Africa: the new Potash Frontier

As the geopolitical specialist at ProEdgeMedia, I am pleased to announce the imminent launch of ProEdgeWire: Geopolitics & Economics. I have been following the potash and phosphate markets through a geopolitical lens and the new section will allow for an even wider range of analysis aimed at making sense of the world, while never forgetting ProEdgeWire’s resource ‘roots. The following is an example of the topics that will be featured under the new banner.

Uganda’s president Yoseweri Museveni, in a recent meeting at one of the European diplomatic missions in Kampala summed up his country’s main foreign cooperation concerns as being “Agriculture, agriculture, agriculture!” Uganda’s sentiment is shared by the vast majority of African governments. Ironically, Africa holds more than half of the world’s unexploited agricultural resources.

Africa’s agricultural industry has lagged but it will inevitably have to improve as Africa’s population is expected to reach over two billion people by 2050. This will require Africa’s food production to improve considerably in order to meet the inevitable surge in food demand. Most of the growth and additional food supply needs will be concentrated in sub-Saharan Africa, where, on average, women have 5.1 children – more than twice the world average of 2.5 children. Even if birth rates drop as a result of education and changes in culture, Africa’s food needs will still be enormous and its agricultural sector will be under increasing pressure to meet this challenge, especially as far as the production of such staples as cereals and rice are concerned.

Agricultural growth means that demand for fertilizers such as potash and phosphate will increase in Africa, especially considering that crop yields are far from allowing the continent to reduce its dependence on food imports; the UN notes that agricultural output in sub-Saharan Africa has actually dropped by 10% on a pro-capita basis since 1970, having risen 40% worldwide in the same period. This is reflected in a considerable disparity in fertilizer consumption, which can be as low as 10% of the world average. Africa’s soil itself needs more mineral fertilizer in order to be productive as it is often rusty and deficient in the very nutrients, nitrogen and phosphorous, that phosphate and potash based mineral fertilizers can replace. The difficulty for African farmers is that a limited supply of such products has made them economically inaccessible, which means that after an intense agricultural season, an African farmer is less able to replenish the soil with nutrients.

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The use of subsidies for mineral fertilizers may be the solution as indicated by Malawi’s recent experience; in 2005, the Malawian government started to subsidize fertilizers, generating an agricultural boost that has since come to be known as ‘Malawi Miracle’. This success has persuaded international lending institutions, reducing financial barriers to demand for phosphates and potash in Africa. Africa needs more and larger ports, railways and roads to accommodate the market requirements. Finally, while Africa’s growing demand alone will help fuel demand for fertilizers the high price of petroleum will also contribute to this trend. High mineral oil prices and political instability in the Middle East will raise demand for bio-fuels. Bio-fuels tend to be produced from potash and phosphate intensive crops such as soybean and corn, which will stimulate mineral fertilizer demand worldwide in the short and medium term, especially as the expanding middle class in India, China and other emerging economies around the globe has already altered dietary patterns. There is more demand for meat, wheat products and dairy products and more potash and phosphate are needed. Africa uses around 400,000 tonnes of potash annually. The United States alone has consumed, on average, over 4 million tons of potash a year – not to mention phosphate and nitrogen.

African governments have so far addressed the high costs of improving agricultural techniques by selling large tracts of land, in the hundreds of thousands of hectares in some cases, to foreign operators, including the sovereign funds of the oil producing states and Chinese trading companies, all trying to capitalize on the ever insistent rumors of an imminent worldwide food crisis. While good for the governments in the short term, this phenomenon, sometimes known as land grabbing, forces subsistence farmers to abandon their territories; they inevitably head for the cities contributing to urban social degradation. Alternatively, African governments are being encouraged to develop autochthonous commercial agricultural practices. Counties such as Ethiopia, Sudan, Mozambique, Angola and the aforementioned Uganda have already indicated an interest in pursuing this path. Africa could to see consumption of potash increase by 200-1000 percent over the next decade. Some of this potash will be mined in Africa itself; however, Brazil and even Argentina could also become large suppliers. Fears of a food crisis have forced African governments to recognize the urgency of addressing their food production deficiencies. The continent now has the choice and the means to become one of the main food producing and exporting regions in the world thanks to an effort in which potash and phosphate will play a key role.

 


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Alessandro Bruno

About Alessandro Bruno

Alessandro Bruno holds a BA, MA. He has worked for the United Nations in Libya and specialized in Middle Eastern, African, and South American affairs. Alessandro has worked as an industry analyst, lived and worked abroad extensively and is fluent in English, Italian, Spanish and French with a working knowledge of Portuguese, Arabic and German.
  1. Thank you for saying here what I’ve been trying to wake investors up to for the last 2 years. Allana Potash and a few others have a golden opportunity to culture a burgeoning market that desperately needs their products, but haven’t been brought in as partners to the required extent. Creating awareness and pilot projects throughout Ethiopia and other agriculturally significant areas of Africa will prove the benefits and the partnerships, infrastructure, and supply chains will form from there.

  2. This cam fella is also known as lotioneleven from another website stock forum. He lives in Sechelt BC and has life savings into Allana Potash. So take his advice with a grain of salt or two.

  3. In Cam’s defence, I attended Allana Potash’s investment day last week, and what really made their case, in my opinion, is the Allana Dallol Project’s proximity to key markets – highlighting that it would be the closest supplier to the Indian market. Though they’re variables to consider – new government among them, the infrastructure plans that effect the project have already been committed to within the budget.

  4. Very sad that whoever bobby is states things about me as fact, has no idea about. Let him argue my post on what it says if he thinks he has an intelligent response. Personal degradation belongs back on the unclassy forum he came from. I’m very bullish on the African ag sector, especially Ethiopia within that realm, and Allana Potash has one of the strongest, most advanced, and well funded projects going. Maybe bobby wonders why someone would find anything there compelling, but to cast aspirsions on someone for disagreeing I find very weak-minded. btw, for the record, I do not live in Sechelt, I do not have my life savings tied up in Allana Potash, and I resent being accused of trying to mislead investors. I couldn’t care less if someone doesn’t buy Allana and if they did, I don’t stand to gain from it, as I am long, not a trader. bobby needs to come clean with his motivation.

    • oops!…..I think Goldie spoke too soon….looks like Eritera wants alot more free carry (50% , up from 10%)……sounds like a creeping expropriation to me!!!

  5. Investors in Eritrea no doubt face risks from low regulatory transparency, severe limits on the possession and exchange of foreign currency, highly subjective dispute settlement mechanisms, conscripted labor, and expropriation of private assets. Doubtless, South Boulder is immersed in all of this risk; however, Eritrea now has the chance to develop a major economic activity and source of foreign currency and they are not about to fudge it up – yet. Eritrea needs South Boulder’s expertise. The question remains how long will the gov’t of Aferwerki be able to go on as it has. The Horn of Africa is changing. Arch-rival Ethiopia is becoming one of the main centres of African business and Somalia is starting to stabilize – certianly it is in the best position it has been since the fall of Siad Barre in 1991/92. East Africa is growing very quickly and in surprising ways (read article on Ethiopian Airlines published on November 9 to see just how fast it is developing). South Boulder may still have a chance to reap rewards in Eritrea; certainly, we shall contonue to observe the situation in East Africa closely: it is very interesting and very promising.

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