March 12, 2018 / 5:01 AM / a year ago

FOCUS-Corn as cash: Brazil's bartering farmers raise risks for Canada's Nutrien

    By Rod Nickel and Ana Mano
    WINNIPEG, Manitoba/SAO PAULO, March 12 (Reuters) - Taking a
page from its aggressive growth strategy in the United States,
cash-rich Canadian fertilizer giant Nutrien Ltd          plans
to plow investment into Brazil in a bid to reap up to 30 percent
of farm supply sales in fertile pockets of the country. 
    But business in Brazil's farm sector - the world's fastest
growing - strays far from the usual practices in North America's
farm belt, where Nutrien is a top supplier of fertilizer,
chemicals and seed.
    It’s a place where the ancient economy of bartering – in
this case swapping crops for fertilizer – is still common,
helping Brazilian farmers mitigate their high reliance on
credit. Selling directly to farmers in the way Nutrien plans is
a risk that rivals Mosaic Co         and Yara International ASA
         are avoiding, senior executives from both companies
told Reuters.
    For Nutrien, going big in retail sales of seed, chemicals
and fertilizer to Brazilian farmers is a way to manage another
risk - volatility in wholesale fertilizer prices. Retail stores
in the United States are a boon during times of high supply and
low prices – as now – because they give the biggest global
fertilizer producer by capacity assurance of base demand in a
major farm market.  
    Brazilian barters typically involve farmers, grain handlers
such as Cargill Inc           and fertilizer sellers in
three-way arrangements that see farmers commit a portion of
their future harvest to the grain handler in exchange for
fertilizer from the manufacturer.
    Such deals are unnecessary in Canada and the United States,
where chartered banks and government lenders provide ample
credit to tide farmers over to autumn, when they can start
selling their output. Brazilian farmers lack such willing
lenders, so they rely on monetizing crops that have not even
been planted.
    "Farmers use their soybeans like their money; use their corn
like it's cash," said Rick McLellan, senior vice-president of
Brazil for Mosaic, which does some barter deals involving its
fertilizer deliveries. 
    For a graphic, click
    Nutrien, formed in January by a merger of Potash Corp of
Saskatchewan and Agrium, disclosed the same month that it
intends to become a major farm supplier in Brazil, stretching
its reach beyond North America, Australia and Argentina.   
    Chief Executive Chuck Magro revealed to Reuters that the
company is looking to roll up as much as 30 percent of farm
retail sales in pockets of central and southern Brazil - a level
that it calculates may not raise antitrust concerns. The growth
plan hinges mainly on buying existing retail dealers. 
    Getting there may take many years, with price tags to buy
retail dealers currently high, Magro said, declining to place a
timeline on his plans.
    "What we're doing today is going to be a program that will
last many, many years," he said. "The vision is to have a North
American-South American integrated company. If we can get there,
that's a pretty powerful global complex."
    To build up its Brazil business, Nutrien is willing to
barter by accepting grain as collateral against credit, similar
to how it operates in Argentina, Magro said. 
    Julio Zavala, general manager at Brazilian fertilizer
blender Utilfértil Indústria de Fertilizantes, which Nutrien
owns, said the company is still devising its strategy for
building retail. Utilfertil has already done some bartering with
farmers through grain traders Cargill and Bunge Ltd       , he
    The Brazil venture could give Nutrien a grasp of the world's
fastest-growing major agriculture market, or cause an expensive
slip-up just as it woos investors back to an oversupplied global
crop nutrient sector. 
    The stock is trading around the same level it opened at on
Jan. 2. Investors are focused on how Nutrien will spend some
$4.6 billion on growth in Brazil and shareholder returns after
it sells stakes in companies SQM          , Arab Potash Company
          and ICL Israel Chemicals          to appease merger
regulators, according to analysts.             
    Rival Mosaic sees too much risk in Nutrien's strategy to
follow along.
    U.S.-based Mosaic sells bulk fertilizer to Brazilian farms
large enough to own storage facilities, but has no interest in
creating a retail network, said Chief Executive Joc O'Rourke.
Brazil's retail system is "hugely fragmented," made up of many
tiny players, he said.
    "A lot of these are almost back-of-the-shed type retail
operations and we don't want to get into the greater risk that
goes with that," O'Rourke said in an interview.
    Some 100 retail dealers in Brazil sell to farmers, and none
owns more than 5 percent market share, according to Bank of
    Yara sees different risk in any attempt to be a one-stop
supplier: moving too far beyond its core expertise of fertilizer
and into seeds and chemicals.
    "That’s a totally different business," said Cleiton Vargas,
Yara's senior vice-president of crop nutrition in Brazil. 
    Yara sells about half of the fertilizer it produces in
Brazil in direct deliveries to mostly large, successful farmers
and shares the risk of selling to smaller growers by utilizing
other retail sellers, Vargas said.
    While Brazil is a farm powerhouse, it still imported some
26.3 million tonnes of fertilizer last year, according to
fertilizer association ANDA, which amounts to three quarters of
the nutrients that farmers used.
    According to a major farmer group, new entrants are welcome
because they potentially increase competition among input
sellers, reducing prices. 
    “The more players, the better,” said Antônio Galvan,
president of the Mato Grosso soy growers association Aprosoja.
Commonly, Brazilian farmers band together in large groups and
buy directly from fertilizer producers in a bid to cut
fertilizer costs. 
    Others, like Cayron Giacomelli, barter crops for fertilizer
through grain traders including China's state-owned COFCO
           and Amaggi.
    A potential acquisition target, fertilizer distributor and
farmer cooperative Fecoagro, is intrigued by Nutrien’s plan.
    "We are open to anything," said executive director Ivan

 (Reporting by Rod Nickel in Winnipeg, Manitoba and Ana Mano in
Sao Paulo; Editing by Denny Thomas and Edward Tobin)
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