Upheavals in the Northern Hemisphere force Ballance to look for closer fertiliser sources

Ballance Agri-Nutrients chief executive Kelvin Wickham says fertiliser underpins New Zealand's cornerstone primary production export sector.

Fertiliser heavyweight Ballance is looking for new supply countries closer to home as it worries about continuing upheavals in the Northern Hemisphere and the United States’ move away from being a security policeman for the world.

The big co-operative, which has 50% of the New Zealand fertiliser market, is looking to source more base product from Australia and Southeast Asia due to geopolitical and price disruptions and supply chain uncertainties, said chief executive Kelvin Wickham.

“There’s more inward-looking nations, more fragmentation in the world. If you look at the US, for example, and Trump being elected, that’s playing to the trend ... playing to the audience that’s elected them ... looking after your own nation and people first.

“That causes us a bit of a headache because of New Zealand being totally reliant on trade out to that world. Those flows going out are likely to become more problematic in the future with unknown tariffs, retaliatory actions and supply chain disruption,” Wickham said.

“What people forget is that we also rely on a lot of ingredients coming into New Zealand for our food going out.”

For example, 85% of the fertiliser components Ballance processes into finished material or raw rock are imported, he said.

“Oil/energy prices impact the price of nitrogen-based products, and they’re particularly vulnerable to issues around the Middle-East ... so if there are disruptions in supply or increases in the price of oil and gas, it has a direct impact on what our farmers pay for their core nitrogen needs (and ultimately the consumer).

“[Then there’s] ongoing shipping disruption to get product to New Zealand from Europe and sub-Saharan Africa around the long lead times and trying to manage that.

“The way the world is going, it looks more and more likely the US is going to be less of a policeman of those shipping routes than in the past, and that means we have to think of what more can we get closer to home.

“These are spiky issues but you don’t know when they’re going to happen, and the longer-term trend is that is the direction the world’s going [in], unfortunately.”

Around 65% of Ballance’s product requirements come from the Northern Hemisphere. New Zealand supplies about 25% and 15% from elsewhere in the Southern Hemisphere.

“We have a new supply of phosphate rock out of Australia and we’ve been talking to a mine [there] which may start operation in the next 18 months. We’ve also been talking to some new producers in Southeast Asia and Vietnam.”

As for how the new Trump administration’s protective tariffs might impact Ballance, Wickham said the only certainty yet is they will.

There is rising uncertainty around trade and tariffs under new US President Donald Trump. Photo / Chip Somodevilla/Getty Images

“But we just don’t know when and where. For example, one of the largest potassium suppliers in the world is Canada. It’s very important for New Zealand potassium [supply], which is key for plant growth. If it [Canada] has 25% tariffs [imposed by the US], what happens to global market dynamics?

“China is also a significant producer of fertiliser products ... They face different tariffs, and have the ability to stop exports and manage to look after their own market or continue to export and help global supply. We just don’t know.

“There might be some short-term gains because there might be tit-for-tat tariff barriers between big nations and we may be able to supply more products, but then we might get hit with subsidised exports from another location.”

Whatever happens, Wickham said in his view, trade would be disrupted and there would be “angst”.

“There are winners and losers, but over time and depending on the severity, everyone reassembles their supply chains and makes it work.

“But generally what happens is: you pay more. There’s more cost because you have to establish new routes to market, new lanes that are not as efficient as supply chains that have been in place for five or 10 years.”

Also top of mind for Ballance is concern around New Zealand’s energy supply issues.

“We have a gas shortage, and gas is our most viable energy source. Because of that shortage, you’re seeing much higher prices and potential shortages in the winter months, because gas is required for electricity generation to keep the lights on.”

Ballance is one of New Zealand’s biggest users of gas and its current cost “really squeezes our profitability”, Wickham said, noting other large industrial users like paper and packaging producers had started to close down.

“It becomes very marginal for us to be able to produce in New Zealand with gas and electricity prices where they are today because we compete against global imports.

“On top of that we’re in the ETS [Emissions Trading Scheme], so we pay a carbon tax on our production every year and importers don’t, so we’re squeezed from underlying costs and tax too.

“It’s very challenging and very concerning our ability to continue to manufacture.”

There needs to be national recognition there are sectors which need energy infrastructure “so we can actually go ahead and make significant long-term investments”, Wickham said.

“There’s a lot of legislation before the House, from the critical Mineral Resources Act to RMA reforms, but it hasn’t come into play yet.

“So business is kind of sitting there. We hear the noise, but we haven’t got the certainty yet to invest for the next 25 to 30 years.”

Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the $26 billion dairy industry, agribusiness, exporting and the logistics sector and supply chains.