Fertilizer may be account for the biggest chunk of the $245bn agricultural inputs market, but biotech seeds will show far bigger sales growth, and some small markets offer even better prospects, Bank of America Merrill Lynch said.
Fertilizers, at $135bn, attract more than half the world spending by farmers on inputs, the bank said.
However, the markets long-term growth prospects are weak, at 2-3% a year through to 2018, with lower crop prices and farm income prompting some shrinkage this year.
“We anticipate fertilizer demand to trend down slightly in 2015,” the bank said,
Overall, “additional capacity coming online and weak demand growth may limit upside to prices”.
Indeed, in fertilizer, “capacity additions pose risk”, BoAML said, flagging in potash plans to add 14.3mn tonnes in extra production potential by 2019, equivalent to an increase of 17.4% compared with the 2014 total.
“Global potash nameplate capacity expansions will outpace growing demand over the next five years,” the bank said.The projects range from so-called “debottlenecking” plans by the likes of Canada’s Agrium, Russia’s Uralkali and US-based Intrepid Potash to make more of existing assets, to the greenfield project in Saskatchewan being developed by German-based K+S.
Meanwhile, in nitrogen, global capacity will rise by some 28.2m tonnes, or 13.5%, by 2019, led by China, and even assuming most of the 13.4m tonnes in North American capacity on the drawing board is not completed.
For phosphates, capacity will grow by 27.3m tonnes, or 10.6%, by 2019, at a time when extra projects already opened “could challenge industry discipline”.
‘Inflection point of accelerated growth’
However, prospects were better for biotech seed which, with sales of $21.1bn, was already $1.6bn bigger than the conventional seeds market.
The bank highlighted not only the potential for expansion of biotech in geographies which have yet meaningfully to embrace the technology, but also the introduction of fresh products, and farmers willingness to pay up for better seed.
“Since 1995, GM planted acreage has risen steadily and reached 442m acres globally in 2014,” BoAML said.
“Importantly, the value of planted GM seeds continues to grow faster than the planted area.”
Furthermore, the bank flagged the potential for gene editing, a technology it included under biotech, but which is less controversial, involving the modification of plants’ existing DNA rather than the insertion of foreign strands.
“We believe that ag biotech is nearing an inflection point of accelerated growth due to the precision and capabilities of new gene editing technologies.”
Small, but fast growing
But the bank flagged the potential for higher long-term growth still in the smaller markets of microbials and precision ag.
The market for microbials – which harnesses the likes of bacteria and fungi to promote the likes of plant disease resistance or nutrient uptake – is currently worth an estimated $1.5bn-2.5bn, but “expected to grow 10-15% per year through the rest of the decade”.
Precision agriculture, a $1bn market, has potential for similar growth rates, thanks to promotion by the likes of Monsanto’s FieldView scheme, DuPont’s Encirca and the Precision Edge service offered by Canada’s Farmers Edge.
Precision agriculture involves the close analysis of data on the likes of historical yields, soil moisture levels, the weather outlook and satellite imagery to improve farmers’ ability to call right on key decisions.