##### 



EXHIBIT
99.2
 AGRIUM INC.
 2007
 MANAGEMENTS
DISCUSSION & ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION




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##### 



Agrium
 2007 annual report
 
     13
    
    Forward-looking Statement14
    
    Executive Summary16
    
    Business, Strategy & Key Drivers18
    
    Strategic Business Units21
    
    Retail Business Segment31
    
    Wholesale Business Segment51
    
    Advanced Technologies Business Segment55
    
    Other Business Segment57
    
    Outlook61
    
    Key Business Sensitivities62
    
    Consolidated Performance68
    
    Financial Condition69
    
    Liquidity and Capital Resources77
    
    Outstanding Shares77
    
    Off Balance Sheet Arrangements77
    
    Related Party Transactions77
    
    Financial Instruments79
    
    2007 Fourth Quarter MD&A83
    
    Accounting Estimates and New Accounting Standards87
    
    Business Risks95
    
    Controls & Procedures
   
    12




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##### 



Agrium
 2007 annual report
   
    
    Disclosures made under the heading Outlook.
    
    Our 2008 key corporate goals, including expansion and growth of our business and operations.
    
    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.
    
    Future crop input volumes, prices and sales.
    
    Availability of raw materials, particularly gas availability or gas price relative to
nitrogen prices.
    
    Risk mitigation activities.
    
    Our future results and plans, including our recent acquisitions.
  
    
    General economic, market, business and weather conditions, including: global agriculture
supply/demand factors and crop price levels; global and regional supply/demand factors
impacting the price of crop nutrients, seed and crop protection products and raw
materials/feedstocks.
    
    Changes in government policies and legislation regarding agriculture, safety,
environment, green house gas and others, including potential imposition of or changes to
price controls on fertilizers in certain markets.
    
    Actions by competitors and others that include changes to industry capacity and
utilization rates and product pricing; performance by customers, suppliers, and
counterparties to financial instruments, and ability to transport or deliver production
to markets.
    
    Changes in margins and/or levels of supplier rebates for major crop inputs such as crop
protection products, nutrients and seed.
    
    General operating risks associated with: investment in foreign jurisdictions; the level
and effectiveness of future capital expenditures, reliability of performance of existing
capital assets; changes in capital markets; and fluctuations in foreign exchange rates
and tax rates in the jurisdictions in which we operate.
    
    Future operating rates, production costs and sustaining capital of our Wholesale
facilities, including the rate of inflation and availability of skilled labor
particularly in Western Canada; unexpected costs from present and discontinued mining
operations and/or labor disruptions; changes to timing, construction cost, performance
of other parties and political risks associated with our Egypt nitrogen project.
    
    Strategic risks including: our ability to effectively implement our business strategy
and our risk mitigation strategies, including hedging and insurance; our ability to
close pending acquisitions as anticipated, integrate and achieve synergies from any
assets we may acquire within the time expected or the performance of those assets;
technological changes; and other factors.
    13




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##### 



Agrium
 2007 annual report
   
    
    Continuation of the recent positive agricultural market developments in 2008, including
crop prices that remain well above historic levels and crop yields that approximate trend
levels.
    
    Anticipated continuation of tight world fertilizer market conditions for all three major
nutrients supporting the continuation of both high prices and margins.
    
    High operating rates for the majority of our facilities in 2008, with the exception of
routinely scheduled turnarounds at several plants and our Profertil facility that may again
be impacted by reduced gas deliverability during the Argentine winter.
   Non-GAAP
Financial Measures
   2007
Consolidated Financial Performance
  2007
Key Accomplishments, Challenges and Developments
 
    
    Our Retail operations surpassed the stated goal for synergies to be captured in 2007 from the
Royster-Clark acquisition. Our total Retail EBITDA increased 68 percent over 2006 to reach a record $210-million largely
due to these efforts.
    
    Wholesale gross profit doubled over last year to establish a new EBITDA record of
$786-million. We were able to accomplish this despite a significant increase in the value of
the Canadian dollar in relation to the U.S. dollar and gas supply interruptions to our
nitrogen facilities in Argentina and closure of our facility in Alaska.
    
    We delivered $29-million in EBITDA from our Advanced Technologies business segment in
2007, selling over 120,000 tonnes of our patented ESN®controlled-release
product for use on row crops this year, running the ESN®coating facility at
approximately 70 percent of capacity.
    14




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##### 



Agrium
 2007 annual report
   
    
    We entered into an agreement in 2007 to market about 80,000 tonnes per year of aqua
ammonia to operations in Albertas oilsands to be used in the reduction of sulphur
emissions. We believe there is potential for additional use of nitrogen products to
reduce emissions at oilsands operations in the future.
    
    We successfully addressed technical rock processing challenges at our Kapuskasing,
Ontario mine that arose in 2006. By the fourth quarter of 2007, our average rock costs
were 40 percent lower than the fourth quarter of 2006, on a Canadian dollar per tonne
basis, and production levels were significantly higher.
    
    Key challenges in 2007 included temporary gas supply disruptions at our Profertil,
Argentina facility, the closure of our Kenai, Alaska facility due to lack of gas
availability and reaching full operating rates at our Vanscoy, Saskatchewan potash mine
later than originally expected.
 Growing Across the Agriculture Value Chain
  
    
    Purchasing crop input retail assets in Kansas and Oklahoma from Archer Daniels Midland
(ADM) with annual revenues of approximately $60-million in 2006. This asset purchase
provided us a foothold in the southern U.S. plains (operating 22 farm centers), which is
a new region for our Retail business and is expected to provide an opportunity for
further growth in this region.
    
    Entering into a definitive agreement to acquire United Agri-Products (UAP) in early
December 2007 and issuing a tender offer to purchase all of the outstanding common
stock; the acquisition is currently under review by the U.S. Federal Trade Commission
(FTC).
    
    Starting construction on a world-scale nitrogen facility in Egypt with a 25-year
competitively priced gas contract, prime access to world markets and exclusive marketing
rights for all exported products. The first of two urea trains is expected to come on
stream in the second half of 2010 with full production being realized in 2011. We have a
60 percent interest in the subsidiary controlling this project and the $1.2-billion
budgeted construction costs are under a lump sum turnkey contract.
    
    Continuing to evaluate another significant expansion to our Vanscoy potash facility,
as well as a greenfield potash mine at a new site in either Saskatchewan or Manitoba,
Canada.
    
    Further expanding our Advanced Technologies opportunities by acquiring a 19.6 percent
equity position in a Chinese specialty fertilizer company, Hanfeng Evergreen Inc.
(Hanfeng), for C$6.22 per share or U.S.$63-million in April 2007. Agrium has the
opportunity to participate in future sulphur-coated urea business opportunities in China
on a partnership basis with Hanfeng. This investment leverages off our expertise in the
specialty crop nutrients business and provides a platform for future growth in the
important Chinese fertilizer and agriculture market.
    
    Signing an off-take supply agreement with Faustina Hydrogen Products LLC (FHP), which
is expected to provide Agrium with competitively priced nitrogen for North American
customers subject to the project obtaining financing and once construction is
complete.
 Strong Industry Fundamentals
  
    
    Wheat, corn and soybean prices all reached record levels in 2007 and are anticipated
to remain strong in 2008. Most market analysts anticipate some U.S. acreage switching
out of corn in 2008 into crops that are less input intensive such as soybeans. However,
analysts expect total seeded acreage to increase in both the U.S. and globally, which
should maintain a strong crop input demand profile in 2008.
    
    Global prices for nitrogen, phosphate and potash were all significantly higher in 2007
than in 2006. As of early February 2008, benchmark nitrogen prices were up almost 20
percent above the already historically high levels in early 2007, while potash and
phosphate prices are more than twice the levels of February 2007. We expect a
continuation of tight nutrient market conditions in 2008.
    
 15




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##### 



Agrium
 2007 annual report
   Business, Strategy & Key Drivers
  ®
 ®
 Our mission is
    providing ingredients for growth.Our vision is
    to be one of the worlds leading providers of inputs for plant growthby creating value for each of our stakeholders.
   
    
    Invest and grow across the value chain.
    
    Establish and/or maintain lowest cost-to-serve wholesale position.
    
    Diversify geographically.
    16




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##### 



Agrium
 2007 annual report
   
    
    Global grain prices: higher grain prices normally result in growers expanding seeded
acreage and increasing crop input applications to optimize yields, benefiting all of
our operating business segments:
 
    
    Strong grain demand has been driven by growing world population, increasing global
gross domestic product (GDP), improving diets in developing countries, and expanded
bio-fuel production.
 
    
    Supply and demand balance for the three major crop nutrients:
 
    
    The rate of change in global demand for nutrients tends to be influenced by crop
acreage and prices, as higher crop acreage and higher crop prices tend to encourage an
increase in crop input application rates and an expansion in seeded crop land globally.
    
    Changes in supply resulting from new capacity additions or plant closures relating to each
of the nutrients.
    
    Changes in global and Company operating rates for each of the three nutrients, which
can be affected by changes to cost of production. For nitrogen, this is largely due to
changing prices or availability of natural gas or other energy feedstock costs. For potash
this may include changes in labour costs, often due to relative changes in currency
valuation. For phosphate it may include changes in the cost or availability of inputs such
as phosphate rock, sulphur and ammonia.
 
    
    Government policies or actions that may impact:
 
    
    The cost of doing business in particular regions of the world through changes in tax
structure, environmental compliance and other interventions.
    
    The economics of a countrys agriculture sector or farm practices which may impact
crop input demand and which can influence export or import demand for nutrients.
    
    Changes to nutrient capacity, operating rates, and nutrient trade levels.
 
    
    The rate of growth for global and regional GDP, which can impact industrial demand for
our Wholesale products and, in the long-term, impact protein diets, which can impact
nutrient demand to produce animal feed (e.g. corn and soybean meal).
    
    The growing trend towards increased focus on environmental considerations, as well as
economically sustainable products and practices.
    
 17




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##### 



Agrium
 2007 annual report
   
    
    Our Retail SBU, with net sales of $2.5-billion in 2007, operates in North and South
America, providing crop inputs and services directly to farmers.
    
    Our Wholesale SBU, with net sales of $2.8-billion in 2007, operates in North and South
America and produces, markets and distributes all major crop nutrients for agricultural
and industrial customers both domestically and around the world.
    
    Our Advanced Technologies SBU, with net sales of $249-million in 2007, produces and
markets controlled-release products for sale to the agriculture, golf course, turf and
ornamental markets of North America and China through our investment in Hanfeng.
  Net Sales and Gross Profit by Business Unit and Product
 Year Ended December 312007
    
    
    
    2006(millions of U.S. dollars)
    
    
    Net Sales
    
    
    
    Gross Profit
    
    
    
    Net Sales
    
    
    Gross ProfitRetailCrop nutrients
    
    
    $
    1,453
    
    
    
    $
    335
    
    
    
    $
    1,065
    
    
    $
    217Crop protection products
    
    
    
    619
    
    
    
    
    181
    
        
    
    591
    
    
    
    154Seed, services and other
    
    
    
    394
    
    
    
    
    160
    
    
    
    
    319
    
    
    
    124Total Retail
    
    
    
    2,466
    
    
    
    
    676
    
    
    
    
    1,975
    
    
    
    495WholesaleNitrogen
    
    
    
    1,735
    
    
    
    
    561
    
    
    
    
    1,376
    
    
    
    291Potash
    
    
    
    305
    
    
    
    
    167
    
    
    
    
    213
    
    
    
    98Phosphate
    
    
    
    466
    
    
    
    
    118
    
    
    
    
    298
    
    
    
    27Product purchased for resale
    
    
    
    339
    
    
    
    
    28
    
    
    
    
    382
    
    
    
    19Total Wholesale
    
    
    
    2,845
    
    
    
    
    874
    
    
    
    
    2,269
    
    
    
    435Advanced Technologies
    
    
    
    249
    
    
    
    
    55
    
    
    
    
    101
    
    
    
    19Other (inter-segment eliminations)
    
    
    
    (290
    )
    
    
    
    (7
    )
    
    
    
    (152
    )
    
    
    7Total
    
    
    $
    5,270
    
    
    
    $
    1,598
    
    
    
    $
    4,193
    
    
    $
    956
    18




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##### 



Agrium
 2007 annual report
   
    19




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##### 








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##### 



Agrium
 2007 annual report
 Retail Business Segment
    

(GRAPHIC)
   
    21




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##### 



Agrium
 2007 annual report
 Retail Locations
 
 UNITED STATES Western Farm Service · 87 farm centers · Net sales $750-million · Key crops: Fruit, vegetables, wheat Crop Production Services · 326 farm centers · Net sales $1.5-billion · Key crops: Corn, soybeans, wheat, cotton   1)
    
    Crop Production Services (CPS)with approximately $1.5-billion in net sales in 2007 and 326
farm centers, serving the Corn Belt and Eastern agricultural regions of the U.S. Key crops in
the region are corn, soybeans, wheat and cotton, with a high proportion of sales coming from
the fertilizer and seed business.2)
    
    Western Farm Service (WFS)with about $750-million in net sales in 2007 and 87 farm
centers serving the Western U.S. including California, Arizona, Washington, Oregon and
Idaho. Primary crops in this region include fruit, vegetables and wheat, with a higher
proportion of sales from crop protection sales and application than in CPS.3)
    
    Agroservicios Pampeanos S.A. (ASP)in South America with approximately $260-million in net
sales in 2007 and 31 farm centers, primarily in the wheat, soybean and corn growing region of
Argentina and the fruit growing region of Chile.
    22




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##### 



Agrium  2007 annual report
 
 ARGENTINA AND CHILE Agroservicios Pampeanos S.A. · 31 farm centers · Net sales $260 million · Key crops: Wheat, soybeans, corn   Agriums retail net sales, gross profits
 and earnings reached record
 levels in 2007
    23




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##### 



Agrium  2007 annual report
   Retail Products and Services
  Crop Nutrients
    Crop Protection Products
    24




---



##### 



Agrium
 2007 annual report
   Seed, Services and Other Products
 
   25




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##### 



Agrium
 2007 annual report
   Retail Strategy & Key Developments
  
    
    A commitment to a strict program of performance management encompassing detailed attention to
customers and employees.
    
    Growing the business in general and the seed business in particular.
    
    Building relationships with leading growers in each of our markets.
    
    Focusing expansion in the prime agricultural regions.
    
    Optimizing returns from economies of scale across all products, systems and services.
    26




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##### 



Agrium
 2007 annual report
   Retail Results
    Retail Performance
 Year Ended December 31
    
    
    Variance Analysis(millions of U.S. dollars)
    
    
    2007(a)
    
    
    
    2006(a)
    
    
    2005(a)
    
    
    2007 vs 2006
    
    
    2006 vs 2005Crop nutrientsNet sales
    
    
    
    1,453
    
    
    
    
    1,065
    
    
    
    626
    
    
    
    388
    
    
    
    439Cost of product
    
    
    
    1,118
    
    
    
    
    848
    
    
    
    485
    
    
    
    270
    
    
    
    363Gross profit
    
    
    
    335
    
    
    
    
    217
    
    
    
    141
    
    
    
    118
    
    
    
    76Crop protection productsNet sales
    
    
    
    619
    
    
    
    
    591
    
    
    
    458
    
    
    
    28
    
    
    
    133Cost of product
    
    
    
    438
    
    
    
    
    437
    
    
    
    328
    
    
    
    1
    
    
    
    109Gross profit
    
    
    
    181
    
    
    
    
    154
    
    
    
    130
    
    
    
    27
    
    
    
    24Seed, services and otherNet sales
    
    
    
    394
    
    
    
    
    319
    
    
    
    158
    
    
    
    75
    
    
    
    161Cost of product
    
    
    
    234
    
    
    
    
    195
    
    
    
    82
    
    
    
    39
    
    
    
    113Gross profit
    
    
    
    160
    
    
    
    
    124
    
    
    
    76
    
    
    
    36
    
    
    
    48Total net sales
    
    
    
    2,466
    
    
    
    
    1,975
    
    
    
    1,242
    
    
    
    491
    
    
    
    733Total cost of product
    
    
    
    1,790
    
    
    
    
    1,480
    
    
    
    895
    
    
    
    310
    
    
    
    585Total gross profit
    
    
    
    676
    
    
    
    
    495
    
    
    
    347
    
    
    
    181
    
    
    
    148Selling expenses
    
    
    
    442
    
    
    
    
    361
    
    
    
    239
    
    
    
    81
    
    
    
    122General and administrative
    
    
    
    21
    
    
    
    
    23
    
    
    
    10
    
    
    
    (2
    )
    
    
    13Depreciation and amortization
    
    
    
    33
    
    
    
    
    30
    
    
    
    17
    
    
    
    3
    
    
    
    13Royalties and other taxes
    
    
    
    14
    
    
    
    
    11
    
    
    
    7
    
    
    
    3
    
    
    
    4Other expenses
    
    
    
    (11
    )
    
    
    
    (25
    )
    
    
    (22
    )
    
    
    14
    
    
    
    (3
    )EBIT
    
    
    
    177
    
    
    
    
    95
    
    
    
    96
    
    
    
    82
    
    
    
    (1
    )EBITDA
    
    
    
    210
    
    
    
    
    125
    
    
    
    113
    
    
    
    85
    
    
    
    12EBITDA as percent of net sales
    
    
    
    9
    
    
    
    
    6
    
    
    
    9
 (a)
    
    International Retail net sales were $260-million in 2007
(2006 - $165-million, 2005 - $146-million)
 and gross profit was $49-million (2006 - $30-million, 2005 -
$26-million)
 Crop Nutrients
 
   27




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##### 



Agrium  2007 annual report
   Crop Protection Products
    Seed, Services and Other
    Expenses
    28




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##### 



Agrium  2007 annual report
   Quarterly Results
  Retail
 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2005(millions of U.S. dollars)
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1Net sales  U.S.
    
    
    
    454
    
    
    
    345
    
    
    
    1,087
    
    
    
    320
    
    
    
    
    326
    
    
    
    291
    
    
    
    927
    
    
    
    266
    
    
    
    217
    
    
    
    228
    
    
    
    484
    
    
    
    167Net sales  International
    
    
    
    101
    
    
    
    82
    
    
    
    60
    
    
    
    17
    
    
    
    
    58
    
    
    
    51
    
    
    
    42
    
    
    
    14
    
    
    
    50
    
    
    
    55
    
    
    
    29
    
    
    
    12Total net sales
    
    
    
    555
    
    
    
    427
    
    
    
    1,147
    
    
    
    337
    
    
    
    
    384
    
    
    
    342
    
    
    
    969
    
    
    
    280
    
    
    
    267
    
    
    
    283
    
    
    
    513
    
    
    
    179Cost of product
    
    
    
    376
    
    
    
    293
    
    
    
    869
    
    
    
    252
    
    
    
    
    259
    
    
    
    252
    
    
    
    755
    
    
    
    214
    
    
    
    177
    
    
    
    196
    
    
    
    394
    
    
    
    128Gross profit
    
    
    
    179
    
    
    
    134
    
    
    
    278
    
    
    
    85
    
    
    
    
    125
    
    
    
    90
    
    
    
    214
    
    
    
    66
    
    
    
    90
    
    
    
    87
    
    
    
    119
    
    
    
    51Gross profit (%)
    
    
    
    32
    
    
    
    31
    
    
    
    24
    
    
    
    25
    
    
    
    
    33
    
    
    
    26
    
    
    
    22
    
    
    
    24
    
    
    
    34
    
    
    
    31
    
    
    
    23
    
    
    
    28Gross profit by productCrop nutrients
    
    
    
    83
    
    
    
    48
    
    
    
    159
    
    
    
    45
    
    
    
    
    47
    
    
    
    29
    
    
    
    109
    
    
    
    32
    
    
    
    33
    
    
    
    29
    
    
    
    56
    
    
    
    23Crop protection products
    
    
    
    56
    
    
    
    50
    
    
    
    52
    
    
    
    23
    
    
    
    
    49
    
    
    
    34
    
    
    
    47
    
    
    
    24
    
    
    
    41
    
    
    
    36
    
    
    
    32
    
    
    
    21Seed, services and other
    
    
    
    40
    
    
    
    36
    
    
    
    67
    
    
    
    17
    
    
    
    
    29
    
    
    
    27
    
    
    
    58
    
    
    
    10
    
    
    
    16
    
    
    
    22
    
    
    
    31
    
    
    
    7EBIT
    
    
    
    39
    
    
    
    17
    
    
    
    142
    
    
    
    (21
    )
    
    
    
    20
    
    
    
    (9
    )
    
    
    98
    
    
    
    (14
    )
    
    
    25
    
    
    
    23
    
    
    
    51
    
    
    
    (3
    )EBITDA
    
    
    
    47
    
    
    
    26
    
    
    
    150
    
    
    
    (13
    )
    
    
    
    28
    
    
    
    -
    
    
    
    106
    
    
    
    (9
    )
    
    
    29
    
    
    
    28
    
    
    
    55
    
    
    
    1
 
   
 29




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##### 



Agrium  2007 annual report Key Strengths of Wholesale Operations: · Diversity in our product mix, including producing and marketing all major
crop nutrients. · A broad and diverse customer base. · Diversity in the geographic regions we operate in. · Our competitive cost position for our Wholesale assets. · Our extensive associated storage and distribution system. 30




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Agrium  2007 annual report
  
 
    
    
    Diversity in our product mix, including producing and marketing all major crop
nutrients, which provides added value to our customers.

    
    A broad and diverse customer base that has been built up over more than 75 years in the
business.

    
    Diversity in the geographic regions we operate in and the market segments we serve, which
supports stability.
    
    Our competitive cost position for our Wholesale assets, particularly on a delivered cost
basis.
    
    Our extensive associated storage and distribution system, which allows us to more effectively
serve our customers.
    31




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##### 



Agrium  2007 annual report
 Agrium
Wholesale Locations 
   2007 Wholesale Capacity, Production & Sales
 (thousands of product tonnes as of December 31, 2007)
 Nitrogen Volumes
    
    
    
    
    
    
    Potash Volumes
    
    
    
    
    
    
    Phosphate VolumesCapacity
    

    Production
    

    Sales
    

    Capacity
(b)

    Production
    

    Sales
    

    Capacity
    

    Production
    

    SalesNorth AmericaCanada
    
    
    
    3,585
    
    
    
    2,880
    
    
    
    1,746
    
    
    
    2,100
    
    
    
    1,729
    
    
    
    125
    
    
    
    680
    
    
    
    469
    
    
    
    543U.S.
    
    
    
    1,588
    
    
    
    1,239
    
    
    
    2,575
    
    
    
    -
    
    
    
    -
    
    
    
    741
    
    
    
    577
    
    
    
    572
    
    
    
    478International(a)
    
    
    
    1,299
    
    
    
    806
    
    
    
    873
    
    
    
    -
    
    
    
    -
    
    
    
    818
    
    
    
    -
    
    
    
    -
    
    
    
    -Total
    
    
    
    6,472
    
    
    
    4,925
    
    
    
    5,194
    
    
    
    2,100
    
    
    
    1,729
    
    
    
    1,684
    
    
    
    1,257
    
    
    
    1,041
    
    
    
    1,021
 (a)
    
    International nitrogen capacity includes our 50 percent ownership of the
Profertil facility in Argentina and our Kenai, Alaska facility which was closed at the
end of the third quarter of 2007. The Kenai facility had an annual capacity of about
900,000 tonnes and produced 325,000 tonnes of urea and ammonia in 2007.(b)
    
    Potash production did not reach levels consistent with our newly expanded capacity until the
fourth quarter of 2007.
    32




---



##### 



Agrium  2007 annual report
 
   Wholesale Strategy, Key Developments, Products and Services
    33




---



##### 



Agrium  2007 annual report
   Nitrogen (N) Products
      ®
    34




---



##### 



Agrium  2007 annual report
   Nitrogen strategy & key developments
   
    
    On May 1, 2007, we announced the commencement of construction of a world-scale,
nitrogen facility in Damietta, Egypt. The facility will consist of two ammonia and two
urea trains with a combined capacity of 1.3 million tonnes of urea and 100,000 tonnes of
net ammonia, with the first of two trains expected to be completed by the second half of
2010 with realization of full production capacity expected in 2011. The lump sum turnkey
project is expected to cost $1.2-billion for construction of the facility and related
infrastructure. We have a 60 percent interest in the subsidiary controlling this
project. The 40 percent minority interest is held by: Egyptian Petrochemicals Holding
Company S.A.E. (ECHEM) and Egyptian Natural Gas Holding Company (EGAS) hold a 24 percent
interest; Egyptian Natural Gas Company (GASCO) holds nine percent, and Arab Petroleum
Investments Corporation (APICORP) holds seven percent. Two-thirds of the project will be
debt financed, with the non-recourse financing concluded on August 11, 2007. The
facility is expected to have one of the worlds lowest nitrogen facility operating
costs, with a competitive 25-year gas supply contract and excellent access to growing
import markets.
    
    Our Kenai nitrogen fertilizer facility ceased operations in October 2007, due to a
shortage of natural gas supply in Alaskas Cook Inlet. The book value of the facility was
written off in 2005. It has faced reduced gas supply for the past four years, which
contributed to continual reductions in sales volumes and profitability. The feedstock
supply challenges affected operating rates and limited the contribution of the facility
to approximately two percent of Wholesales overall EBITDA in 2007.
    
    We added 80,000 tonnes of annual aqua ammonia capacity at our Fort Saskatchewan,
Alberta nitrogen facility in 2007. This product is being marketed to an oilsands
operator in northern Alberta under an industrial sales contract as part of a process to
reduce sulphur dioxide emissions.
    
    Agrium signed a 15-year off-take agreement with Faustina Hydrogen Products LLC, in June
2007. The agreement would provide us with competitively priced nitrogen for our
customers with strategic access to all modes of transport. We would purchase 40 percent
of the approximately 1.3 million tonnes of anhydrous ammonia that would be produced as
part of a proposed gasification facility located in the U.S. Gulf. The agreement is
subject to various conditions including the ability of FHP to obtain adequate financing
to construct the facility which had not occurred as of February 2008 and the successful
completion and startup of the project which would take approximately three years to
complete.
    
    During the period from May through August 2007, we experienced gas supply interruptions
and reduced production volumes at our Profertil facility as a result of an unusually cold
winter in Argentina.
 
   35




---



##### 



Agrium  2007 annual report
   Potash (K) Products
      Potash strategy and key developments
   
    
    In addition to our recent 310,000 tonne capacity expansion, we have identified possible
additional improvements to our Vanscoy mine that could ultimately increase its capacity
to approach 3.0 million tonnes. It is too early to provide a timeline or capital cost
estimate for expansions to reach this higher capacity figure.
    
    Evaluation of a second expansion at our Vanscoy potash mine, which could add anywhere
from 300,000 to 800,000 tonnes of additional capacity. A decision on whether to proceed
and the scale of the next debottleneck expansion is expected in late 2008 after
engineering and cost estimate studies are completed. The timing to bring this expansion
into production would be 2011-12.
    
    We are currently evaluating the feasibility of a new greenfield potash mine in either
Manitoba or Saskatchewan. We are actively working on seismic drilling programs on two
potential projects in regions of these provinces known for their extensive potash
reserves. We currently have 67,700 acres under lease, 265,000 acres under exploration
permits and 99,700 acres under a pending exploration permit. A decision to move forward
with the development of a new mine will not likely occur until 2010.
    36




---



##### 



Agrium
 2007 annual report
   Phosphate (P) Products
    Phosphate strategy and key developments
   
    
    Upgrading the flotation system at the mine site to address high iron content in the rock.
    
    Opening a new area of the mine with higher quality ore by the third quarter of 2007.
    
    Working with our rail carrier to improve rock deliverability.
    
    Importing two shipments of Moroccan phosphate rock on a temporary basis to maintain Redwater
production levels.
 
   37




---



##### 



Agrium
 2007 annual report
   Product Purchased for Resale
   Distribution and Storage
  Wholesale Results
    38




---



##### 



Agrium  2007 annual report
   Wholesale Performance
 Year Ended December 31
    
    
    Variance Analysis2007 vs 2006
    
    
    2006 vs 2005(millions of U.S. dollars)
    
    
    2007
    
    
    
    2006
    
    
    2005
    
    
    Change
    
    
    Price
    
    
    Volume
    
    
    Change
    
    
    Price
    
    
    VolumeNitrogenNet sales
    
    
    
    1,735
    
    
    
    
    1,376
    
    
    
    1,622
    
    
    
    359
    
    
    
    297
    
    
    
    62
    
    
    
    (246
    )
    
    
    (54
    )
    
    
    (192
    )Gross profit
    
    
    
    561
    
    
    
    
    291
    
    
    
    479
    
    
    
    270
    
    
    
    299
    
    
    
    (29
    )
    
    
    (188
    )
    
    
    (112
    )
    
    
    (76
    )PotashNet sales
    
    
    
    305
    
    
    
    
    213
    
    
    
    255
    
    
    
    92
    
    
    
    31
    
    
    
    61
    
    
    
    (42
    )
    
    
    8
    
    
    
    (50
    )Gross profit
    
    
    
    167
    
    
    
    
    98
    
    
    
    157
    
    
    
    69
    
    
    
    40
    
    
    
    29
    
    
    
    (59
    )
    
    
    (28
    )
    
    
    (31
    )PhosphateNet sales
    
    
    
    466
    
    
    
    
    298
    
    
    
    319
    
    
    
    168
    
    
    
    130
    
    
    
    38
    
    
    
    (21
    )
    
    
    32
    
    
    
    (53
    )Gross profit
    
    
    
    118
    
    
    
    
    27
    
    
    
    59
    
    
    
    91
    
    
    
    88
    
    
    
    3
    
    
    
    (32
    )
    
    
    (22
    )
    
    
    (10
    )Product purchased for resaleNet sales
    
    
    
    339
    
    
    
    
    382
    
    
    
    -
    
    
    
    (43
    )
    
    
    96
    
    
    
    (139
    )
    
    
    382
    
    
    
    382
    
    
    
    -Gross profit
    
    
    
    28
    
    
    
    
    19
    
    
    
    -
    
    
    
    9
    
    
    
    16
    
    
    
    (7
    )
    
    
    19
    
    
    
    19
    
    
    
    -Total net sales
    
    
    
    2,845
    
    
    
    
    2,269
    
    
    
    2,196
    
    
    
    576
    
    
    
    554
    
    
    
    22
    
    
    
    73
    
    
    
    368
    
    
    
    (295
    )Total gross profit
    
    
    
    874
    
    
    
    
    435
    
    
    
    695
    
    
    
    439
    
    
    
    443
    
    
    
    (4
    )
    
    
    (260
    )
    
    
    (143
    )
    
    
    (117
    )Selling expenses
    
    
    
    27
    
    
    
    
    30
    
    
    
    20
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    10General and administrative
    
    
    
    22
    
    
    
    
    29
    
    
    
    25
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    4Depreciation and amortization
    
    
    
    119
    
    
    
    
    125
    
    
    
    122
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    3Royalties and other taxes
    
    
    
    29
    
    
    
    
    8
    
    
    
    35
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    (27
    )Other expenses
    
    
    
    10
    
    
    
    
    16
    
    
    
    1
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    15EBIT before special items
    
    
    
    667
    
    
    
    
    227
    
    
    
    492
    
    
    
    440
    
    
    
    
    
    
    
    
    
    
    
    (265
    )Special itemsAsset impairment
    
    
    

-
    
    
    
    
    136
    
    
    
    -
    
    
    
    (136
    )
    
    
    
    
    
    
    
    
    
    
    136EBIT
    
    
    
    667
    
    
    
    
    91
    
    
    
    492
    
    
    
    576
    
    
    
    
    
    
    
    
    
    
    
    (401
    )EBITDA
    
    
    
    786
    
    
    
    
    352
    
    
    
    614
    
    
    
    434
    
    
    
    
    
    
    
    
    
    
    
    (262
    )EBITDA as percent of net sales
    
    
    
    28
    
    
    
    
    16
    
    
    
    28
 
   
 39




---



##### 



Agrium  2007 annual report
  Nitrogen Products
 Nitrogen gross profit
 
   Nitrogen performance
 Year Ended December 31
    
    
    
    
    
    
    Variance Analysis2007 vs 2006
    
    

    2006 vs 2005(millions of U.S. dollars, except as noted)
    
    
    2007
    
    
    
    2006
    
    
    2005
    
    
    Change
    
    
    Price
    
    
    Volume
    
    
    Change
    
    
    Price
    
    
    VolumeNitrogen DomesticNet sales
    
    
    
    1,475
    
    

    
    
    1,043
    
    
    
    1,160
    
    
    
    432
    
    
    
    245
    
    
    
    187
    
    
    
    (117
    )
    
    
    (36
    )
    
    
    (81
    )Cost of product
    
    
    
    1,033
    
    

    
    
    900
    
    
    
    931
    
    
    
    133
    
    
    
    28
    
    
    
    (161
    )
    
    
    (31
    )
    
    
    (33
    )
    
    
    64Gross profit
    
    
    
    442
    
    

    
    
    143
    
    
    
    229
    
    
    
    299
    
    
    
    273
    
    
    
    26
    
    
    
    (86
    )
    
    
    (69
    )
    
    
    17Tonnes sold (000)
    
    
    
    4,321
    
    

    
    
    3,667
    
    
    
    3,939
    
    
    
    654
    
    
    
    
    
    
    
    
    
    
    
    (272
    )Margin per tonne
    
    
    
    102
    
    

    
    
    39
    
    
    
    58Nitrogen InternationalNet sales
    
    
    
    260
    
    

    
    
    333
    
    
    
    462
    
    
    
    (73
    )
    
    
    52
    
    
    
    (125
    )
    
    
    (129
    )
    
    
    (18
    )
    
    
    (111
    )Cost of product
    
    
    
    141
    
    

    
    
    185
    
    
    
    212
    
    
    
    (44
    )
    
    
    (25
    )
    
    
    69
    
    
    
    (27
    )
    
    
    (25
    )
    
    
    52Gross profit
    
    
    
    119
    
    

    
    
    148
    
    
    
    250
    
    
    
    (29
    )
    
    
    27
    
    
    
    (56
    )
    
    
    (102
    )
    
    
    (43
    )
    
    
    (59
    )Tonnes sold (000)
    
    
    
    873
    
    

    
    
    1,393
    
    
    
    1,840
    
    
    
    (520
    )
    
    
    
    
    
    
    
    
    
    
    (447
    )Margin per tonne
    
    
    
    136
    
    

    
    
    106
    
    
    
    136Total NitrogenNet sales
    
    
    
    1,735
    
    

    
    
    1,376
    
    
    
    1,622
    
    
    
    359
    
    
    
    297
    
    
    
    62
    
    
    
    (246
    )
    
    
    (54
    )
    
    
    (192
    )Cost of product
    
    
    
    1,174
    
    

    
    
    1,085
    
    
    
    1,143
    
    
    
    89
    
    
    
    2
    
    
    
    (91
    )
    
    
    (58
    )
    
    
    (58
    )
    
    
    116Total gross profit
    
    
    
    561
    
    

    
    
    291
    
    
    
    479
    
    
    
    270
    
    
    
    299
    
    
    
    (29
    )
    
    
    (188
    )
    
    
    (112
    )
    
    
    (76
    )Tonnes sold (000)
    
    
    
    5,194
    
    

    
    
    5,060
    
    
    
    5,779
    
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    (719
    )Margin per tonne
    
    
    
    108
    
    

    
    
    58
    
    
    
    83Selling price per tonne
    
    
    
    334
    
    

    
    
    272
    
    
    
    281Cost of product per tonne
    
    
    
    226
    
    

    
    
    214
    
    
    
    198
    40




---



##### 



Agrium  2007 annual report
   Nitrogen prices
  
 Nitrogen product cost
 
   41




---



##### 



Agrium  2007 annual report
  
 Gas Price and Cost
 (U.S. dollars per MMBtu)
    
    
    2007
    
    
    
    2006
    
    
    2005NYMEX
    
    
    
    6.92
    
    
    
    
    7.26
    
    
    
    8.55AECO
    
    
    
    6.11
    
    
    
    
    6.17
    
    
    
    7.03Basis
    
    
    
    0.81
    
    
    
    
    1.09
    
    
    
    1.52WholesaleAverage unhedged
    
    
    
    5.76
    
    
    
    
    5.34
    
    
    
    5.36Hedging impact
    
    
    
    0.02
    
    
    
    
    (0.08
    )
    
    
    (0.12
    )Overall weighted average (a)
    
    
    
    5.78
    
    
    
    
    5.26
    
    
    
    5.24
 (a)
    
    Weighted average gas price of all gas purchases, including our 50 percent share of Profertil
facility and our Kenai facility.
 We purchased approximately 110 million BCF of gas in 2007.
This was 12 million BCF below 2006, primarily due to lower
production at our facilities that are focused on the
international market located in Kenai, Alaska and Argentina.
The Natural Gas Use graph shows the breakdown in gas use by
region for 2007. Alberta is a significant net exporter of
natural gas to the U.S. and over the past three year period
the Alberta gas price, or AECO gas, was $1.14 per MMBtu
lower than the price of NYMEX gas, benefiting our Alberta
production facilities. The AECO gas price advantage was
$0.81 per MMBtu in 2007. The Borger, Texas ammonia facility
is our only nitrogen facility that produces ammonia in the
lower 48 U.S. states and accounted for about 15 percent of
our total 2007 gas purchases. Our Borger facility also
normally has a gas cost advantage versus NYMEX gas prices.
In 2007 this advantage averaged $0.62 per MMBtu.
    
    (BAR CHART)Our Profertil nitrogen facility in Argentina has three long-term, low-cost gas contracts
denominated in U.S. dollars. These gas contracts are on a fixed price basis and expire in
2011, 2012 and in 2017. These three contracts account for about 80 percent of the facilitys
gas requirements. As a result of changes implemented in Argentina in 2007, Pan American Energy
is now the largest supplier, followed by Petrobras and Repsol YPF. For the remaining 20
percent of the facilitys gas requirements, Profertil purchases a mix of spot and shorter-term
(one and two-year) contracts, also denominated in U.S.dollars. Non-interruptible
transportation contracts are in place for all gas. Gas transportation contracts for 60 percent
of Profertils gas requirements expire in 2015 and the remaining 40 percent in 2011. We
anticipate total gas costs will increase slightly in 2008 as a result of higher wellhead and
transportation costs, with the average cost of delivered gas expected to approach $3.00 per
MMBtu in 2008. Reduced gas deliverability in 2007 was due to the combination of an overall
increase in demand for energy in Argentina and an unusually cold winter. This resulted in peak
gas demands at times during May to August exceeding the overall system delivery capacity for
Argentina. As a result of gas supply interruptions experienced in 2007, Profertil is examining
changes to their facilities that will improve energy efficiency and expand flexibility in
energy feedstock.
 
   42




---



##### 



Agrium  2007 annual report
  
 Sales volumes and operating rates
   Potash Products
 Potash gross profit
 
   Potash prices
 
   43




---



##### 



Agrium  2007 annual report
  
 Potash performance
 Year Ended December 31
    
    
    Variance Analysis2007 vs 2006
    
    
    2006 vs 2005(millions of U.S. dollars, except as noted)
    
    
    2007
    
    
    
    2006
    
    
    2005
    
    
    Change
    
    
    Price
    
    
    Volume
    
    
    Change
    
    
    Price
    
    
    VolumePotash DomesticNet sales
    
    
    
    185
    
    
    
    
    143
    
    
    
    158
    
    
    
    42
    
    
    
    15
    
    
    
    27
    
    
    
    (15
    )
    
    
    9
    
    
    
    (24
    )Cost of product
    
    
    
    84
    
    
    
    
    80
    
    
    
    64
    
    
    
    4
    
    
    
    11
    
    
    
    (15
    )
    
    
    16
    
    
    
    (26
    )
    
    
    10Gross profit
    
    
    
    101
    
    
    
    
    63
    
    
    
    94
    
    
    
    38
    
    
    
    26
    
    
    
    12
    
    
    
    (31
    )
    
    
    (17
    )
    
    
    (14
    )Tonnes sold (000)
    
    
    
    866
    
    
    
    
    731
    
    
    
    860
    
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    (129
    )Selling price per tonne
    
    
    
    214
    
    
    
    
    196
    
    
    
    184Margin per tonne
    
    
    
    117
    
    
    
    
    86
    
    
    
    109Potash InternationalNet sales
    
    
    
    120
    
    
    
    
    70
    
    
    
    97
    
    
    
    50
    
    
    
    16
    
    
    
    34
    
    
    
    (27
    )
    
    
    (1
    )
    
    
    (26
    )Cost of product
    
    
    
    54
    
    
    
    
    35
    
    
    
    34
    
    
    
    19
    
    
    
    (2
    )
    
    
    (17
    )
    
    
    1
    
    
    
    (10
    )
    
    
    9Gross profit
    
    
    
    66
    
    
    
    
    35
    
    
    
    63
    
    
    
    31
    
    
    
    14
    
    
    
    17
    
    
    
    (28
    )
    
    
    (11
    )
    
    
    (17
    )Tonnes sold (000)
    
    
    
    818
    
    
    
    
    548
    
    
    
    751
    
    
    
    270
    
    
    
    
    
    
    
    
    
    
    
    (203
    )Selling price per tonne
    
    
    
    147
    
    
    
    
    128
    
    
    
    129Margin per tonne
    
    
    
    81
    
    
    
    
    64
    
    
    
    84Total PotashNet sales
    
    
    
    305
    
    
    
    
    213
    
    
    
    255
    
    
    
    92
    
    
    
    31
    
    
    
    61
    
    
    
    (42
    )
    
    
    8
    
    
    
    (50
    )Cost of product
    
    
    
    138
    
    
    
    
    115
    
    
    
    98
    
    
    
    23
    
    
    
    9
    
    
    
    (32
    )
    
    
    17
    
    
    
    (36
    )
    
    
    19Gross profit
    
    
    
    167
    
    
    
    
    98
    
    
    
    157
    
    
    
    69
    
    
    
    40
    
    
    
    29
    
    
    
    (59
    )
    
    
    (28
    )
    
    
    (31
    )Tonnes sold (000)
    
    
    
    1,684
    
    
    
    
    1,279
    
    
    
    1,611
    
    
    
    405
    
    
    
    
    
    
    
    
    
    
    
    (332
    )Margin per tonne
    
    
    
    99
    
    
    
    
    77
    
    
    
    97Selling price per tonne
    
    
    
    181
    
    
    
    
    167
    
    
    
    158Cost of product per tonne
    
    
    
    82
    
    
    
    
    90
    
    
    
    61
 
   44




---



##### 




  Potash product cost
 Sales volumes and operating rates
  Phosphate Products
 Phosphate gross profit
 Phosphate performance
 Year Ended December 31
    
    Variance Analysis2007 vs 2006
    
    
    2006 vs 2005(millions of U.S. dollars, except as noted)
    
    
    2007
    
    
    
    2006
    
    
    2005
    
    
    Change
    
    
    Price
    
    
    Volume
    
    
    Change
    
    
    Price
    
    
    VolumePhosphateNet sales
    
    
    
    466
    
    
    
    
    298
    
    
    
    319
    
    
    
    168
    
    
    
    131
    
    
    
    37
    
    
    
    (21
    )
    
    
    32
    
    
    
    (53
    )Cost of product
    
    
    
    348
    
    
    
    
    271
    
    
    
    260
    
    
    
    77
    
    
    
    (42
    )
    
    
    (35
    )
    
    
    11
    
    
    
    (54
    )
    
    
    43Gross profit
    
    
    
    118
    
    
    
    
    27
    
    
    
    59
    
    
    
    91
    
    
    
    88
    
    
    
    3
    
    
    
    (32
    )
    
    
    (22
    )
    
    
    (10
    )Tonnes sold (000)
    
    
    
    1,021
    
    
    
    
    906
    
    
    
    1,088
    
    
    
    115
    
    
    
    130
    
    
    
    38
    
    
    
    (182
    )Selling price per tonne
    
    
    
    456
    
    
    
    
    329
    
    
    
    293Cost of product per tonne
    
    
    
    340
    
    
    
    
    299
    
    
    
    239Margin per tonne
    
    
    
    116
    
    
    
    
    30
    
    
    
    54




---



##### 




   Phosphate prices
 
   
 Phosphate product cost




---



##### 




   Sales volumes and operating rates
 Product Purchased for Resale
 Wholesale Expenses




---



##### 




  
 Quarterly Results




---



##### 




  
 Wholesale
 2007
          
    
    
    2006
    
    
    2005(millions of U.S. dollars, except as noted)
    
          
          Q4
          
          
          Q3
          
          
          Q2
          
          
          Q1
          
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1Net sales
 external
    
          
          
          814
          
          
          
          524
          
          
          
          819
          
          
          
          438
          
    
    
    
    485
    
    
    
    457
    
    
    
    823
    
    
    
    361
    
    
    
    503
    
    
    
    524
    
    
    
    667
    
    
    
    358Net sales
 inter-segment
    
          
          
          94
          
          
          
          39
          
          
          
          71
          
          
          
          46
          
    
    
    
    51
    
    
    
    36
    
    
    
    38
    
    
    
    18
    
    
    
    50
    
    
    
    27
    
    
    
    38
    
    
    
    29Total net sales
    
          
          
          908
          
          
          
          563
          
          
          
          890
          
          
          
          484
          
    
    
    
    536
    
    
    
    493
    
    
    
    861
    
    
    
    379
    
    
    
    553
    
    
    
    551
    
    
    
    705
    
    
    
    387Cost of product
    
          
          
          565
          
          
          
          405
          
          
          
          613
          
          
          
          388
          
    
    
    
    439
    
    
    
    391
    
    
    
    687
    
    
    
    317
    
    
    
    433
    
    
    
    351
    
    
    
    452
    
    
    
    265Gross profit
    
          
          
          343
          
          
          
          158
          
          
          
          277
          
          
          
          96
          
    
    
    
    97
    
    
    
    102
    
    
    
    174
    
    
    
    62
    
    
    
    120
    
    
    
    200
    
    
    
    253
    
    
    
    122Gross profit (%)
    
          
          
          38
          
          
          
          28
          
          
          
          31
          
          
          
          20
          
    
    
    
    18
    
    
    
    21
    
    
    
    20
    
    
    
    16
    
    
    
    22
    
    
    
    36
    
    
    
    36
    
    
    
    32NitrogenNet sales
    
          
          
          555
          
          
          
          345
          
          
          
          556
          
          
          
          279
          
    
    
    
    344
    
    
    
    323
    
    
    
    494
    
    
    
    215
    
    
    
    414
    
    
    
    394
    
    
    
    531
    
    
    
    283Cost of product
    
          
          
          330
          
          
          
          248
          
          
          
          371
          
          
          
          225
          
    
    
    
    279
    
    
    
    245
    
    
    
    378
    
    
    
    183
    
    
    
    338
    
    
    
    250
    
    
    
    343
    
    
    
    208Gross profit
    
          
          
          225
          
          
          
          97
          
          
          
          185
          
          
          
          54
          
    
    
    
    65
    
    
    
    78
    
    
    
    116
    
    
    
    32
    
    
    
    76
    
    
    
    141
    
    
    
    187
    
    
    
    75Tonnes sold (000)
    
          
          
          1,488
          
          
          
          1,064
          
          
          
          1,631
          
          
          
          1,011
          
    
    
    
    1,395
    
    
    
    1,315
    
    
    
    1,651
    
    
    
    699
    
    
    
    1,296
    
    
    
    1,431
    
    
    
    1,902
    
    
    
    1,150Selling price (per tonne)
    
          
          
          373
          
          
          
          324
          
          
          
          341
          
          
          
          276
          
    
    
    
    247
    
    
    
    246
    
    
    
    299
    
    
    
    308
    
    
    
    319
    
    
    
    273
    
    
    
    279
    
    
    
    246Margin (per tonne)
    
          
          
          151
          
          
          
          91
          
          
          
          113
          
          
          
          53
          
    
    
    
    47
    
    
    
    59
    
    
    
    70
    
    
    
    46
    
    
    
    59
    
    
    
    99
    
    
    
    98
    
    
    
    65PotashNet sales
    
          
          
          93
          
          
          
          65
          
          
          
          95
          
          
          
          52
          
    
    
    
    49
    
    
    
    51
    
    
    
    67
    
    
    
    46
    
    
    
    57
    
    
    
    65
    
    
    
    75
    
    
    
    58Cost of product
    
          
          
          36
          
          
          
          32
          
          
          
          44
          
          
          
          26
          
    
    
    
    25
    
    
    
    34
    
    
    
    31
    
    
    
    25
    
    
    
    23
    
    
    
    23
    
    
    
    30
    
    
    
    22Gross profit
    
          
          
          57
          
          
          
          33
          
          
          
          51
          
          
          
          26
          
    
    
    
    24
    
    
    
    17
    
    
    
    36
    
    
    
    21
    
    
    
    34
    
    
    
    42
    
    
    
    45
    
    
    
    36Tonnes sold (000)
    
          
          
          462
          
          
          
          354
          
          
          
          535
          
          
          
          333
          
    
    
    
    311
    
    
    
    325
    
    
    
    377
    
    
    
    266
    
    
    
    347
    
    
    
    394
    
    
    
    469
    
    
    
    401Selling price (per tonne)
    
          
          
          201
          
          
          
          184
          
          
          
          178
          
          
          
          156
          
    
    
    
    158
    
    
    
    157
    
    
    
    178
    
    
    
    173
    
    
    
    164
    
    
    
    165
    
    
    
    160
    
    
    
    145Margin (per tonne)
    
          
          
          123
          
          
          
          93
          
          
          
          95
          
          
          
          78
          
    
    
    
    77
    
    
    
    52
    
    
    
    95
    
    
    
    79
    
    
    
    98
    
    
    
    107
    
    
    
    96
    
    
    
    90PhosphateNet sales
    
          
          
          139
          
          
          
          108
          
          
          
          145
          
          
          
          74
          
    
    
    
    61
    
    
    
    67
    
    
    
    122
    
    
    
    48
    
    
    
    83
    
    
    
    92
    
    
    
    99
    
    
    
    45Cost of product
    
          
          
          92
          
          
          
          82
          
          
          
          110
          
          
          
          64
          
    
    
    
    57
    
    
    
    63
    
    
    
    108
    
    
    
    43
    
    
    
    73
    
    
    
    76
    
    
    
    76
    
    
    
    35Gross profit
    
          
          
          47
          
          
          
          26
          
          
          
          35
          
          
          
          10
          
    
    
    
    4
    
    
    
    4
    
    
    
    14
    
    
    
    5
    
    
    
    10
    
    
    
    17
    
    
    
    21
    
    
    
    11Tonnes sold (000)
    
          
          
          266
          
          
          
          223
          
          
          
          335
          
          
          
          197
          
    
    
    
    180
    
    
    
    204
    
    
    
    377
    
    
    
    145
    
    
    
    262
    
    
    
    320
    
    
    
    346
    
    
    
    160Selling price (per tonne)
    
          
          
          523
          
          
          
          484
          
          
          
          433
          
          
          
          376
          
    
    
    
    339
    
    
    
    328
    
    
    
    324
    
    
    
    331
    
    
    
    317
    
    
    
    291
    
    
    
    280
    
    
    
    288Margin (per tonne)
    
          
          
          177
          
          
          
          117
          
          
          
          104
          
          
          
          51
          
    
    
    
    22
    
    
    
    20
    
    
    
    37
    
    
    
    34
    
    
    
    38
    
    
    
    53
    
    
    
    61
    
    
    
    69EBIT
    
          
          
          277
          
          
          
          96
          
          
          
          232
          
          
          
          62
          
    
    
    
    (64
    )
    
    
    47
    
    
    
    132
    
    
    
    (24
    )
    
    
    90
    
    
    
    125
    
    
    
    200
    
    
    
    77EBITDA
    
          
          
          307
          
          
          
          126
          
          
          
          261
          
          
          
          92
          
    
    
    
    99
    
    
    
    78
    
    
    
    167
    
    
    
    8
    
    
    
    119
    
    
    
    153
    
    
    
    232
    
    
    
    110




---



##### 



Agrium  2007 annual report Key Components of Advanced Technologies: · Controlled-release fertilizer for broad acre crops. · Products designed for high value crops such as strawberries. · Branded fertilizer products with controlled-release technologies suitable for golf course
turf, lawn care and sport field applications. · Products and blends designed for the nursery market. · Consumer lawn and garden. 50




---



##### 




 Advanced Technologies Business Segment
 
   
    
    Agriculture: ESN®, the only polymer-coated, environmentally friendly,
controlled-release fertilizer available for broad acre crops in North America.
    
    Specialty agriculture: products designed specifically for high value crops such as
strawberries (Polyon® and Duration®).
    
    Professional turf: branded specialty fertilizer products with controlled-release
technologies suitable for golf course turf, lawn care, and sport field applications
(Polyon, SCU®, Duration, Nutralene®, Nitroform®, IB
Nitrogen®, Trikote®, XCU® ) and associated branded
professional products (ProTurf®, Nu-Gro®).
    
    Horticulture: products and blends designed specifically for the nursery market (Polyon, IB Nitrogen).
    
    Consumer lawn and garden: (Polyon, SCU, Nutralene, Trikote).
 ®




---



##### 




   Advanced Technologies Strategy & Key Developments
   
    
    Grow the base North American business.
    
    Develop new products to support existing and new market opportunities.
    
    Expand internationally with current and future technologies.
  
    
    Completed the integration of three unique business entities into a single SBU by
incorporating the existing Specialties Division of Agrium with the acquired businesses of
Nu-Gro and Pursell.
    
    Marketed and distributed over 120,000 metric tonnes of ESN® sales in Canada and
the U.S., with representation in most of the major agricultural areas. This represents a
year-over-year increase in sales in excess of 130 percent.
    
    Acquired 19.6 percent ownership position in Hanfeng Evergreen for C$6.22 per share or
U.S.$63-million in April 2007.
This supports our strategy of global growth and builds on a relationship initiated by
Nu-Gro a number of years ago. As part of this agreement, Agrium has the opportunity to
participate in future sulphur-coated urea business opportunities with Hanfeng. This
investment leverages off our expertise in the specialty crop nutrient business and provides a
platform for future growth in the important Chinese fertilizer and agriculture market.
    
    Developed for introduction in early 2008, a new controlled-release product targeted to the
turf and consumer market called XCU®. This new product is designed as an upgrade
to our SCU product, with XCU® delivering more nitrogen per tonne of product, with
improved release characteristics.
    
    Underwent a feasibility analysis on utilizing in-market coating facilities to expand our
ESN® production. In-market coating would allow us to expand our
ESN® brand into regions of the U.S.
where it currently is less economical to distribute product from our Carseland, Alberta
production location and enable us to add value to imported urea in the U.S. A final decision
on whether to proceed with capacity expansion through in-market coating is expected in 2008.
    
    Implemented a rigorous branding campaign to better position Advanced Technologies in
controlled-release products.




---



##### 




   Advanced Technologies Products
  
    
    Controlled-release products, including
ESN®.
    
    Other (Canadian professional business).
  
 ® ® ®




---



##### 



Agrium  2007 annual report
  Advanced Technologies Results
 ® ®
 Advanced Technologies Performance
 Year Ended December 31(millions of U.S. dollars)
    
    
    2007
    
    
    

2006(a)Net sales
    
    
    
    249
    
    
    
    
    101Cost of product
    
    
    
    194
    
    
    
    
    82Gross Profit
    
    
    
    55
    
    
    
    
    19Selling expenses
    
    
    
    10
    
    
    
    
    5General and administrative
    
    
    
    16
    
    
    
    
    7Depreciation and amortization
    
    
    
    16
    
    
    
    
    8EBIT
    
    
    
    13
    
    
    
    
    (1
    )EBITDA
    
    
    
    29
    
    
    
    
    7EBITDA as percent of net sales
    
    
    
    12
    
    
    
    
    7
 (a)
    
    The 2006 figures represent the results of Nu-Gro from the date of acquisition of
January 25, 2006 and Pursell from the date of acquisition of August 4, 2006. ESN®and Duration® figures have been included from July 1, 2006. Prior to July
1, 2006, the ESN® and Duration® business was included in Wholesales
results.
 ®
 Expenses
 ® ®
    54




---



##### 



Agrium  2007 annual report
  Quarterly Earnings
  (millions of U.S. dollars)
    
    
    
    
    
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2006Q4
    
    
    
    Q3
    
    
    
    Q2
    
    
    
    Q1
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1Net sales  external
    
    
    
    58
    
    
    
    45
    
    
    
    68
    
    
    
    46
    
    
    
    
    30
    
    
    
    22
    
    
    
    24
    
    
    
    16Net sales  inter-segment
    
    
    
    12
    
    
    
    1
    
    
    
    13
    
    
    
    6
    
    
    
    
    6
    
    
    
    3
    
    
    
    -
    
    
    
    -Total net sales
    
    
    
    70
    
    
    
    46
    
    
    
    81
    
    
    
    52
    
    
    
    
    36
    
    
    
    25
    
    
    
    24
    
    
    
    16Cost of product
    
    
    
    55
    
    
    
    35
    
    
    
    63
    
    
    
    41
    
    
    
    
    29
    
    
    
    21
    
    
    
    19
    
    
    
    13Gross profit
    
    
    
    15
    
    
    
    11
    
    
    
    18
    
    
    
    11
    
    
    
    
    7
    
    
    
    4
    
    
    
    5
    
    
    
    3Gross profit (%)
    
    
    
    21
    
    
    
    24
    
    
    
    22
    
    
    
    21
    
    
    
    
    19
    
    
    
    16
    
    
    
    21
    
    
    
    19EBIT
    
    
    
    (2
    )
    
    
    3
    
    
    
    7
    
    
    
    5
    
    
    
    
    (2
    )
    
    
    (3
    )
    
    
    3
    
    
    
    1EBITDA
    
    
    
    4
    
    
    
    7
    
    
    
    10
    
    
    
    8
    
    
    
    
    1
    
    
    
    -
    
    
    
    4
    
    
    
    2
 
   55




---



##### 



Agrium  2007 annual report Grain production is not keeping up with demand · Global grain demand growth is being led by the push for improved diets. · Grain demand has been further spurred on by a global increase in demand for
crops for bio-fuel production. · 2008 may signal a new plateau in crop prices. · Strong prices provide incentive to growers to maximize crop acreage and
optimize crop input application. 56




---



##### 



Agrium  2007 annual report
   Agriculture Outlook
    57




---



##### 



Agrium  2007 annual report
   Corn prices reached record levels in 2007. While
analysts expect some U.S. acreage to switch out of
corn in 2008 into crops that are less input
intensive, demand for use in ethanol is forecast
to grow by 51 percent in 2007-08.
   Nutrient Outlook
    58




---



##### 



Agrium  2007 annual report
   Nitrogen
We anticipate that additions to global nitrogen capacity
will increase by about one percent in 2008, excluding
changes in Chinese capacity. This is lower than any of the
past three years. Given the robust agricultural
fundamentals, nitrogen demand would be expected to
increase at a rate higher than the historical average.
China is expected to remain a net exporter of urea at least
over the next few years and their net exports could increase
or decrease from 2007 levels. Internal supply and demand
conditions are difficult to determine due to a lack of
quality information and rapidly changing market conditions
and government policies impacting crops, fertilizers and
energy. The internal urea price controls in combination with
taxes on exports means that market signals have less of an
impact on the Chinese market. In an attempt to curb urea
exports in 2008 the government increased the export tax to
35 percent from April through September and to 25 percent
from October through November, up from 30 percent and 15
percent, respectively.
Iran is the other country that has recently increased its nitrogen capacity, however the
operating rate has been extremely low. The potential for Iranian nitrogen facilities to
continue operating at well below maximum capacity levels and the potential for new Chinese
capacity to replace obsolete Chinese

(BAR CHART)facilities may result in global capacity additions being readily absorbed by expected growth in demand, supporting the continuation of a tight
global nitrogen market throughout 2008. Furthermore, gas prices have risen significantly
in many regions of the world that produce nitrogen including Eastern and Western Europe,
which should raise the floor price for global nitrogen prices.
    59




---



##### 




   Potash
 
    Phosphate




---



##### 




 
 
   Change in Factor
    
    
    Consolidated
    
    
    ConsolidatedEBIT Impact
    
    
    Net Earnings Impact (d)(millions of U.S. dollars, except as noted)Wholesale Margins(a)Nitrogen (b)
    
    
    $10.00
    
    
    
    44
    
    
    
    29Phosphate
    
    
    $10.00
    
    
    
    10
    
    
    
    7Potash
    
    
    $10.00
    
    
    
    17
    
    
    
    11Retail Margins(c)Crop Nutrients
    
    
    1.00%
    
    
    
    13
    
    
    
    9Crop Protection Products
    
    
    1.00%
    
    
    
    6
    
    
    
    4Seed
    
    
    1.00%
    
    
    
    2
    
    
    
    2Exchange Rate from CAD to USD
    
    
    $0.01
    
    
    
    7
    
    
    
    4Exchange Rate from Argentine Peso to USD
    
    
    0.3 Pesos
    
    
    
    1
    
    
    
    1
 (a)
    
    Change in factor is per metric tonne.(b)
    
    The sensitivity to nitrogen margins is inclusive of
the natural gas sensitivity described in the text below.(c)
    
    Change in factor is gross profit as a percentage of
net sales.(d)
    
    To convert impact to an EPS basis, divide the net earnings impact by the weighted-average
number of outstanding shares (136 million shares as of December 31, 2007).




---



##### 



Agrium  2007 annual report
  Margins
 Wholesale
  Retail
  Advanced Technologies
  Foreign Exchange
  Consolidated Results of Operations
 (millions of U.S. dollars, except per share amounts)
    
    
    2007
    
    
    
    2006
    
    
    2005Net sales
    
    
    
    5,270
    
    
    
    
    4,193
    
    
    
    3,294Cost of product
    
    
    
    3,672
    
    

    
    
    3,237
    
    
    
    2,256Gross profit
    
    
    
    1,598
    
    

    
    
    956
    
    
    
    1,038ExpensesSelling
    
    
    
    471
    
    

    
    
    390
    
    
    
    254General and administrative
    
    
    
    125
    
    

    
    
    96
    
    
    
    79Depreciation and amortization
    
    
    
    173
    
    

    
    
    169
    
    
    
    146Royalties and other taxes
    
    
    
    43
    
    

    
    
    20
    
    
    
    45Asset impairment
    
    
    
    -
    
    

    
    
    136
    
    
    
    -Other expenses
    
    
    
    71
    
    

    
    
    73
    
    
    
    14EBIT
    
    
    
    715
    
    

    
    
    72
    
    
    
    500Interest expense
    
    
    
    70
    
    

    
    
    63
    
    
    
    49Income taxes
    
    
    
    204
    
    

    
    
    (24
    )
    
    
    168Net earnings
    
    
    
    441
    
    

    
    
    33
    
    
    
    283Earnings per shareBasic
    
    
    
    3.28
    
    

    
    
    0.25
    
    
    
    2.14Diluted
    
    
    
    3.25
    
    

    
    
    0.25
    
    
    
    2.12
    62




---



##### 



Agrium  2007 annual report
  Gross profit
  
    
    Record corn and wheat prices in 2007.
    
    Higher crop input application rates and higher crop input use.
    
    Significantly higher global nutrient prices for nitrogen, phosphate and potash in 2007.
    
    Increased production costs, primarily for our nitrogen operations due to higher gas
prices, and our Canadian phosphate operations due partly to the stronger Canadian dollar
in 2007.
   
    
    Reduced U.S. corn acreage and low crop prices in the first half of 2006 impacting nutrient
and other crop input demand.
    
    High cost inventory carryover from the fall of 2005.
    
    Protracted Chinese potash price negotiations that resulted in reduced international potash
shipments throughout the first half of 2006.
    
    Increased gross profit due to the acquisition of Royster-Clark and Nu-Gro in the first
quarter of 2006 and Pursell in the third quarter of 2006.
 Selling expenses
  General and administrative expenses
    63




---



##### 



Agrium  2007 annual report
  Depreciation and amortization
  Asset impairment
  Royalties and other taxes
  Other expenses
 2007
    
    
    
    2006
    
    
    2005Interest income
    
    
    
    (30
    )
    
    
    
    (16
    )
    
    
    (22
    )Stock-based compensation
    
    
    
    113
    
    
    
    
    30
    
    
    
    13Environmental remediation and accretion of asset retirement obligations
    
    
    
    5
    
    
    
    
    12
    
    
    
    9Realized and unrealized loss on derivative contracts
    
    
    
    20
    
    
    
    
    35
    
    
    
    21Foreign exchange (gain) loss
    
    
    
    (41
    )
    
    
    
    3
    
    
    
    (5
    )Litigation and contract settlements
    
    
    
    -
    
    
    
    
    -
    
    
    
    (25
    )Other
    
    
    
    4
    
    
    
    
    9
    
    
    
    2371
    
    
    
    
    73
    
    
    
    14
     64




---



##### 



Agrium  2007 annual report
  Interest expense
  Income taxes
    65




---



##### 



Agrium  2007 annual report
  Quarterly Results of Operations
   Net Earnings
    
    
    
    
    
    
    Cash & Cash
    
    
    
    
    
    
    Long-termNet Sales
    
    
    Net Earnings
    
    
    Per Share
    
    
    Total Assets
    
    
    Equivalents
    
    
    Cash Dividends
    
    
    Financial LiabilitiesBasic
    
    
    Diluted2007Q1
    
    
    821
    
    
    
    (11
    )
    
    
    (0.08
    )
    
    
    (0.08
    )
    
    
    3,560
    
    
    
    45
    
    
    
    -
    
    
    
    921Q2
    
    
    2,034
    
    
    
    229
    
    
    
    1.71
    
    
    
    1.70
    
    
    
    3,615
    
    
    
    55
    
    
    
    7
    
    
    
    931Q3
    
    
    989
    
    
    
    51
    
    
    
    0.38
    
    
    
    0.38
    
    
    
    4,022
    
    
    
    41
    
    
    
    -
    
    
    
    946Q4
    
    
    1,426
    
    
    
    172
    
    
    
    1.25
    
    
    
    1.24
    
    
    
    5,839
    
    
    
    1,509
    
    
    
    9
    
    
    
    1,141Year
    
    
    5,270
    
    
    
    441
    
    
    
    3.28
    
    
    
    3.25
    
    
    
    5,839
    
    
    
    1,509
    
    
    
    16
    
    
    
    1,1412006Q1
    
    
    657
    
    
    
    (48
    )
    
    
    (0.37
    )
    
    
    (0.37
    )
    
    
    3,552
    
    
    
    49
    
    
    
    -
    
    
    
    758Q2
    
    
    1,816
    
    
    
    142
    
    
    
    1.08
    
    
    
    1.06
    
    
    
    3,215
    
    
    
    69
    
    
    
    7
    
    
    
    960Q3
    
    
    821
    
    
    
    1
    
    
    
    0.01
    
    
    
    0.01
    
    
    
    3,169
    
    
    
    39
    
    
    
    -
    
    
    
    921Q4
    
    
    899
    
    
    
    (62
    )
    
    
    (0.47
    )
    
    
    (0.47
    )
    
    
    3,265
    
    
    
    109
    
    
    
    8
    
    
    
    951Year
    
    
    4,193
    
    
    
    33
    
    
    
    0.25
    
    
    
    0.25
    
    
    
    3,265
    
    
    
    109
    
    
    
    15
    
    
    
    9512005Q1
    
    
    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
    
    
    
    719Year
    
    
    3,294
    
    
    
    283
    
    
    
    2.14
    
    
    
    2.12
    
    
    
    2,785
    
    
    
    300
    
    
    
    14
    
    
    
    719
  2007
 
    
    Net earnings for the third quarter include a $10-million non-cash gain related to the
freeze of a U.S. defined benefit pension plan in favor of introducing a defined
contribution plan.
    
    First quarter net earnings increased by $11-million related to the reversal of an
environmental remediation accrual due to a regulatory agency approved change in the
related remediation plan.
    
    Given the significant increase in our share price in 2007, stock-based compensation
expense increased significantly each quarter. The increase in the first quarter was
$22-million. The increase in stock-based compensation expense for subsequent quarters
was $9-million in the second quarter, $13-million in the third quarter and $39-million
in the fourth quarter.
    
    In the third quarter we had a loss on non-qualifying derivative contracts of $20-million.
    
    As a result of the strengthening Canadian dollar, we experienced significant foreign
exchange gains in the second and third quarters of 2007 of $17-million and $21-million,
respectively.
 2006
 
    
    Fourth quarter earnings were negatively impacted by a pre-tax impairment charge on our
Canadian phosphate assets of $136-million.
    
    As a result of a significant increase in our share price, fourth quarter stock-based
compensation expense increased by $8-million.
    
    Net earnings for the fourth quarter were increased by a $13-million gain on sale for
divestiture of a non-core oil and gas property in the Canadian Arctic.
    
    Net earnings in the second quarter were favorably impacted by an $18-million non-cash future
income tax recovery.
    
    In the first quarter of 2006, we had a loss on non-qualifying derivative contracts of
$43-million.
    66




---



##### 



Agrium  2007 annual report
  
 2005
 
    
    Net earnings in the fourth quarter were positively impacted by income of $16-million
related to the settlement of a commercial dispute.
    
    Third quarter net earnings were negatively impacted by a charge of $9-million related to
recognition of deferred financing fees on early repayment of the balance of long-term
project financing debt.
    
    In the third quarter of 2005, we had a loss on non-qualifying derivative contracts of
$17-million.
 Non-GAAP Disclosure
    (millions of U.S. dollars, except per share amounts)
    
    
    Retail
    
    
    Wholesale
    
    
    Advanced Technologies
    
    
    Other
    
    
    Consolidated2007EBITDA
    
    
    
    210
    
    
    
    786
    
    
    
    29
    
    
    
    (137
    )
    
    
    888Depreciation and amortization
    
    
    
    33
    
    
    
    119
    
    
    
    16
    
    
    
    5
    
    
    
    173EBIT
    
    
    
    177
    
    
    
    667
    
    
    
    13
    
    
    
    (142
    )
    
    
    715Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (204
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    441Diluted earnings per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.252006EBITDA
    
    
    
    125
    
    
    
    352
    
    
    
    7
    
    
    
    (107
    )
    
    
    377Depreciation and amortization
    
    
    
    30
    
    
    
    125
    
    
    
    8
    
    
    
    6
    
    
    
    169Asset impairment
    
    
    
    -
    
    
    
    136
    
    
    
    -
    
    
    
    -
    
    
    
    136EBIT
    
    
    
    95
    
    
    
    91
    
    
    
    (1
    )
    
    
    (113
    )
    
    
    72Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33Diluted earnings per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.252005EBITDA
    
    
    
    113
    
    
    
    614
    
    
    
    -
    
    
    
    (81
    )
    
    
    646Depreciation and amortization
    
    
    
    17
    
    
    
    122
    
    
    
    -
    
    
    
    7
    
    
    
    146EBIT
    
    
    
    96
    
    
    
    492
    
    
    
    -
    
    
    
    (88
    )
    
    
    500Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (168
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283Diluted earnings per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.12
    67




---



##### 



Agrium  2007 annual report
  
 (millions of U.S. dollars)
    
    
    2007
    
    
    
    2006Assets
    
    
    
    5,839
    
    
    
    
    3,265Liabilities
    
    
    
    2,747
    
    
    
    
    2,032Shareholders equity
    
    
    
    3,092
    
    
    
    
    1,233
  Assets
       Liabilities
    68




---



##### 




  (millions of U.S. dollars)
    
    
    2007
    
    
    
    2006Current assets
    
    
    
    3,588
    
    
    
    
    1,559Current liabilities
    
    
    
    1,267
    
    
    
    
    943Working capital
    
    
    
    2,321
    
    
    
    
    616




---



##### 




  (millions of U.S. dollars)
    
    

2007
    
    
    
    2006
    
    
    2005Cash provided by operating activities
    
    
    
    494
    
    
    
    
    155
    
    
    
    450Cash used in investing activities
    
    
    
    (561
    )
    
    
    
    (739
    )
    
    
    (212
    )Cash provided by (used in) financing activities
    
    
    
    1,467
    
    
    
    
    393
    
    
    
    (363
    )Increase (decrease) in cash and cash equivalents
    
    
    
    1,400
    
    
    
    
    (191
    )
    
    
    (125
    )
 Cash provided by operating activities
   Non-cash working capital
  
    
    Seasonality factors including pre-sales of product, inventory build for peak demand, and
seasonal changes in sales demand.
    
    Demand for our products and services.
    
    Selling prices of our products and services.
    
    Raw material input and other costs.
    
    Use of our accounts receivable securitization facility.
    
    Foreign exchange rates.
  Cash used in investing activities




---



##### 




  Business acquisitions
  
    
    During the first quarter of 2006, we acquired 100 percent of Royster-Clark Inc. for total
consideration of $474-million.
    
    During the first quarter of 2006 we acquired 100 percent of the Nu-Gro controlled-release
fertilizer and professional products businesses for total consideration of $86-million.
    
    During the third quarter of 2006, we acquired 100 percent of certain net assets and
technologies of Pursell Technologies for total consideration of $91-million.
  Capital expenditures
 (millions of U.S. dollars)
    
    

2007
    
    
    
    2006
    
    
    2005Sustaining capital
    
    
    
    104
    
    
    
    
    91
    
    
    
    87Investment capital
    
    
    
    350
    
    
    
    
    118
    
    
    
    88Total
    
    
    
    454
    
    
    
    
    209
    
    
    
    175
   
    
    In 2007 we began construction of a world-scale nitrogen facility to be located in Damietta,
Egypt, with completion expected in 2010. The construction cost of the facility and related
infrastructure is forecast to be approximately $1.2-billion. The available funding is
$940-million in project debt and $474-million in equity (see discussion on Long-term debt and
Non-controlling interest under Cash provided by financing activities on page 72 of this
MD&A). Our total investment capital expenditures related to the Egypt nitrogen project for
2007 were $353-million, including capitalized interest. The total investment capital
expenditures include $50-million of accruals included in accounts payable and accrued
liabilities as at December 31, 2007. Therefore, cash used in investing activities related to
the Egypt nitrogen project is $303-million.
    
    We expanded our Retail operations into the Southern U.S. Plains through the purchase of 22
retail outlets (15 farm centers and 7 satellites) from Archer Daniels Midland (ADM). We
acquired the fixed retail storage and distribution assets and entered into an agreement for
associated long-term leases for land. The total investment capital expenditure related to the
ADM purchase was $13-million.
  Investments




---



##### 




  Cash provided by (used in) financing activities
  Common shares
    Bank indebtedness
  Long-term debt
    Dividends
  Non-controlling interest




---



##### 




  Cash position
   Debt instruments




---



##### 




  Debt covenants
   Debt ratings
    Senior Unsecured Notes and DebenturesMoodys Investors Services
    
    
    
    
    (Baa2)Dominion Bond Rating Service
    
    
    
    
    (BBB)Standard & Poors Ratings Services
    
    
    
    
    (BBB)




---



##### 



Agrium  2007 annual report
  Future Cash Requirements
 Contractual obligations and other commitments
  Payment due by period(millions of U.S. dollars)
    
    
    Less than
    
    
    One to three
    
    
    Four to five
    
    
    After fiveone year
    
    
    years
    
    
    years
    
    
    years
    
    
    TotalLong-term
debt (a)
    
    
    
    51
    
    
    
    426
    
    
    
    286
    
    
    
    2,202
    
    
    
    2,965Operating leases
    
    
    
    35
    
    
    
    61
    
    
    
    21
    
    
    
    29
    
    
    
    146Purchase obligations
    
    
    
    780
    
    
    
    236
    
    
    
    158
    
    
    
    109
    
    
    
    1,283Capital
commitments
(b)
    
    
    
    627
    
    
    
    221
    
    
    
    -
    
    
    
    -
    
    
    
    848Asset retirement obligations
    
    
    
    4
    
    
    
    16
    
    
    
    8
    
    
    
    612
    
    
    
    640Environmental remediation liabilities
    
    
    
    12
    
    
    
    12
    
    
    
    5
    
    
    
    40
    
    
    
    69Total
    
    
    
    1,509
    
    
    
    972
    
    
    
    478
    
    
    
    2,992
    
    
    
    5,951
 (a)
    
    Includes interest payments(b)
    
    Includes capitalized interest
 Long-term debt
  Operating leases
  Purchase obligations
    75




---



##### 



Agrium  2007 annual report
  Capital commitments
  Asset retirement obligations
  Environmental remediation liabilities
  Future Capital Expenditures
  
    
    Projects at several nitrogen and phosphate plants as well as our Vanscoy potash facility.
    
    Additional spending at our Wholesale plant sites in order to ensure efficient and safe
operation of facilities.
    
    Retail spending for maintenance of farm centers and associated buildings and equipment.
   
    
    Project at Profertil, which will allow the use of replacement fuel during critical supply
periods.
    
    Costs related to evaluation of development of a greenfield potash mine in Western Canada.
    
    Additional potash investment and expansion projects.
    
    Additional investment in Advanced Technologies.
    76




---



##### 



Agrium  2007 annual report
  Number of Shares
    
    
    Share Capital
    
    
    Market Value(millions)
    
    
    (millions of U.S. dollars)Common shares
    
    
    158
    
    
    
    1,972
    
    
    
    10,164
    77




---



##### 








---



##### 








---



##### 




  
    
    $39-million increase in stock-based compensation expense due to a significant increase in
our share price from $54.38 at September 30, 2007 to $72.21 at December 31, 2007.
    
    $29-million increase in Retails selling expenses associated with increased sales activity.
    
    $20-million increase in expenses driven by growth in our business, including resulting
higher royalties and other taxes and general and administrative costs.
    
    $13-million increase in other expenses due to the absence of a 2006 gain on sale of a
non-core asset.
   Retail
   
    
    Crop nutrient sales increased $147-million to $393-million due to a favorable combination of
increases in both volume and selling prices. Gross profit improved $36-million to $83-million
due to improvements in per tonne margins along with the increased volume. Crop nutrient
product margins increased to 21 percent this quarter compared to 19 percent for the same
quarter last year. Retails crop nutrients business continued to benefit from strong
fundamentals in our South American operations, which posted significant increases in fourth
quarter crop nutrient sales and gross profit. In addition, improved fall 2007 weather
conditions, particularly in the Eastern Corn Belt locations, contributed to increased crop
nutrient sales in our North American operations when compared to the poor weather conditions
throughout most of the region in the fall of 2006.
    
    Crop protection product sales increased by $6-million to $87-million and gross profit
increased by $7-million to $56-million.
Synergies realized with the Royster-Clark acquisition contributed to improved fourth
quarter crop protection gross profit. In addition, gross profits increased due to fourth
quarter payments of discretionary rebate programs from our suppliers. These factors
contributed to the improvement in crop protection products margins from 60 percent in the
fourth quarter of 2006 to 64 percent this quarter.
    
    Seed, services and other product sales and gross profit for the fourth quarter of 2007 also
improved over the prior year with a sales increase of $18-million to $75-million and gross
profit increase of $11-million to $40-million. Aided by strong seed demand in North America
for fall-seeded wheat, our seed sales and gross profit increased by $8-million and $6-million,
respectively. Our annual average seed sales grew by 23 percent in 2007 versus 2006. Application
revenues and gross profit also increased over the fourth quarter of 2006 by $5-million and
$4-million, respectively, primarily due to an increase in fourth quarter fertilizer volume.
    
    Our Kansas and Oklahoma retail outlets, purchased earlier in 2007, accounted for sales
and gross profit increases of $16-million and $4-million, respectively for the quarter.




---



##### 




  Wholesale
   
    
    Nitrogen sales increased by more than 60 percent, increasing $211-million to $555-million
and gross profit more than tripled with an increase of $160-million to $225-million. Gross
profit for domestic nitrogen increased by $129-million and international gross profit
doubled quarter-over-quarter to $62-million as sales volumes for all major nitrogen
products were up slightly over the same period last year. Realized nitrogen sales prices
were $126 per tonne higher than the fourth quarter of last year, and $49 per tonne higher
than the third quarter of 2007, due to tight global and North American market conditions.
The combination of record nitrogen prices and only a slight increase in costs due to
higher gas prices resulted in record total nitrogen margins of $151 per tonne and domestic
nitrogen margins of $138 per tonne for the fourth quarter of 2007.
 
    
    Potash sales increased $44-million to $93-million and gross profit more than doubled to
$57-million due to higher domestic and international demand and sales prices. Realized
potash sales prices increased by $43 per tonne compared to the fourth quarter of 2006 and
by $17 per tonne compared to the third quarter of 2007. The majority of the increase in
gross profit was from the domestic market. Domestic volumes increased by 112,000 tonnes
from the fourth quarter of 2006, versus an increase of 39,000 tonnes for international
sales. Domestic margins increased by $65 per tonne from the fourth quarter of 2006,
versus an increase of $20 per tonne for international sales. Cost of product sold on a
per tonne basis was lower than the fourth quarter of last year and the third quarter of
2007, due primarily to higher production volumes.
 
    
    Phosphate sales more than doubled to $139-million and gross profit increased ten times
or by $43-million to $47-million as a result of record phosphate selling prices and
strong customer demand. Total realized sales prices increased by $184 per tonne compared
to the fourth quarter of 2006 and by $39 per tonne compared to the third quarter of 2007.
Sales volumes were up almost 50 percent over the fourth quarter of 2006. Phosphate
margins increased $155 per tonne versus the fourth quarter of 2006, to reach an all-time
record $177 per tonne. Phosphate production volume was 23 percent higher than the third
quarter of 2007.




---



##### 




  Advanced Technologies
 ® ®
 Other




---



##### 




 
  
    
    It requires significant assumptions about matters that are highly uncertain at the time the
accounting estimate is made.
 
    
    Different estimates that we could have used in the current period, or changes in
accounting estimates that are reasonably likely to occur from period to period, would
have a material impact on our financial condition, changes in financial condition or
consolidated results of operations.




---



##### 



Agrium  2007 annual report
   Property,
plant and equipment
   Impairment
  Depreciation
  Intangibles
   Goodwill
    84




---



##### 



Agrium  2007 annual report
   Asset
retirement obligations
  Environmental
remediation liabilities
  Employee
future benefits
    85




---



##### 



Agrium  2007 annual report
  New Accounting Standards
  Comprehensive Income
 Financial
Instruments  Recognition and Measurement
 Subsequent Measurement of Gains orFinancial Instrument Classification
    
    As Classified by Agrium
    
    Losses at Each Period EndAssets or liabilities held for trading
    
    Cash and cash equivalents; derivative
financial instruments that are not cash
flow hedges
    
    Fair value; unrealized gains or losses
recognized in net incomeAvailable for sale financial assets
    
    Other assets  long-term investments
    
    Fair value; unrealized gains and losses
recognized in OCI; recognized in net
income on sale of the asset or when
asset is written down as impairedHeld to maturity investments
    
    NoneAmortized cost using the effective
interest rate method; recognized
in net income, if asset/liability is
derecognized or asset is impairedLoans and receivables
    
    Accounts receivableOther financial liabilities
    
    Bank indebtedness, accounts payable,
long-term debt
   Hedges
    86




---



##### 



Agrium  2007 annual report
   Balance sheet category
    
    Gross
    
    
    Income taxes
    
    
    NetRetained earningsIneffective portion of qualifying cash flow hedges
    
    $
    (4
    )
    
    $
    1
    
    
    $
    (3
    )Accumulated other comprehensive incomeUnrealized gains on effective cash flow hedges
    
    $
    8
    
    
    $
    (3
    )
    
    $
    5
 Accounting Standards and Policy Changes Not Yet Implemented
  Financial
Instruments - Disclosures, Financial Instruments  Presentation, and Capital
Disclosures,
 Inventories
    87




---



##### 



Agrium  2007 annual report
   Unplanned Plant Downtime
   
    
    We have implemented EMS (EH&S) management system which included defined expectations and policy
for MOC (Management of Change) for facilities, Risk Management processes / requirements (PHA  Process
hazard analysis).
    
    We are committed to following sound project management processes to ensure capital projects are
executed to the appropriate design standards and completed on schedule and budget.
    
    We have implemented operation standards (PMS  Process Management System, RMP  Risk Management
Program, NAWOS  Wholesale Operating Standards).
    
    Mandatory training programs for Operations, Maintenance, and Technical personnel to ensure
appropriate skills and training are in place to maintain and operate the facilities.
    
    Capital and Maintenance five year planning program.
    
    We have implemented and follow scheduled inspection programs of process equipment.
    
    We have established audit programs for EMS, EH&S, RMP, and PMS for compliance and to identify
opportunities for continuous improvement.
 Product Price & Margin
   
    
    The broad product diversity of our Wholesale business (nitrogen, potash, and phosphate) 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, and International)
reduces the impact of poor economic, crop or weather conditions in any one region.
    
    Our extensive distribution and storage capability can help reduce wholesale variability that may
arise from a downturn in demand in a localized area.
    
    Our commitment to operational excellence helps ensure rigorous management of operational risks
that could compromise production efficiencies or increase operating costs.
    
    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 make prepaid forward sales and may lock in nitrogen margins using forward gas price hedging.
    
    Our Retail and Advanced Technologies businesses provide stability to our annual cash flows and
earnings.
    
    Within our Retail business, we have further mitigating factors including:
 
    
    Product and service diversity (fertilizer, chemical, seed and application services).
    
    Geographic diversity that helps spread risk associated with regional weather and crops (broad
regional U.S. and South American markets).
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Agrium  2007 annual report
   Raw Materials
     
    
    The Profertil nitrogen facility has gas contracts that are not tied to North American gas prices.
    
    We use derivative instruments and other contractual arrangements to manage the risk of gas price
volatility.
    
    Our practice of adjusting our production rates and sourcing supply for 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 the average cost for our competitors who produce and sell elsewhere in North America.
    
    In the long-term, our goal is to increase our nitrogen capacity in areas where long-term supplies
of lower-cost natural gas are available.
    
    For mining, we have medium-term highly competitive contracts in place with suppliers and maintain
high mining standards, employing the latest technologies and techniques to minimize the risk of flooding.
    
    As sulphur is a primary raw material used in manufacturing of phosphate fertilizers, the use of
long-term contracts and contract pricing off of less volatile market indexes have been implemented to mitigate the market
volatility.
 Foreign Exchange
   
    
    Exposure to currency fluctuations is partially managed through our currency hedging programs.
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Agrium  2007 annual report
   Transportation
   
    
    We develop detailed forecasts of product movement needs for each facility and mode of transport.
    
    We develop a strategic plan, with specific options, to help mitigate the potential for increased
cost or the reduced deliverability of ammonia and other products over the medium term, and continue to work with
industry associations to address these issues.
    
    We continually develop and maintain mutually beneficial long-term relationships with major
carriers.
    
    Most of our production facilities are serviced through multiple carriers and modes of
transportation, providing us with important shipping options.
    
    We maintain multiple supply points through our extensive distribution network.
 Human Resources
   
    
    We have a structured annual Succession Planning process focused on actively accelerating the
development of leaders through targeted developmental opportunities.
    
    We conduct a continuous review and analysis of our Total Compensation program to ensure our
offering to employees is competitive in the markets in which we compete for talent.
    
    We maintain a focused approach to recruiting, developing and retaining key employees, which will
be supported by a formalized Talent Acquisition model currently under development.
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Agrium  2007 annual report
   Country
   
    
    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.
    
    We obtain non-recourse project financing with consortiums of international banks where
appropriate.
    
    We maintain excess cash related to international operations in U.S. dollars to the extent
practicable.
    
    We increase our required investment return to reflect our perceived risk of conducting business
in specific countries.
    
    We monitor supply conditions, confirm long-term local supply contracts (with a government partner
for Egypt), and develop contingency plans to allow higher plant
downturn and potential fuel switching capability.
 Integration of Acquisitions and Expansions
   
    
    We have developed a detailed and systematic project review process to analyze the rewards/risks
of all significant investment projects, including acquisitions and development expansions. Each major investment
project must pass a gate process where it is reviewed by an investment strategy committee to ensure it passes key
criteria such as strategic fit, economic return or our hurdle rate and various competitive and risk factors.
    
    As part of this process we assign specific areas of responsibility to our key personnel with
experience in those areas who are then held accountable for results.
    
    We conduct extensive due diligence reviews and financial modeling analyses, including the
potential impact the acquisition may have on our credit rating or access to credit facilities.
    
    We complete periodic assessments of previous acquisitions to update and enhance current and
future strategies in the spirit of continuous improvement and to ensure we remain a disciplined investor.
    
    We periodically review covenant levels in existing credit facilities and the capital markets
outlook to ensure we maintain flexibility for both ongoing operational capital requirements and potential acquisitions.
    
    We actively manage financial risk on an ongoing basis through a variety of measures and
procedures and ensure we remain within our debt covenants.
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Agrium  2007 annual report
   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.
    
    We have centralized oversight over the tax function in all the jurisdictions in which we operate.
 Weather
   
    
    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 and margins on
these sales in markets further from our production facilities will be lower due to higher transport costs and potentially
lower sales prices.
    
    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 not dependent on regional weather factors. Industrial sales represent approximately 15 percent of our Wholesale
net sales.
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Agrium  2007 annual report
  Climate Change
    
    
    We track our annual air emissions and have proactively undertaken projects designed to
improve plant energy efficiencies and reduce all emissions.
    
    We have taken, and will continue to take, a leadership role in the fertilizer industrys
negotiations with the government on fair and equitable air emission reduction targets and
a pragmatic and realistic compliance system that preserves the global competitiveness of
the industry.
    
    Agriums ESN® environmentally friendly, controlled-release nitrogen product has shown the
potential to reduce nitrous oxide emissions in the field when loss conditions are
present, while enhancing crop yields and farm economics. Nitrous oxide has a much higher
GHG effect than carbon dioxide. Our ESN® product has been shown to produce a higher crop
yield per unit of nitrogen fertilizer than conventional fertilizers which helps reduce GHG
emissions with respect to production, transportation and application of nitrogen
fertilizers.
 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 a policy of entering into derivative contracts with
counterparties that have investment grade or higher credit ratings.
    
    In our Retail segment, we service customers in diverse geographic markets, reducing the
impact of poor economic or crop conditions in any particular region.
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Agrium  2007 annual report
  Environment, Health, & Safety (EH&S)
    
    
    We ensure strong board, executive and plant management leadership, engagement and
participation on EH&S matters.
    
    Highly skilled EH&S personnel are at all levels of the organization.
    
    An increasingly well-defined set of EH&S Key Performance Indicators, annual goals and
systems is cascaded from the Chief Executive Officer throughout the organization.
    
    Ongoing, close working relationships with industry associations, government agencies and
law enforcement ensure best practices, other risk management strategies and new
regulations are known, understood and met in a timely fashion.
    
    A three-tier system for compliance assurance provides the appropriate levels of management
(corporate, business unit, local) with more frequent assessment of their risk reduction
opportunities.
    
    Annually, we review our EH&S Policy for relevancy and modify it as necessary.
    
    We drive responsibility for compliance assurance deeper into the organization, increasing
the frequency at which systemic, regulatory and business risk control measures are evaluated
and improved for optimal results.
    
    We limit the number of farm centers offering ammonium nitrate to one, have established a
Retail security plan ensuring that virtually all product is sold as a blend with other
fertilizer products and that we blend and apply the product for the grower as much as
possible.
    
    Our long-term goal is to phase out carrying agricultural-grade ammonium nitrate entirely.
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Agrium  2007 annual report
  
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