How an Industry That Helps Feed an Increasingly Hungry Planet Proved Turbulent for Investors
If global demand for food is rising, why did producers of a key fertilizer falter?
1-minute read | 4-minute video
The world’s population will reach 10 billion by 2050, but the amount of arable land will continue to decline. The planet’s growing appetite will not be satisfied without the help of potash and other fertilizers that boost agricultural yields. Given the rising demand for crops used for food, livestock feed, and biofuels, the potash industry might appear to be fertile ground for investors seeking durable and growing businesses. A closer look, however, reveals a nuanced competitive landscape.
Historically, potash producers found themselves in a strong position. There are high barriers for newcomers: natural reserves of the mineral are limited, and mine construction is costly and time consuming. Many farmers also consider potash an essential agricultural input for which there is no substitute. In addition, a cartel system maintained high prices by occasionally reducing supply.
In mid-2013, however, a major producer left one of two potash cartels and precipitated a price war, as potash companies abandoned agreed-upon production limits and sought to gain market share. Potash prices dropped 20% over the ensuing months. Potash company profits and share prices fell in tandem.
There is a lesson in this story. Cartels are fragile due to an ever-present incentive for members to cheat for short-term gain. The temptation increases when a participant believes there are also long-term benefits from defecting. Yet after gains are exhausted or a long-term go-it-alone strategy proves unsuccessful, cartels can re-emerge as quickly as they can break. Given this instability, investors in industries with a history of cartel activity should continually monitor all industry players—including private companies—for signs of impending shifts in competitive strategy.
Harding Loevner Analyst Anix Vyas, CFA contributed research and viewpoints to this video.
The “Fundamental Thinking” series presents the perspectives of Harding Loevner’s analysts on a range of investment topics, highlighting our fundamental research and providing insight into how we approach quality growth investing. For more detailed information regarding particular investment strategies, please visit our website, www.hardingloevner.com. Any statements made by employees of Harding Loevner are solely their own and do not necessarily express or relate to the views or opinions of Harding Loevner.
Any discussion of specific securities is not a recommendation to purchase or sell a particular security. Non-performance based criteria have been used to select the securities identified. It should not be assumed that investment in the securities identified has been or will be profitable. To request a complete list of holdings for the past year, please contact Harding Loevner.
There is no guarantee that any investment strategy will meet its objective. Past performance does not guarantee future results.
You are using an old version of Internet Explorer. It may not display all features of this website. For the best experience, please update your browser.
NOTICE TO PERSONS IN AUSTRALIA AND NEW ZEALAND
The information on this website is issued by Trust Company (RE Services) Limited (ABN 45 003 278 831; AFSL 235150) as Responsible Entity of, and issuer of units in, the Harding Loevner Emerging Markets Equity Fund ARSN 604 215 296 (“Fund”), and approved by Harding Loevner LP (“Harding Loevner”), as the Investment Manager of the Fund. Harding Loevner is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) in respect of the financial services it provides to wholesale clients, and is not licensed to provide financial services to retail clients, in Australia. Harding Loevner is regulated by the Securities and Exchange Commission of the United States of America under US laws, which differ from Australian laws.
The information on this website is provided for general information purposes only, and is not investment advice or research, nor is it to be construed as solicitation of an offer to buy or sell any financial product . Accordingly, reliance should not be placed on this website as the basis for making an investment or other decision. A product disclosure statement (PDS) issued by the Responsible Entity is available for the Fund. You should obtain and consider the PDS, and related materials, and consult your professional advisers before making any investment decision.
Statements of fact on this website have been obtained from and are based upon sources that the Responsible Entity and Harding Loevner believe to be reliable. Neither the Responsible Entity nor Harding Loevner gives any representation or warranty as to the reliability or accuracy of the information contained on this website. All opinions and estimates included on this website constitute judgements of the Responsible Entity and Harding Loevner as at the date of this website and are subject to change without notice.
I am an Australian wholesale client or a New Zealand eligible investor and agree to the terms above and wish to proceed.
Click "Continue" to visit the general pages of the adviser to the Funds, Harding Loevner LP.
Click "Continue" to visit the pages for Harding Loevner Funds, Inc., a family of mutual funds for US investors.
Harding Loevner is not responsible for the content, accuracy, or timeliness and does not make any warranties, expressed or implied, with regard to the information obtained from other websites. These links are provided for your convenience and for navigational purposes only. They should not be considered a recommendation to buy or sell any securities. It should not be assumed that investment in the securities identified has been or will be profitable.
By clicking on the "I Agree" button, you acknowledge that you have read and understood this disclaimer and wish to proceed.
Terms & Conditions
You are about to access the pages of Harding Loevner Funds plc, an Irish umbrella type open-ended investment company (the "Company"), which contains information about the Company and its sub-funds (each a "Fund"). These pages are for informational purposes only. It is not investment advice, nor is it intended to be relied on as a forecast or research and does not constitute an offer, recommendation or solicitation to buy or sell shares in any Fund. Access to and the information contained in these pages are restricted to persons who are residents of jurisdictions in which the distribution of the information herein is permitted. Please consult your professional advisers if you have questions about a particular investment or are unsure of the laws and regulations applicable to you.
Investment in any Fund may only be made in accordance with the terms of the relevant offering documents, and subject to the laws and regulations applicable in which the offering documents are distributed. Please further note that not all Funds are available for distribution in all or the same jurisdictions. No information regarding the offering of shares of the Funds is intended for, nor will offers or sales of such shares generally be made to, residents of the United States of America, its territories or possessions. In particular, neither the Funds nor any shares are or will be registered under the U.S. Securities Act of 1933, as amended, the U.S. Investment Company Act of 1940, as amended, or otherwise in the U.S. and may not, except in a transaction which does not violate U.S. securities laws, be directly or indirectly offered or sold in the U.S. or to any U.S. persons.
By clicking on the "I Agree" button below, you acknowledge that you have read and understood this disclaimer and wish to proceed to these pages.