Andrew Mackenzie, the Chief Executive Officer (CEO) of BHP Billiton Limited (ASX: BHP), was reported last week in The Australian Financial Review as reaffirming the mining giant’s positive outlook for a coming food boom that will occur due to the growing middle classes of China and India and many other emerging economies.
Mackenzie’s reasoning is pretty simple. Fewer farmers and a corresponding requirement for increased efficiency of remaining farms to produce higher yields ultimately means more demand for fertiliser. BHP has in turn positioned itself for the food boom through the addition of the commodity potash – a key ingredient in fertiliser.
Sometimes the “simple” ideas can be the best. Here are four companies which could be great ways to ride this food super-cycle theme:
1) BHP Billiton acquired rights to explore in the Saskatchewan potash basin in Canada. It’s highly prospective land and could act as a platform for a significant and scalable potash business for BHP.
2) Incitec Pivot Limited (ASX: IPL) is a key supplier of fertiliser products to Australian farmers. The company boasts a market share of over 50% in Australian agricultural nutrients and includes the operation of a phosphate mine in Queensland and is the only domestic producer of ammonium phosphates and urea.
3) Nufarm Limited (ASX: NUF) is a well-known brand and Australia’s largest manufacturer of crop protection products in Australia. Just as demand for soil nutrients is expected to rise, so too is demand for herbicides, insecticides and fungicides.
4) CI Resources Limited (ASX: CII) has interests in phosphate assets on Christmas Island off the West Australian coast. CI has been mining and exporting phosphate from the island since 1990.
Agricultural production can be a tough business to invest in and indeed there are surprisingly few ways to gain listed exposure. In any case, arguably a safer way to benefit from the growing global demand for food is via inputs to the supply chain rather than direct production.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.