Fertiliser Production Vital to Keep Food on Global Tables

COMMODITY CAPERS: The obesity epidemic sweeping western society hides a far more alarming reality, which is simply that the world is running out of food.

The reason for the impending shortage, however, does not rest at the unseen feet of our corpulent compatriots, it’s just that the world population is growing at increasing rates.

Depending on which expert you talk to, the world’s population is forecast to grow to somewhere between 9.5 and 10.5 billion people by 2050 from its current base of around seven billion.

Much of that growth is expected in countries developing very quickly, such as China, India and Brazil.

As population increases, the arable lands available are not predicted to follow at the same rate with arable land per person falling from a quarter of a hectare to around 0.15 of a hectare.

“The world needs to produce at least 50 per cent more food to feed nine billion people by 2050,” the World Bank said when discussing global food security.

“The land, biodiversity, oceans, forests, and other forms of natural capital are being depleted at unprecedented rates.

“Unless we change how we grow our food and manage our natural capital, food security – especially for the world’s poorest – will be at risk.”

In a recent report from the Western Australia Department of Agriculture and Food, entitled – Western Australian agriculture and food: a global opportunity – the Department claimed the State could become a world leader in food production.

“The Western Australian agrifood sector has a long‑awaited opportunity to grow by feeding the rapidly expanding urbanised middle class around the world, particularly in Asia, who are demanding high‑quality, traceable produce, especially protein,” the report said.

“Sector and government specialists agree the agrifood sector has the potential to grow and contribute more to the state’s economy.

“In support of this, the Western Australian Government has set a target of enabling the sector to double in real value between 2013 and 2025, using export value as an initial measure of progress against this.”

Western Australia’s top five agrifood export markets in 2014/15, were all located in Asia with exports to China, Indonesia and Vietnam growing by more than 20 per cent per annum over the past five years.

“The growth opportunity for Western Australia is real,” The report claimed.

“Given the strong demand coming from Western Australia’s major export destinations in Asia, the 2025 target could even be considered conservative.”

With this potential growth slated to become a reality, obvious potential exists for some industries to grow through domestic demand, one in line to enjoy this attention being the fertiliser industry.

“The Australian fertiliser industry generated around $3.9 billion in revenue during the 2016-17 year,” BDO partner in corporate finance Adam Myers said at the 2017 RIU Explorers Conference in Fremantle.

“There are approximately 289 businesses involved in the industry, however, only three companies make up over 55 per cent of that market.

“On a global scale, Australia makes up just two per cent of the market.”

There are three major type nutrients that are required – in amounts of hundreds of kilograms of per hectare world-wide – to yield good plant growth.

These are nitrogen (N), phosphorous (P) and potassium (K); together they constitute the NPK stamped on bags of fertiliser bought from garden centres every weekend.

They are not interchangeable and depending whether it is roses growing in Grandma’s garden, wheat in the fields of Western Australia or bananas in northern Queensland, the correct amount of each is vital to the cause.

Nitrogen ensures production of new cells and enzymes and it is responsible for leaf and stem growth.

It is also a major component of chlorophyll, which gives plants their green pigments.

Phosphorous – in the form of phosphate – promotes root development, encourages root growth and blooming and it is critical to the photosynthesis process as well as being an important ingredient in livestock feed.

Potassium – in the form of potash – encourages the uptake of water, increases plant resistance to drought and disease and activates enzymes significant for plant growth.

The astounding statistic in regards to fertilisers is that Australia doesn’t boast a domestic supply with all potash fertilisers consumed by domestic food producers being imported.

“Meeting the 2025 target is still going to take a considerable, coordinated and well‑directed effort,” the Department of Agriculture and Food observed.

“This will include a clear understanding of what consumers want; better targeted products and services; development and application of appropriate business models; supporting infrastructure; investment attraction; and government and sector partnerships.”

Myers suggested there would be plenty of opportunities arising for the local agribusiness sector as iy gains more interest, particularly from overseas.

This, he indicated, has already commenced with the past few years with investment rolling in from China, but most surprisingly, the bulk flowing into the country in the form of increased direct investment from North America and Europe.

“The returns on offer from Australian agriculture are attractive compared to what is being realised in foreign markets,” Myers explained.

“North American pension funds, for example, have been very active in seeking out large-scale Australian agriculture investment opportunities.

“These opportunities, however, are lacking given the makeup of our agriculture industry.”

Chinese investment into Australia reached $US375 million in 2015 and has continued to grow in 2016 and although there has been some significant attempts to invest that have been knocked back, the appetite remains.

One main contributing factor to this is the view of foreign investors that Australia is blessed with a relatively stable political environment and, just as important, a robust legal system.

“This combined with access to, and demand from, Asia for quality Australian made and grown food, the low Australian dollar and the perception that Australian land is cheap, have made Australia an attractive destination for Asian capital,” Myers said.

“The competition for Australian agriculture assets from local institutions has been very low

“Until recently, the returns on offer from other asset classes that they know a lot better – such as commercial property and equites have been higher

“So, the Funds have tended to stick to the traditional investment space.”