Feeding a Growing World
The current world record for the men’s 100m sprint is 9.58 seconds by Usain Bolt. From the moment Mr.Bolt takes off until he crosses the finish line, approximately 2.6 people are born into this world. With the global population estimated to hit 9.8 billion in 2050, the world has a massive number of mouths to feed, with only a finite amount of resources. Despite past behaviour not being indicative of future performance, positive (and exponential) global population growth is one of the few certainties that exist.
Presently, the top three most populated nations are, in descending order, China, India and USA which make up 18.4%, 17.5% and 4.3% of the world respectively. Of these nations, India warrants a closer look, as it has the largest arable land as a proportion of total area, that is almost twice that of China and USA summed (Figure 1). It is also worth mentioning that agriculture as a proportion of GDP is highest for India (16.5%) compared to the others (8.6% for China and 1.1% for the USA). Furthermore, there is a significant disconnect in the supply-demand dynamics of the Indian fertilizer market. Fertilizer consumption outpaces local production, as seen in Figure 2 and 3.
India as a Case Study
Additionally, India has a much lower fertilizer consumption per hectare of arable land than China (165 kg/ha vs 565 kg/ha) which has a roughly similar agricultural produce portfolio. This underscores the potential for further growth in demand, a trend the Indian government has been striving to complement by spurring indigenous capacity growth. 67% of the operational holdings of arable land is below 1 hectare, indicating a large population of small farming businesses, and a very price elastic demand base.
Hence, fertilizers are tightly regulated and subsidized by the government. In fact, urea is roughly 70% subsidized whereas phosphates and potash are around 30% subsidized. Presently, there is much inefficiency in the subsidy scheme, leading to exploitation of the system by using the subsidized fertilizers for non-agricultural purposes. In response, the Indian government has started various initiatives to reform this subsidy system.
Starting from June, subsidy payments will be made to the manufacturers on a basis of actual sales via point of sale machines, thus improving the cash flow of manufacturers. The crackdown on the non-agricultural use of fertilizers is expected to save the government approximately 10% of the subsidy budget. Since this subsidy method is significantly faster than the post-sales distribution method, the manufacturers with have an improvement in liquidity which can then be utilized for expansion.
This article aims to provide a brief background into the opportunity for investing in a growing population. While there are numerous asset classes available to actualize this thesis, exchange-traded funds (ETFs) are probably the best option as they can track the performance of the entire fertilizer sector. However, there is a current supply glut of fertilizers in most places around the world, manifesting as the weak performance of the Global X Fertilizers/Potash ETF (NYSE ARCA: SOIL). Given this circumstance, the other alternative is to hold a basket of shares of fertilizer manufacturers whose markets still have under-supply, with India being the notable mention.
Japan Is Behind Bitcoin’s Rise
Deutsche Bank released a research note saying that Japanese investors account for bitcoin’s meteoric rise.
Deutsche Bank analysts have said they believe that individual Japanese foreign-exchange (FX) traders are instead moving towards leveraged cryptocurrency trading in the search for astronomical returns. Already, Japan makes up 50% of the world’s leveraged FX trading and Nikkei recently said that 40% of cryptocurrency trading was denominated in yen throughout October and November. Evidently, the Japanese are growing tired of years of ultra-low interest rates and are turning to the blockchain to boost their savings.
Japanese Startup Ispace Raises $90m
Ispace Inc raised $90m from Japan’s largest corporates in a bid to reach orbit by 2019.
Ispace is backed by Japan Airlines, Tokyo Broadcasting System Holdings and also government-backed Innovation Network Corp. of Japan. The company plans to sell advertising space on its spacecraft, which will then feature prominently in distributed images. However, Ispace also envisages the use of rovers that will offer a “projection mapping service”, which will essentially produce a tiny billboard on the surface of the moon. This is the latest announcement in what is rapidly shaping up to be a wider commercialisation of space exploration. Elsewhere, SpaceX and Blue Origin are developing reusable rockets, while Planetary Resources intends to mine asteroids.
China’s Central Bank Reacts to Federal Reserve Rate Rise
China’s central bank increased rates on short terms lending instruments within hours of the Federal Reserve raising their base rate from 1.25% to 1.5% on Wednesday. In doing so, the Chinese government aims to put a stop to potentially destabilising capital outflows.
Chinese reverse repurchase agreements increased by five basis points for 7-day and 28-day reverse repurchase by 5 basis points to 3.5% ad 3.85% respectively.
Why It’s Important
The move signals a departure from ultra-low interest rates, which have become the norm since the global financial crisis.
China said their response was a “normal market reaction.” However, the Chinese rate rise was too small to have had a significant effect on capital flows, says Chen Ji, a Bank of Communications analyst. Whether this response will shield China from capital outflows is questionable.
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