Peak phosphate is a risk to both food and biofuel production and should be on the minds of agricultural and mineral investors.
Biofuel prices have hit recent highs in the US as rising global corn crop prices have marginalized producers. Stemming from concerns about global growth prospects and harsh growing conditions in key corn producing areas, the United States may see biofuel production fall or stagnate for the first time since 1996, Reuters recently reported.
Contrastingly, Bloomberg reported this week that global food prices have hit two-year lows on lower dairy costs providing much needed relief for many households globally.
Despite the split direction taken by food and biofuels, neither is free from the persistent din of scientists’ and soothsayers’ predictions that “peak phosphate” could pose significant risks to both markets.
Peak phosphate garnered press after a 2009 report by the Global Phosphorus Research Initiative announced that the world could hit the top of global phosphorus production by around 2034. Projecting a peak output of about 28 million tonnes per year, and with global phosphate rock reserves of about 2.358 billion tonnes, the Research Initiative raised a rather grim spectre.
However, in 2010 the International Fertiliser Development Center published research based on new reserve estimates by the US Geological Survey. Its conclusion was that phosphate rock reserves will be able to produce fertilizer for the next 300 to 400 years, rather than the next 30 to 40 years. the Global Phosphorus Research Initiative still disagrees with the 300-year projection and maintains that peak phosphate will occur within this century.
Though a hard and fast date has yet to be asserted, the implications of phosphorus and phosphate fertilizer shortages are critical because phosphor is essential to plant – and hence food – production. But with biofuels being integrated into energy systems in places like Europe and North America, the possibility that peak phosphate is imminent could create challenges for crop-based global fuel supplies.
Food or fuel?
Phosphate is one of the three core nutrients required by plants, the others being nitrogen and potassium. Both modern food and biofuel production require the mineral to be continuously applied as it is trucked off when crops are removed from the land. While phosphorus does accumulate in agricultural soils, and thus does not require a complete re-application each year, large yearly doses of phosphorus are needed as material is removed from the phosphate-cycle through waste and through deposits made to sanitation systems (i.e. excrement).
As fortunes rise for many people in Asia, Africa, and South America, the need to produce greater quantities of food has pushed global crops and farming into a massive expansionary mode. Currently, global food production stands at around 4 billion tonnes per day for a population of 7 billion people. By 2050, projections estimate a global population of 9 billion; an increasing proportion of those people will have more income to put toward eating greater quantities of more resource-intensive foods.
Marc Sadler of the World Bank’s Agricultural Finance and Risk Management Team recently said that “[i]n a world of finite resources we need to be more efficient, and to get these goals we need to invest more. The more resources that we put into food, the more we will get [out].”
“This is a global reality–not only is the population increasing, but we are also seeing changing consumer patterns. It’s obvious that a lot of these changes are linked to higher income and the higher consumption of protein,” Sadler added.
Phosphate application rates currently stand at about one ton of phosphate to 130 tons of grain, with approximately 170 million tons of phosphate rock mined every year for global crops. Industrial farmers lay down about 18 million metric tons of mined phosphorus each year.
Not to be outdone, a report released this past April on global biofuel consumption noted the market grew by 10.5 percent in 2011 and is forecast to increase by another 81.4 percent by 2016.
What is critical is that phosphate has no alternative in the food production process. While it can be recycled and reused if efficient methods are implemented, maintaining phosphate application is necessary to continue food production levels. On the other hand, biofuels are just one of a series of alternative fuel or energy sources.
Beyond the real challenge of physically providing sufficient phosphate for markets, the likelihood of phosphate becoming politicized is very real. While the US and China both consume largely the same amount of phosphate they produce (the US imported about 10 percent of its consumption in 2011), much of Europe, Australia, India, and Brazil depend on phosphate imports.
Currently Morocco and the Western Sahara oversee more than 70 percent of global phosphate rock reserves; this region dominates global phosphate trade.
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company or resource mentioned in this article.