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After years of paying cursory attention to the issue of global food demand, many people in North America and Europe are beginning to understand the impact of a growing population in developing countries with more money in their pockets.

Today, we have unprecedented competition for the world's food supply. Now food inflation is headline news, crop commodities prices are reaching record levels, and prices for key inputs like fertilizer are rising. This is a new reality for all of us and is an example of globalization at its most basic level.

As China and India continue to lead the world in GDP growth, their people are now earning enough money to buy better food – and more of it - including beef, chicken and pork. This is a good thing and will be good for our world.

For those who have in the past filled their stomachs with simple starch-based diets, this is an exciting period of growth and opportunity. They are now enjoying diets with an increased content of protein from animal sources – and they are hungry for more. As growing economies improve incomes, a large percentage of each additional dollar goes toward a more nourishing diet with a higher protein content. For example, in India an average of 70 percent of new income is spent on food. Pressure on the world's food supply –and food prices – is likely to intensify.

As a result, agricultural economics – in its simplest form – is taking hold. Demand for coarse grains is growing by about 30 million tonnes per year. Prices for crop commodities have risen dramatically – not only for North American crops like corn, wheat and soybeans, but also for international staples like rice and palm oil. With higher prices, the world's farmers are working to increase production and are being rewarded with record farm income for their efforts.

Today's circumstances, however, are unlike previous commodity cycles. Conditions today are demand driven – a product of population growth and an economic shift that is enabling more people to buy better food. The reality is that we will need a record global harvest every year just to meet the current demand for food.

Those who study this issue closely have been forecasting this for years. Dr. Norman Borlaug, who won a Nobel Peace Prize in 1970 for agricultural research, has long espoused the urgency of increasing the world's food supply. At last, the world appears ready to listen and, one would hope, respond.

The only real solution to the issue of food security is to grow more food in more countries. This can be achieved through higher commodity prices which provide farmers with the motivation and the money to increase crop production. In addition, government investment in agriculture is required in many developing countries where improvements in infrastructure and access to necessary crop inputs are essential.

Fertilizers are an important part of this solution, as they are essential to maximizing yields and improving the nutritional value of crops around the world. Farmers understand this and are taking the necessary steps to optimize their fertilizer application and increase their productivity. They also understand that $1 spent on fertilizer returns an average of $3 to the typical U.S. corn farmer. In Malaysia, the payback on proper crop nutrition can be as high as $7 for every $1 spent on fertilizer.

This has created a surge in demand for fertilizer products, especially potash, for which application rates in many countries have been far below the scientifically recommended levels. Consumption growth has exceeded increases in available supply and, predictably, potash prices are rising. Not surprisingly, after many years of poor performance, potash companies are increasingly profitable and shareholders are being rewarded for their investment in the industry. In addition, they are witnessing the industry plow its profits back into increasing potash capacity. PotashCorp alone is investing over $5 billion to expand potash production over the next five years.

While some paint this as a picture of capitalism run amok, it is really a classic case study of the law of supply and demand. High potash prices are not the problem. In fact, the opposite is true: low prices are behind the tight supply that we have today.

Like grain and other agricultural products over the past three decades, potash prices declined or made only modest gains – far too modest to encourage an investment in new production. This, in part, was a product of poor management in the industry several decades ago, when government-owned operations were the standard and the potash industry routinely overproduced. It took years to recover and return to market-driven pricing and reinvestment economics, once again similar to farm economics.

With prices now rising, potash producers – like farmers with higher crop prices – have the motivation and the money to raise production.

The challenge, however, is that potash producers don't work on a single-year crop cycle. For example, a greenfield potash mine in Saskatchewan, home of the world's best deposits, would take at least 5-7 years to construct – assuming you have a viable deposit and the required expertise to bring it to production. One other significant point: a 2-million-tonne mine would cost an estimated $2.8 billion, not including required infrastructure such as rail lines, utilities and port facilities. That is a lot of money and a long wait before you generate positive cash flow. Without higher than historic potash prices over the last 20 years, that's not a gamble a good business would be willing to take.

Our industry, however, has not sat idly by and waited for a food-supply disaster to strike. Potash companies have been taking steps to increase production at their existing facilities. At PotashCorp, we anticipated and embraced this challenge as far back as 2003 – long before the current food crisis made headlines – and began announcing a series of projects designed to raise our potash capacity by more than 70 percent by the end of 2015.

Those projects are now coming on stream. During the next five years, we will add an average of one million tonnes of new potash production annually.

Fertilizers will continue to be an important part of the solution to the growing concern over the world's food supply. Higher prices – for food and fertilizer – will be a necessary part of the equation as well.

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