Food and Agriculture Series

Real food prices are increasing and for the first time in many years the question of how we feed ourselves is front of mind.?

Food production is now a highly complex global supply chain with only 14% of countries self sufficient. At the core of this is fertilizer, were substantial increases in the price of over the past 12 months and the consequences of these increases are perhaps overlooked by many.?

Over the next few weeks, we will breakdown some of the basics on what we believe to be one of the most critical components of the global economy.

Fertilizers?

Plants need seventeen elements to grow; three carbon, hydrogen and oxygen are obtained through air and water. The remaining elements are divided into three categories: Macronutrients, secondary nutrients and micronutrients. The three macro nutrients: nitrogen (N), phosphorus (P), and potassium (K) are essential for plant growth and are the basis for all fertilizer. The development of synthetic fertilizers on an industrial scale transformed agriculture which supported global population growth over the last century.?

Importers and Exporters?

Fertilizer is a main cost center in agricultural production, from 2010-2019 fertilizer made up 33 to 44 percent of operating a cost in US corn production. Fertilizer costs were already on the rise in 2021 and sanctions on Russia and Belarus further compounded the problem of supply.

Removing Russia and Belarus from global supply will create serious issues in the global agriculture markets and without a near term supply side fix, agricultural yields will fall. What is already evident is that countries are increasing protectionist policies to prevent exports of agricultural commodities to safeguard domestic food supply. A metric that we expect will gain some attention is the self-sufficiency ratio (SSR), which is the percentage of food consumed that is produced domestically. Countries reliant on imports with low SSR's will likely face an uphill battle feeding their population.

Next issue: Nitrogen Fertilizers

To learn more about AOP Capital's Food and Agriculture portfolio's email [email protected]