Industrial agriculture currently stands as humanity's big plan for "feeding the world" as global population moves toward 10 billion and the earth warms. Increasingly, as oil supplies tighten and prices rise, we're looking to industrial ag to fill our gas tanks, too.
Unhappily, this relatively new form of farming relies utterly on three elements -- two mined (potassium and phosphorus) and one synthesized from natural gas (nitrogen) -- to maintain the productivity of soil.
In other words, unless we quickly move toward other agriculture models, we're likely to see increased geopolitical competition for these fertilizer resources, outsized power for the entities that control them -- and diminishing efforts to minimize the ecological effects of extracting them.
I've written before about Mosaic, the world's largest phosphorus supplier, and the devastations of its Florida mining operations. Two-thirds owned by agribusiness conglomerate Cargill, Mosaic has seen its share price rise seven-fold since the fall of 2006 (roughly when corn prices began to jump).
Now let's look at Canada's Potash Corporation of Saskatchewan, whose shareholders, like Mosaic's, have enjoyed an ecstatic run of late. The company so dominates potash (potassium) production that one stock analyst has hailed it as "the Saudi Arabia of Fertilizer."
The analyst, Ben Johnson of Morningstar, has this to say about Potash's market position:
PCS is the world's largest potash producer, with 22% of world capacity. ... PCS is also the world's second-largest nitrogen producer by volume (with 2% of world capacity). ... PCS is the world's third-largest phosphate producer (with 6% of world capacity).
Wow, so in the big-three macronutrients, the company ranks one, two, and three. But it's the company's position in the potash market that really has investors licking their chops. Get this:
I feel [an] apt analogy would be to call [Potash Corporation of Saskatchewan] the Saudi Arabia of the "other OPEC" -- Organization of Potash Exporting Countries! ... PCS owns 22% of the world's potash production capacity, while Saudi Arabia accounts for roughly 13% of global oil production. Both enjoy low-cost positions in their particular markets, thanks to scale and the attractive natural resources they control. The Middle East has more than 60% of the world's proven oil reserves, while Canada sits on about 57% of the world's potash reserve base, according to the U.S. Geological Survey.
The analyst says that the company's dominant potash position has made it extraordinarily profitable as fertilizer prices have surged recently, pushed up by the biofuel boom and rising demand from Brazil and China. He writes that "gross profit per metric ton of potash sold nearly doubled to $97 in 2007 from $51 in 2004." He adds:
And there will be more to come. Given recent price announcements for potash, average selling prices will easily double from 2007 levels in the coming quarters.
Similar trends are playing out with nitrogen and phosphorous:
Unit gross profit in nitrogen has more than doubled from $45 to $94 over this same span, and phosphate unit margins have compounded an eye-popping 14 times from $4 in 2004 to $57 in 2007.
Several questions arise here. Is it really sustainable to "feed the world" -- much less move its cars -- using technologies that require ravenous doses of finite resources?
How long before big buyers in places like China start to balk at paying such elevated prices -- and supporting such monopoly-style profit margins? Already, we're seeing countries that are cash-rich and food-poor (think China and Saudi Arabia) buy up farmland in places like Brazil and Africa, the Financial Times reports.
Fertilizer, a critical input for industrial food, is darting down the unhappy path forged by crude oil. It looks set to become the globe's next "prize" -- to paraphrase Churchill's famous quote at the dawn of the oil age. Other ways of "feeding the world," of course, are possible.
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Comments
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ndunne Posted 8:19 pm
15 May 2008
But there are sustainability issues when it comes to organic farming too (whether small-scale or industrial). Many of the fertilizers/amendments approved for use on the organic farm (though unprocessed) are mined, non-renewable resources, including limestone, elemental sulfur, rock phosphate, greensand, granite meal, langbeinite, and gypsum.
Then you have a host of organic byproducts -- such as bone meal, blood meal, fish meal -- from industries with questionable sustainability credentials (i.e. moo cowing and fishing).
I know the (true) organic farmer's credo is zero-input agriculture -- creating a closed-loop, self-sustaining agro-ecosystem. But how many farmers are actually doing this successfully?
NJD
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amazingdrx Posted 12:18 am
16 May 2008
Fear is becoming the main force in the market, for everything. Even greed gives way to fear.
http://amazngdrx.blogharbor.com/blog
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Jonas Posted 3:32 am
16 May 2008
Potash reserves are large enough to feed the 9 billion people at which level we max out in 2075, and to grow biomass to replace all fossil fuels for the centuries to come.
There's really no potash scarcity whatsoever.
There is however a serious lack of investment in new production capacity. 85% of the world's capacity is more than 25 years old.
According to the USGS the oligopoly of producers has succeeded in driving prices higher by producing less (1.1 million tonnes less) - they can fool around like OPEC.
However, the potash boom is creating new entrants, from exotic places. Two new large projects (1.2 million tons) are coming online in the Republic of Congo and Thailand.
In any case, there's no scarcity, the reserves are plentiful.
There's a lack of capacity. That's all.
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amazingdrx Posted 2:31 pm
16 May 2008
If oil consumption in the US dropped to one tenth of present lvels over the next decade, would peak oil still be a big deal? Plugin hybrid drivetrains could do that.
And biogas/natural gas powered trucks and electric trains and mass transit.
The GHG peak must be reached very soon and concentrations ramped down the other side of the mountain.
http://amazngdrx.blogharbor.com/blog
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Bart Anderson Posted 5:51 pm
16 May 2008
I think the factors behind the prices rises are rising demand (e.g. from biofuel crops) and the rising cost of energy and natural gas. Supplies and production capacity may also be factors.
I'm not sure about potash. Jonas says there's no scarcity, and that may be true. I wonder, though, if there may be an issue with the energy required to mine, process and ship it. And what is the quality of the reserves? Easy or difficult to access?
About nitrogen, I know there is a close correlation with energy prices since the process is very energy-intensive and relies on natural gas as a feedstock.
Phosphorus is the one I'm really concerned about. Supplies are limited and there is no substitute. I've seen a number of estimates about reserves, but the question deserves a lot more attention. (Recent post / Readings / Peak Phosphorus).
Bart
Energy Bulletin
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amazingdrx Posted 1:24 am
17 May 2008
A big new revelation about nitrous oxide (296 x the GHG effect of CO2) emission due to ammonmia fertilizer makes this very clear.
http://amazngdrx.blogharbor.com/blog/_archives/2008/5/17/ ...
How much will fertilizer need to cost before organic fertilizer competes on price? I think it is here already but ag policy ignores this fact.
Wind is cheaper than coal as a grid power source, finally coal plants are being canceled in favor of wind. When will organic fertilizer from biodigestion replace ammonia fertilizer?
http://amazngdrx.blogharbor.com/blog
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Bart Anderson Posted 4:01 am
17 May 2008
Problem is, amazingdrx, several interconnected trends are going on at once. To say that peak GHG is more important is to say that the Law of Gravity is more important than the Laws of Motion.
It's critical to see how the different trends affect one another.
For example, the rising price of oil pushes people into increased use of coal.
Or, food riots and competition for oil may prompt resource conflicts which would distract from efforts to control GHG.
Bart
Energy Bulletin
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