stock-market farm wars

There has been a $40billion, $130-a-share, hostile takeover bid for the for the Potash Corp of Saskatchewan by the Australian mining conglomerate BHP Billiton (profits for the full year ended 30 June 2010 $12.7 billion, a growth of 116.5 per cent) .

In 1989, the government of the Canadian province of Saskatchewan started the privatisation of PotashCorp through an initial public offering – and raised a mere $231m. It sold the shares at $18 but, by the end of the first trading day with investors showing little interest, the price had fallen to $17.75. Investors were little interested in an obscure commodity such as potash. Now the sector has become the darling of Wall Street. In the first eight months of the year, deals valued at $61bn have been announced by companies in the industry. The cost of potash has rose from less than $150 in 2006 to almost $1,000 a tonne in 2008. For years, fertiliser consumption increased only slowly, in parallel with the growth in global population. But in the late 1990s and 2000s new factors accelerated demand.

Modern agriculture relies heavily on fertiliser to boost crop yields. “Potash, for all intents and purposes, is food,” says Vincent Andrews of Morgan Stanley in New York.

Economic growth in emerging countries has been accompanied by greater demand for proteins such as meat and milk, and a rapid increase in demand for grain to fatten livestock (7kg for every 1kg of beef). The development of the global biofuels industry further increased demand for agricultural commodities and hence fertilisers. The UN Food and Agriculture Organisation forecasts that global food demand will jump by 70 per cent between now and 2050 as the population rises by 3bn to more than 9bn, further boosting demand for fertiliser. As a result, countries are starting to see potash much as they see crude oil - as a hunted, strategic commodity.

Potash deposits are not evenly spread. A handful of nations – Canada, Russia, Belarus and Israel – command the bulk of the reserves. Eight companies control more than 80 per cent of global supply. Two marketing groups – Canpotex for North American producers and BPC for the Russian and Belarusian groups – dominate the global trade. Potash is the only fertiliser in which China is seriously deficient. The country, which feeds 20 per cent of the world’s population using just 7 per cent of global arable land, has huge fertiliser needs. China has to import about half of its potash needs, a dependency that “may become a major threat to China’s fast-developing national economy and long-term strategic needs”, according to the Chinese Academy of Social Sciences, a think-tank that advises the government.

Tim Lang, professor of food policy at City University, London, explained
“The potash story is very significant. This is an attempt at a commodity grab. The price of potash will rise and, with it, the price of food. Right now agriculture is like a junkie, hooked on things like potash and oil. If the challenge is about future soil fertility and human health, we can develop a system based on nutrient recycling. Humans need to become part of the cycle, literally, using recycled sewage to restore fertility to the land. At the moment we drain it out to sea – it could be used to increase yield and health of crops.”

Lang fears that the activities of BHP signify an attempt to control the food supply.