1. The World Needs More Fertilizer
A combination of conditions is challenging farmers to maximize yields and meet the growing agricultural needs of a changing world:
- There are more mouths to feed. Population has more than doubled since 1950 and is expected to grow from 6.7 billion to 9.2 billion by 2050.
- Incomes and meat consumption are rising. As incomes rise in Asia and other developing regions, millions of people are switching from starch- to protein-based diets, driving the grain-intensive production of livestock.
- Biofuels are adding demand for crops. New demand for ethanol and other biofuels puts pressure on crops used for both food and fuel.
- Per capita arable land is decreasing. Urbanization and population growth are diminishing available farmland per person.
- Grain inventories are at record lows. Production of wheat and coarse grains is expected to fall short of consumption for the eighth time in nine years. Global inventories do not contain enough grain to feed the world for two months.
- Global crop prices are rising. Low inventories and increasing demand are leading to higher crop prices, motivating farmers to maximize production.
- Yields are low in many regions. Historical under-application of fertilizer has led to chronic low-yield performance in countries like China, India and Brazil where farmers produce only a fraction of the yields of their US counterparts.
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2. Among Fertilizer Nutrients, The Potash Business Has Advantages
The potash industry enjoys advantages in both structure and market conditions that make it the best business in the fertilizer universe:
- Good deposits are rare. Economically viable potash deposits are uncommon and geographically concentrated. Approximately 50 percent of the world's potash resources are located in Canada, primarily in Saskatchewan.
- Barriers to entry are high. Greenfield development is costly (about $2.5 billion for a 2-million-tonne mine in Saskatchewan, excluding infrastructure) and has a long lead time (five to seven years before production begins).
- There are few global producers. Only 12 countries produce potash, while approximately 160 consume it.
- Government ownership is low. Less government ownership means decisions are primarily market-driven, rather than politically motivated.
- Demand growth is great. Historical under-application of fertilizers is most pronounced in potash. Farmers are working to remedy this deficiency, but they still have a long way to go.
- Supply is constrained. Even with all producer expansions considered, tight supply is anticipated for at least the next five years. PotashCorp, with nearly one-quarter of the world's current capacity and numerous expansion projects underway, is positioned to capture a significant share of future market growth.
- Earnings quality is high. Among our nutrient segments, potash is the most stable and provides the highest gross margin per dollar of sales.
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3. Potash Is The Core of Our Business
Anticipating today's conditions – and tomorrow's realities – PotashCorp has spent almost 20 years building the highest quality assets in the potash industry. We are the world's largest producer, with five large low-cost mining and milling facilities in Saskatchewan and one in New Brunswick, plus a mining and processing agreement at a sixth Saskatchewan location.
In addition, we have strategic investments in four offshore potash businesses:
- 28 percent of Arab Potash Company (APC), a producer in Jordan
- 10 percent of Israel Chemicals Ltd. (ICL), a producer in Israel
- 32 percent of Sociedad Quimica y Minera de Chile S.A. (SQM), a specialty producer in Chile
- 20 percent of Sinofert Holdings Limited (Sinofert), the largest distributor of potash and other fertilizers in China
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4. Our Strategies Emphasize Earnings Growth and Quality
To deliver superior value to stakeholders – both now and in the long term – we have developed strategies that build on our competitive strengths to encourage earnings growth with minimal volatility.
Growth through potash. With significant increases in volumes, higher prices and lower per-tonne fixed costs on the horizon, potash holds the greatest growth potential among our segments and is our first consideration in business decisions. We prioritize choices that enhance our world-leading potash position, which include building on our own capacity, investing in other companies and repurchasing stock.
Minimize volatility in all three nutrients. Our world-class nitrogen and phosphate businesses complement our Potash First strategy. In each nutrient, we focus our strategies on unique competitive advantages that maximize margins and minimize volatility.
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5. We Are Uniquely Prepared To Meet Growing Potash Demand
With unparalleled resources and plans for significant growth, we are well positioned to meet the needs of a diverse and growing potash market. In an industry marked by tight supply and high barriers to entry, PotashCorp is responding to rising demand by:
- Maximizing existing capacity. By leveraging our expertise and utilizing our existing infrastructure, we are bringing on capacity in less time and at significantly less cost than equivalent greenfield development.
- Broadening our global enterprise. By investing in international potash producers, we are benefiting from growth in all key world markets. APC in Jordan, for example, has logistical advantages in serving India's rapidly growing market.
- Investing in the distribution chain. Through Canpotex, we are investing in transportation infrastructure – including railcars and port facilities – that enables us to get our product to growing offshore markets. Through our interest in Sinofert, we have a stake in the primary distributor to the world's largest fertilizer market.
- Adding compaction capability. The ability to compact standard potash into granular product adds value and flexibility to our product mix. Demand for premium-priced granular product is increasing as farming technology advances in offshore countries.
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6. We Live By Our Core Values
In pursuing our company vision, we operate by the highest possible business standards and take into account factors beyond financial performance when evaluating our success.
By committing to and living by our core values, we:
- Create long-term value for our shareholders
- Build support and understanding among stakeholders
- Foster a culture of accountability for employees
- Improve satisfaction of our customers and partners
- Focus on our pursuit of no harm to people, no accidents and no damage to the environment
- Improve quality of life in our communities
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