Ma Rui Lin, head of sales for seeds and fertilizer at Green Garden Agriculture, speaking during an interview with the Globe and Mail on September 13, 2010, in Ningjin, Hebei Province.The Globe and Mail
Han Shujun's dusty desk in a giant farm-supplies warehouse in China's grain-growing belt seems a world away from the corridors of financial power in Canada and the intrigue swirling around Potash Corp. of Saskatchewan.
But with nervous interest and a hint of patriotic pride, Ms. Han has been following as Potash Corp.'s board of directors rebuffed a hostile takeover bid from Australian rival BHP Billiton, and rumours swirl that a Chinese partner might intervene to help keep Potash Corp. out of BHP's hands.
The reason for Ms. Han's interest is simple. Compound fertilizers - of which potash is a key component - are the only thing on sale at the Gold, Honesty and Trust Agricultural Corporation where she works as a manager. She's also a grain farmer, and relies upon such fertilizers herself to improve crop yields.
The obscure mineral is as important to Ms. Han and her company as it is to China as a whole. The country is now the world's biggest user of potash as it struggles to produce enough food to feed the itself amid a population growing in numbers and appetite, and farm land diminishing in size and efficiency.
Ms. Han shares the government's worries a BHP takeover will lead to higher fertilizer prices worldwide, something few in this poor farming city can absorb. "The farmers can't afford it if the price goes any higher," the blunt-talking 40-year-old says. "They won't pay for it, they'll just stop using fertilizer."
Her favoured ending to the battle for Potash Corp. is an unlikely one: for the Chinese government to buy the Canadian company and its potash deposits outright.
"If China just buys the company, then China can decide what the potash price is."
Ms. Han's passion for the humble, potassium-containing crystal goes a long way to explaining why rumours persist that one of China's state-owned conglomerates might step in with a "white knight" intervention to help Potash fend off BHP. Simply put, potash matters here. Not just in Ningjin - a city of 700,000 people surrounded by a vast ocean of nearly harvest-ready corn - but all across the world's most populous country of 1.3 billion, which has dragged itself out of crushing poverty only to be faced with a fresh set of questions brought on by its success.
Chief among those is how China - a country with 22 per cent of the world's population but just 9 per cent of its arable land - will feed itself, particularly as tens of millions of its newly affluent citizens adopt a diet heavy in meat, eggs and dairy, all of which were luxury items less than a generation ago. (As tens of millions of Chinese joined the middle class, meat consumption per capita more than doubled from 1995 to 2008, from 25 kilograms per person, per year to 53.) The new demand for chickens, cows and pigs has spurred rapid growth in the consumption of animal feed - primarily corn. The shift is such that China, once the world's second-largest corn exporter after the United States, is on pace to be a net importer of corn in 2010 for the first time in at least eight years. Eighty per cent of all corn supplies are used for animal feed.
The math is daunting and the stakes are high. China's new middle class isn't so affluent as to be willing or able to pay a higher price for imported meats. The ruling Communist Party, which sees its right to rule as closely linked with its ability to deliver continued economic progress, knows that the availability of affordable meat is a key marker of how well it's governing the country - and maintaining social stability.
As a result, crop yields and corn supplies - as well as efforts to ensure reliable access to potash and other fertilizers - are treated almost as state secrets here, as important to the country's future as oil and gas reserves.
"As China's diets improve, there is a need to improve crop yields… . If China wants to produce more corn itself, it needs more fertilizer," said Jin Jiyun, director of the Soil and Fertilizer Institute at the Chinese Academy of Agricultural Sciences. "China would love to have a stable supply of potash. It's important for the development of Chinese agriculture."
Several years ago, Chinese government agricultural specialists realized there was a problem with the soil here in Hebei, where farmers grow corn and wheat in rotation. Tests revealed that the dark earth in Ningjin had a potassium shortage that kept crop yields low and vulnerable to disease. (The potassium ions contained in potash help plants fight off disease and aids photosynthesis, thereby increasing crop yields.) The discovery convinced Beijing to begin importing massive amounts of potash - much of it from Canada - and to launch an advertising campaign aimed to convince farmers in Hebei and elsewhere to add it to their crops.
"The farmers here knew their crops weren't growing well, but they didn't know why," said Ma Ruilin, a 60-year-old agricultural specialist who was one of the first in the region to start adding imported potash to his own small corn field. But as the government advertising campaign kicked in and they began applying potash-enriched fertilizers to their plots, Hebei farmers began seeing jumps of 30 per cent and more in crop yields, which helped them meet some of the rising domestic demand for corn.
The scene played out all over China as potash imports more than doubled between 2000 and 2008. Two-thirds of China's farmland is considered low- or medium-grade, much of it lacking in potassium, making potash-based fertilizers even more crucial in southern provinces such as Hunan and Guangdong where the soil isn't as rich as in the north of the country.
China is now the world's top consumer of potash with an annual demand of 10 million tonnes, making it especially sensitive to price volatility that saw the potash spike up from $200 (U.S.) to $1,000 per tonne amid global food shortages in 2008, before crashing back down to $300 during the recession that followed. Prices have recently started rising again towards $400.
China does have its own deposits, though they pale in comparison to those beneath the ground in Canada and Russia. The province of Qinghai - on the Tibetan plateau - is the Saskatchewan of China, accounting for roughly 80 per cent of the three million tonnes of potash China produces annually.
But there's not nearly enough to meet domestic demand estimated at seven to eight million tonnes this year, and China will likely have to import large amounts of potash for the foreseeable future.
Amid suspicions that the potash price is already being manipulated by producers, the going logic here is consolidation among in the industry would mean higher prices. Chinese analysts expect BHP would try and pay for the cost of acquiring Potash Corp. by pushing up potash prices as well.
But that doesn't mean a Chinese company such as the state-owned chemical giant Sinochem Group, or its subsidiary fertilizer company Sinofert, will necessarily ride to Potash Corp.'s rescue. Chinese experts feel that since federal and provincial officials in Canada have signalled that a Chinese partner wouldn't be allowed to take more than a minority share in the Saskatchewan producer, meaning Beijing wouldn't be guaranteed the predictable supply it needs.
And though China lacks a domestic supply of potash, the crystal is hardly in short supply worldwide. Global reserves are estimated at enough to last another 250 years at current production and consumption rates.
"If BHP wins this bid, it will be a disadvantage for Sinofert and Sinochem… but China is also developing its own potash deposits, as well as projects in Laos, Thailand, Kazakhstan and also Argentina," said Chen Shuwei, senior analyst at Beijing Orient Agribusiness, a consulting firm. "So there are many other ways to get a supply."
In other words, China will use its money to make sure it gets the potash supply it needs to satisfy its country's growing and changing appetite. From Saskatchewan, if the right deal can be worked out, or somewhere else.