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Eric Reguly

Agriculture becomes the next big thing Add to ...

What might Canada's next great growth industry be? Smart phones, oil sands technology, aerospace, alternative energy, nuclear power, biotech? Each of those industries has a "been there, done that" feel about them, even if a couple of them could keep thriving for years to come. Agriculture is the one industry you might not even consider putting on the list.

Most Canadians live in cities and don't think about agriculture. They think food comes from supermarkets. The connection back to the farm, to the export terminals, to the commodity futures markets, to the R&D labs, where seeds are engineered, and to the farm equipment assembly plants is often not made. Yet Canada has all the ingredients needed to become the world's premier farm-to-fork economy.

A new report by Australia's Macquarie Agricultural Funds Management concludes that heroic efforts will be needed to feed a global population that will expand by 40 per cent by 2050. Some countries will struggle to feed their citizens; food riots broke out in dozens of poor countries at the height of the food crisis in 2008.

But others might thrive. Macquarie notes that "those countries with a robust agricultural sector, sustainable farming practices, modern infrastructure, reliable water access and safer political structures will increasingly become the global agricultural powerhouses." The report doesn't specifically mention Canada, but Canada checks off all the boxes, and then some.

Besides vast amounts of land and water, superb infrastructure and technological expertise, Canada has fertilizer and lots of it. Potash, mined in Saskatchewan, is an essential, irreplaceable and relatively rare fertilizer ingredient. Potash Corp. controls as much as 30 per cent of the world's supply and the nutrient is coveted by China, India and other countries with burgeoning populations. It is not just a national champion; it is a global champion, one with a bright future in an essential and expanding industry.

Surprisingly, the Canadian government, which has almost never met a foreign takeover it didn't love, appeared to agree. Late Wednesday, Investment Canada ruled that BHP Billiton's ownership of the company would not provide a "net benefit" to Canada. The decision means BHP's $38.6-billion (U.S.) hostile offer for Potash Corp. is unlikely to go ahead, though the company was given another month to persuade the feds to change their minds. Foreign control of the world's top fertilizer company would undeniably have been a blow to Canada's global agribusiness ambitions and Potash Corp.'s desire to build on its commanding position in a strategic resource.

It is impossible to exaggerate the importance of potash. Consider that the global population is expected to rise from 6.5 billion to 9.2 billion between 2005 and 2050, which in itself will require a massive amount of extra agricultural production. Additional pressure will come from changing diets. According to the UN Food and Agriculture Organization, global per capita meat consumption is expected to rise to 52 kilograms, from 37 kilos, by 2050. Feeding people more meat is an inefficient use of farmland; it takes eight kilos of grain to produce one kilo of beef.

Now for the really bad news. It's not going to be easy to expand production to stuff all those extra burger-craving mouths. The amount of arable land in the developed world has been in decline since the mid-1980s and a reversal of the trend is unlikely. The arable land footprint is expanding in the developing world, but not nearly as fast as it was a few decades ago. That's because rampant deforestation is no longer an attractive option. Compounding the problem is a lack of water. Water scarcity is reaching crisis levels in some African and Middle Eastern countries.

With the amount of arable land increasingly slowly, improving crop yields on existing farmland becomes the default option. The best way to do so is through irrigation (within the constraints of water supply) or fertilizer, assuming the farmer can afford fertilizer. Spreading nutrients on crops may not improve yields overnight. In some cases, fertilizer has to be applied over several years to improve yields. The point being, much more fertilizer will be required every year to keep the planet fed. As food prices rise, farm incomes should rise too, allowing farmers to afford more crop nutrients.

Potash Corp. is poised to become one of the key players in the global effort to ramp up food production like never before. The world cannot make more land, but Potash Corp. can make more fertilizer. It is encouraging news that the federal government has, in effect, decided that this task should be a homegrown affair. A surefire growth industry for Canada has not been hobbled after all.

 

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