Practically every item or piece of food that you ingested within the last 24 hours, was grown with fertilizers. Even meat products are part of the fertilizer chain because these crop nutrients are used to grow animal feed. In this article, I’ll explore why the multi-billion dollar fertilizer is a growth industry – in more than one sense!
The fertilizer industry not only puts food on our tables, but it is also an expanding market. Investors who take the time to research the major fertilizer companies and understand the market forces and global factors that drive the industry’s growth can reap rewards. I’ll also examine ICL, one of the world’s most innovative fertilizer manufacturers.
Fertilizer and Food Security
Generations of people in North America, Europe, and other prosperous regions around the world, have enjoyed unprecedented food security thanks to the agricultural ‘Green Revolution’ that followed World War Two. Agricultural mechanization, and advances in synthetic fertilizers and pesticides, filled supermarket shelves with affordable food, and a new consumer food culture took shape. Within a short time, the average person in Western Society had a huge choice of food products – to the point where weight gain and obesity became a problem. Subsequently, a hugely profitable dieting industry emerged.
In recent years, global food security suddenly seems less certain. A rapid sequence of events, including the resulting logistic problems from COVID-19 lockdowns, when we experienced temporary glitches in deliveries to retailers from suppliers, and some minor outbreaks of panic buying, the unprecedented sight of empty supermarket shelves shocked consumers. That along with major droughts and a commodities crisis, the disruptive effects of various conflicts and shipping accidents, inflation, and soaring fuel and fertilizer prices – have all led to the increased cost of basic food staples.
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We all depend upon a complex and interconnected global food supply chain for our daily survival, yet, it rests on several fundamental building blocks, one of which is fertilizer. Without effective crop nutrition, farmers could only deliver a tiny fraction of current harvests. Anyone who has grown vegetables, potted plants, or flowers in a window box understands the need for nutrients. What most people never think about is the immense variety or volume of fertilizers that global agriculture uses and needs annually.
In 2022 the International Fertilizer Association valued the global fertilizer industry at $290 billion (with a $90 billion capital expenditure in new capacity). This accounts for hundreds of millions of tons of fertilizer products, most derived from the ‘nutritional trinity’ of nitrogen (N), phosphorus (P), and potassium (K). Secondary macronutrients and micronutrients cover a range of other elements that cater to specific plant needs.
Current Challenges to Food Security
Historically, food security has been precarious – only recent generations (at least in the developed world) have enjoyed the benefits of industrialized farming on a mass scale. However, there are ever-present challenges to food security, and we shouldn’t take a super-abundance of affordable food for granted. Climatists say that the world is becoming warmer, and extreme weather events – such as droughts, floods, and storms – all impact agriculture.
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Another challenge to food security is population growth. The UN estimates that there will be at least 10 billion people on our planet by the end of the century. This, along with associated phenomena of urbanization as rural populations move to the cities and a decline in the area of fertile agricultural land, has the potential to create a huge strain on food supplies.
Famine and social and political stability around the world (and particularly in the developing world) depend on the availability and affordability of key staples like bread, cooking oils, pulses, and legumes. The moment that buying the essentials causes hardship, civil unrest can follow. Food security is intimately tied to political, social, national, and regional security, and in our era of globalization, these effects can be felt around the world and wherever you live.
The Role of Fertilizers in Global Food Security
Advanced fertilizers that allow sustainable precision agriculture are one of the most important tools for achieving food security. Recent fertilizer innovations like controlled-release granules with biodegradable polymer coatings are simply amazing, and equally exciting are advances in fertigation technologies (soluble fertilizers that are added to irrigation water) and cutting-edge foliar fertilizers which are sprayed directly onto crops, and the nutrients are absorbed through their leaves. These new crop nutritional products are designed to be used alongside high-tech soil sensors and can be deployed by drones and robots.
One of the major advantages of these next-generation fertilizers is helping farmers and agronomists eliminate the problems of environmental pollution through runoff and crop damage from fertilizer burn. Sustainable fertilizers offer new opportunities to farm marginal lands and reverse desertification, especially when growers use digital platforms to create tailored crop nutritional plans.
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Companies that can create sustainable fertilizers, that are affordable and allow for precision agriculture with a low environmental impact, I see as having the real potential to increase their market share over the next decade. One company ICL Group, a leading global specialty minerals company, is spearheading the way. I have been following them for years, partly because they are pioneering a lot of new trends in agriculture and other sectors. I see them as a kind of ‘signpost company’ that signals future directions that the fertilizer industry will take as a whole.
One really interesting thing that ICL is doing is recycling waste phosphates to manufacture the high-quality fertilizer Puraloop. Their plant at Amfert in the Netherlands processes secondary sources of phosphates that were previously earmarked for landfills. This special recycling process reduces dependence on mined phosphate rocks – a finite natural resource.
ICL has also established a new number grading system that they display on their fertilizer products. The numbered grading system shows the overall carbon footprint associated with each fertilizer, allowing farmers to make informed choices about environmentally sound purchases. I am expecting this to become an industry standard.
The Investment Landscape
Everybody has their own investment criteria, but when I evaluate fertilizer companies, I’m looking for a commitment to sustainability, proven access to mineral reserves, a culture of innovation and technology in the company, and a diverse product range that is continually expanding. Once I find a company with these qualities and attributes, I begin with a much more detailed technical analysis. One thing to bear in mind is that many major fertilizer companies also operate in other sectors and this will influence their profitability.
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It’s also important to keep a close eye on other factors like commodity prices, weather patterns, geopolitical events, and the global economy (societies with reduced spending power buy fewer food products). Successful fertilizer manufacturers can be a useful addition to a personal portfolio. It’s generally unrealistic to expect huge dividends, but my experience is that the risk/profit ratio is favorable. Fertilizer stocks tend to be relatively steady and reliable performers that go the distance and rarely disappoint.
