another good read imo
Winnipeg Free Press - PRINT EDITION
The potash tug-of-war hurts world
By: Sylvain Charlebois
29/10/2009 1:00 AM|
111A stabilizeddemand should help some in the potash industry to a bigger serving ofprofits. Far more important, though, robust and sustained demand forpink gold is essential to the future of the human race.
TheUN's Food and Agriculture organization estimates unprecedented worldhungry and forecasts global population to reach nine billion by 2050.There is plenty of evidence that market traction for fertilizers iscrucial to reduce hunger.
But we're not there yet. Potash Corp.,the world's largest potash producer and the second and third largestproducer of nitrogen and phosphate, three key crop nutrients, presentedpoor quarterly results this week. For this industry, weak results in Q3means 2009 is a write-off and most hope fertilizer buyers will come offthe sidelines next year.
Farmers can choose not to fertilize fora year and still enjoy strong yields. But with a decent crop this year,they may be inclined to go another season without. Farmers are playingwith fire as yields this year have slipped to dangerous levels invulnerable markets like China, Brazil and Argentina.
But who canentirely blame the farmers? The price of potash remained at very lowlevels for decades and farmers grew comfortable with affordable,predictable fertilizer prices.
When global demand for nutrientsskyrocketed last year, fertilizer producers took full advantage and theprice climbed to $1,000 (US) per tonne. As a result, last year'spredicament provided exceptional value to investors and shareholders,but little to farmers.
Pure greed never works in the long run, especially in agriculture. Now, fertilizer producers are paying the price.
Thecurrent model for fertilizer companies is unbalanced. For decades,fertilizer companies followed the same general business model. Theyextract, process, and ship resources abroad in hopes of getting thebest price to please shareholders.
Considering the interrelationsof modern global markets, the status quo is grossly obsolete. Value forfarmers needs to be taken into account by fertilizer companies. Thefinancial crisis made this even more obvious.
Credit is still asignificant issue and farmers everywhere crave cash. Without it, theycannot buy fertilizers. To move more products downstream, the retailend should be controlled more responsibly by fertilizer companies.
Pricingstrategies should also be refined. Current market volatility, amongother things, tells us that market price negotiation requires aparadigm shift. The aim is no longer simply to grab the best pricepossible. It is now about getting the right price to leveragesustainable growth for all components. Over the next decade, potashprices will increase and key players will need to commit to longer-termcontracts.
China, the biggest potash buyer in the world, has yet to sign its annual fertilizer deal for 2010.
Fertilizercompanies hope the outcome will provide price clarity for markets in2010, but China continues to wait for production prices to fall. Let'shope that this crucial market sees that world agriculture will behealthier with give-and-take relationships, rather than a war ofattrition.
The ongoing tug of war between fertilizer producersand farmers is hurting the world. In 2008, the battle was won byfertilizer companies.
This year, farmers are clearly the winnersas fertilizer prices dropped by more than 50 per cent worldwide. Theultimate losers of this war are those dying of hunger and time isrunning out.
Norman Borlaug, who won the Nobel Peace prize in1970 for his contribution to agriculture know-how in emerging markets,has repeatedly stated that chemical fertilizers are the only remedy forworld hunger.
To provide a balanced model, the fertilizer industry will have to leave greed out of the picture and offer evidence that it can provide as much value to its farmers as it has toinvestors. Otherwise, world yields in emerging markets will diminish,companies will lay off more employees, and more people will suffer anddie from an empty stomach.
Sylvain Charlebois is associate dean of the Johnson-Shoyama Graduate School of Public Policy, University of Regina.
Republished from the Winnipeg Free Press print edition October 29, 2009 A15
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