Jiang Wen does not know BHP Billiton or PotashCorp. But he knows that the mineral over which the companies are fighting in a $39bn hostile takeover is crucial for the farmers in Duzhuang, a village near Beijing.
“I’ve never heard of BHP – does this mean the price of potash is going to rise?” Mr Jiang asks repeatedly from his fertiliser store. Others in China’s agricultural areas say they have not heard of the bid for the Canadian fertiliser company by the world’s largest miner. But their interest in the price and availability of potash, a mineral used in fertilisers, is keen.
The significance of the bid, the biggest in a wave of mergers and acquisitions in the sector, reaches beyond investment bankers and boardrooms. Mr Jiang’s anxiety encapsulates the increasing interaction between globalisation, demographics, agriculture and food security.
Following the second world war – and particularly the rapid increase in productivity brought about by the Green Revolution in the 1960s, based on the use of fertilisers and high-yielding seeds – the threat of scarcity had largely vanished from the world.
The ascent of potash – and other fertilisers such as phosphate and nitrogen – into investors’ portfolios tracks the resurgence of agriculture in the new millennium. Behind this is the rise of emerging countries such as China and the elevation to the middle class of billions of people who now require a diet richer than the traditional staples of rice and wheat.
The transformation has surprised an industry long used to being ignored. One cold morning in November 1989, the government of the rural Canadian province of Saskatchewan started the privatisation of PotashCorp through an initial public offering – and raised a mere $231m. It sold the shares at $18 but, by the end of the first trading day with investors showing little interest, the price had fallen to $17.75.
Those were the days when investors were little interested in an obscure commodity such as potash. Agriculture and its support industries were not “fully appreciated”, explains Jim Prokopanko, chief executive of US-based fertiliser group Mosaic. Besides, the problem with food production at the time was excess. The talk in Europe was of grain and butter mountains, and lakes of milk and wine. China, India, Brazil and other emerging countries were yet to rise; Russia was still part of the Soviet Union. Few imagined the era of abundance would end any time soon.
Two decades on, the situation has changed. “You can see that with a mining company the size of BHP interested in acquiring, [for] billions of dollars, a potash operation that 10 years ago didn’t have much attention,” says Mr Prokopanko. PotashCorp itself has been transformed into the world’s largest listed fertiliser company. Meanwhile, the sector has become the darling of Wall Street’s M&A bankers. In the first eight months of the year, deals valued at $61bn have been announced by companies in the industry, a high that more than doubles the peak hit in 2008, according to Dealogic, a data provider. Including the looming merger of Russian fertiliser groups Uralkali and Silvinit, M&A activity could reach more than $90bn (€71bn, £58bn) this year.
Underlying the revolution in the fertiliser industry is the increasing scarcity of another commodity: food. Since the crisis of 2007-08 – when long-term economic and demographic trends combined with short-term problems such as bad weather and a spike in oil costs to produce record prices for crops and riots in countries from Haiti to Bangladesh – investors have regained their interest.
