Food security is back on the agenda in 2020. Flooding in China and elsewhere in Asia, a plague of locusts across East Africa and the Middle East and finally COVID-19 induced precautionary stockpiling as a hedge against future supply disruptions. All around the globe governments have seen how precarious food supplies can be.
Consumption of fertiliser is expected to increase significantly in many parts of the world as countries look to lock in self-sufficiency. Meanwhile, rising populations and improved diets are likely to put even greater pressure on available farmland.
Crop yields are low in many regions, partly due to the historical under-application of fertiliser in many developing countries. Fertile tracts of land have dwindled through pollution and urbanisation. It is Africa where the problem is most acute, and the potential future demand for fertiliser is most promising. For example, a 2016 report from the UN Food and Agriculture Organization (FAO) said 40% of soils in Africa were suffering from some form of degradation, including erosion and loss of nutrients.
According to the World Bank, there are huge regional differences in fertiliser consumption. In East Asia and the Pacific, countries typically use around 330 kgs of fertiliser per hectare of arable land. Across North and South America and Europe, farmers use around 130-150 kgs. This falls to 95 kgs in North Africa and the Middle East and to a meagre 20 kgs in Sub-Saharan Africa.
China and India dominate the demand side of the potash market. Yet the areas of strong population growth and demand for fertiliser all centre on Africa. Its population is forecast to rise by 1 billion by 2050 to reach 2.2 billion. Africa’s food and agricultural import bill average $72bn a year, according to the FAO, this despite having 60% of the world’s uncultivated arable land. Asia accounts for 57% of global fertiliser consumption, Africa consumes a mere 3%.
That’s where potash comes into play. Most fertilisers that are commonly used in agriculture contain the three basic plant nutrients: nitrogen, phosphorus, and potassium. Potash is essentially potassium, a critical nutrient enabling high agricultural yields to be achieved. It’s known as ‘pink gold’ and is arguably a hedge against food insecurity.
Potash prices have suffered a brutal bear market over the past decade. After peaking around $450-475 per tonne in 2011, prices have slumped by 50% to $225-250 per tonne in 2020.
If other countries now commit to increasing their own food security then this could start to result in higher prices as countries compete for potash. Indeed it could lead to a breakdown to the annual contract negotiations that have pervaded the potash market and eventually lead to a more commodity market-based system, similar to how the iron ore market transitioned a decade ago.
Chart: Potash prices
