UPDATE: BHP's Bid For Potash Corp Pulls Focus To Fertilizer, Food, Farms

BHP Billiton Ltd.'s (BHP) US$38.6 billion bid for Canada's Potash Corp. of Saskatchewan Inc. (POT) underscores increasing corporate interest in farming, food and fertilizer, the executive manager of the Fertilizer Industry Federation of Australia, Nick Drew, said Wednesday.

There is a global trend of increasing population and increasing wealth in heavily populated countries like India and China and that means demand for farm products is going to rise, at the same time as the availability of arable land is being squeezed from urbanization and environmental degradation, he said.

"There's going to be quite a crunch coming and agriculture is probably going to become a much more interesting space in the next few years," Drew told Dow Jones Newswires.

Meanwhile, Colonial First State is fielding more interest in agricultural and soft commodities investment driven initially by commodity price spikes, such as recent months for wheat, but also by recent corporate activity, said portfolio manager Skye Macpherson.

"BHP Billiton's bid demonstrates there are a lot opportunities in the global agricultural space," she said.

The board of Potash isn't opposed to a sale but has rejected BHP's bid as "grossly inadequate," which suggests the sector will remain in focus until the issue is resolved.

News of the takeover comes after Canada's second-largest fertilizer producer Agrium Inc. (AGU) Monday announced a conditional A$1.24 billion cash takeover offer for Australian agribusiness AWB Ltd. (AWB.AU). AWB was already considering a share-based nil-premium merger proposal by Australia's GrainCorp Ltd. (GNC.AU), which if it proceeds would create Australia's biggest grain company and its biggest agribusiness with a market capitalization of almost A$2 billion and annual sales in excess of A$7 billion.

Last month, Singapore-based Wilmar International Ltd. (WLMIY) offered A$1.75 billion for Sucrogen, the sugar and renewables energy unit of CSR Ltd. (CSR.AU). The takeover is being considered by the government's Foreign Investment Review Board, with CSR having already agreed to the sale.

Drew said BHP may well be just seeing potash as just another mined commodity and would be deciding on the value of any takeover on that basis.

"But I suspect the fact that they're interested gives you a clue as to which way they think the market is going for fertilizers, which is just a reflection of the market for food," he said.

Signs of a sharp increase in food demand from rising population was seen in the 2008 spike for fertilizer prices and in the spike in wheat prices since early June due to the Russian drought, he said.

Both these spikes are symptoms that suggest the future of agriculture is both more volatile and brighter, he said.

"We're starting to see productivity bump against demand," Drew said.

The U.N. Food & Agriculture Organization said last year it expects the world's human population to rise to 9.1 billion in 2050 from 6.7 billion now, which - given increasing income growth and urbanization - would require a 70% increase in global farm production.

Australia is a major global supplier of traded grains, meats, dairy products, and fibers, such as wool and cotton.

Potash, along with nitrogen and phosphate, are key crop nutrients that replenish soil and increase the amount of crops produced on farmland. Potash Corp., based in the prairies of central Canada, controls 20% of the globe's potash supply.

A senior portfolio manager at Colonial First State, Renzo Casaroto, said security of food supply is taken for granted in Australia, but not so elsewhere in places like China and other Asian nations, which have to work pretty hard to secure food supply and materials.

As a result, companies domiciled in these nations want to buy into agriculture, whether its farmland or other assets, he said.

BHP has been looking at developing a potash business for at least two years, particularly given its highly favorable industry structure, which is similar to iron ore in terms of a limited number of suppliers and a limited number of areas that have high grade potash deposits, which will lead to some pricing power over time, Casaroto said.

Macpherson said the barriers to entry for potash are the high capital costs and the long lead time to bring a mine into production, given the underground development needed.

-By Ray Brindal, Dow Jones Newswires; 612 62080902; [e-mail]