Potash or potassium carbonate has several industrial uses but is, in the main, used in agriculture. According to the Wikipedia entry: “Potash is important for agriculture because it improves water retention, yield, nutrient value, taste, colour, texture and disease resistance of food crops. It has wide application to fruit and vegetables, rice, wheat and other grains, sugar, corn, soybeans, palm oil and cotton, all of which benefit from the nutrient’s quality enhancing properties”.
The mineral exists mainly in deep mine deposits in various countries but some of the world’s largest known potash deposits are in Saskatchewan, Canada.
Yesterday BHP-Billiton made a $US38.56b all cash bid for Potash Corporation of Saskatchewan, to secure ownership of one such deposit. It would enjoy synergies with the nearby Jensen deposit that it already owns. It recently bought a nearby junior Canadian potash company Athabasca Potash.
These are early days and Potash Corporation have rejected the bid – the final price might go to $US 60b.
It is a stunning move – the current bid is about equal to one-third of BHP-Billiton’s market capitalisation or, to provide perspective, more than the estimated cost of Australia’s proposed high speed broadband network. The move while not as big as the (fortunately) failed bid for Rio Tinto it is still enormous. In the press it is variously described as a merger/takeover.
I’ll watch developments but the planned takeover probably reflects expectations of strong continued growth in global food demands. As the developing world develops it will not only want steel, coal and concrete – it will also want to feed itself better.
This quote from the Australian says it all:
People in Asia eat only 27.8kg of meat per head each year, compared with 123.2kg in North America and 74.3kg in Europe. As Asians become richer, their consumption of meat is expected to rise, and so more wheat and grain will be needed to raise cattle.
It has been estimated that it takes 7kg of grain to produce every kilo of beef. The population of the world is also expected to increase by half to more than nine billion by 2050, putting further pressure on food production.
Fruit and vegetable consumption is forecast to rise by a quarter to 2 billion tonnes a year in the next decade, while demand for grains and oilseed is expected to rise by a fifth.
With the supply of agricultural land declining in some areas as a result of rapid urbanisation, existing land will have to become more productive. Countries such as India and China are therefore expected to use much more fertiliser, increasing demand for potash, nitrogen and phosphates.