competitive contracts in place with suppliers and
proximity to lower cost sulphur and sulphuric acid.
  Weather
   60
    
    AGRIUM ANNUAL REPORT 2005




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##### 



MD&A: BUSINESS RISKS
 ■
    
    Our extensive distribution and storage system
allows us to move products to locations where
demand is strongest. However, our ability to react is
limited by the shortness of the peak selling
season;
 ■
    
    Geographic diversity of our Wholesale markets
and our Retail facilities affords some protection
against regional weather patterns;
 ■
    
    We also mitigate our exposure to weather-related
risk through our sales to industrial customers,
which are far less dependent on weather. Industrial
sales represent approximately 15 percent of our
Wholesale net sales; and,
 ■
    
    We reviewed the potential use of weather
derivatives to manage weather-related risks,
but determined that the cost outweighed the
likely benefit.
 Climate Change
   ■
    
    We track our annual GHG emissions and have
proactively improved plant energy efficiencies and
reduced GHG emissions. This has been
accomplished through several plant retrofits and
the construction of a co-generation unit at Agriums
Carseland facility.
 ■
    
    We have taken a leadership role in the fertilizer
industrys negotiations with the government on
fair and equitable GHG emission reduction targets
and a pragmatic and realistic compliance system
that preserves the global competitiveness of the
industry.
 Transportation
   ■
    
    We develop detailed forecasts of product
movement needs for each facility and mode of
transport;
 ■
    
    Mutually beneficial long-term relationships with
major carriers are continually developed and
maintained;
 ■
    
    Some of our production facilities are serviced
through multiple carriers and modes of
transportation, providing us with important
shipping options; and,
 ■
    
    We maintain multiple supply points through our
extensive distribution network, in case
transportation disruption occurs at a particular
facility.
 Country Risk
   ■
    
    We seek to partner with reputable firms with
experience or significant presence in foreign
countries in which we operate or intend to operate;
 ■
    
    We hire personnel located in the foreign country
or who have operating experience in the foreign
country;
 ■
    
    Non-recourse project financing with consortiums
of international banks is obtained where
appropriate;
 ■
    
    We maintain excess cash related to international
operations in U.S. dollars to the extent practicable;
and,
 ■
    
    We increase our required investment return to
reflect our perceived risk of conducting business
in specific countries.
   AGRIUM ANNUAL REPORT 2005
    
    61




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##### 



MD&A: BUSINESS RISKS
 Foreign Exchange
   ■
    
    Exposure to currency fluctuations is partially
managed through our currency hedging
programs.
 Legislative Tax
   ■
    
    Our tax department proactively participates in tax
and industry organizations and maintains
contacts with an extensive network of local and
international tax consultants; and,
 ■
    
    We have centralized responsibility over the tax
function in the jurisdictions in which we operate.
 Counterparty
   ■
    
    We have established credit procedures that
include rigorous assessment of a counterpartys
credit-worthiness and adherence to credit limits;
 ■
    
    For derivative hedging contracts, we have established counterparty trading limits and netting
agreements; and,
 ■
    
    In our Retail segment, we service customers in
diverse geographic markets, which reduces the
impact of poor economic or crop conditions in any
particular region.
 Security
   ■
    
    We continue to work with industry associations,
law enforcement and government agencies to
ensure our facility and product security
requirements are identified and addressed;
 ■
    
    We have developed and implemented a system to
proactively identify and manage chemical exposure
health risks;
 ■
    
    We discontinued production of all agricultural
grade ammonium nitrate in 2005;
 ■
    
    We have implemented a carrier verification system
for all products wherein we examine carrier
identification and verifications prior to loading
product from our plants and terminals; and,
 ■
    
    Our facilities have developed security plans with
security measures, which can be implemented in
response to real or perceived security threats.
 Environment, Health & Safety
   ■
    
    We maintain and steward EH&S policy through our
executive and Board EH&S Committees. Our
Board EH&S Committee monitors EH&S
performance and compliance with legal and
regulatory requirements as well as applicable
industry standards and reviews our EH&S risks,
governance practices, strategies and methods
to improve EH&S performance, management
systems implementation, audit programs and
remediation projects.
 ■
    
    Our executive EH&S Committee is comprised of certain members of senior management which is responsible to
ensure that our operations are conducted in an environmentally responsible manner and that our
health and safety programs are implemented and operating effectively throughout our organization
and facilities.
 ■
    
    We have implemented a management system
through our Wholesale operations that drives the
processes to minimize EH&S risks and are
implementing a similar system for our Retail
business. The system addresses environmental,
health and safety responsibilities and accountabilities, goal setting and planning, continuous
improvement, emergency response, security and
occupational health, among others. We deploy
the necessary expertise and resources to ensure
that regulatory and system requirements are
understood, in place, current and effective.
   62
    
    AGRIUM ANNUAL REPORT 2005




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##### 



■
    
    We regularly conduct regulatory, systems and process safety audits. Corrective actions
arising from these audits are monitored and reviewed with executive management to ensure
timely corrective action and closure.
 Disclosure Controls & Procedures
 Certification of
Disclosure in Issuers Annual and Interim Filings
 
   AGRIUM ANNUAL REPORT 2005
    
    63