Asia is home to roughly two-thirds of the world’s one billion hungry people, so it’s no surprise that the region needs increased investment in agriculture to meet its food consumption needs. Already, the ranks of the undernourished in Asia rose by more than 60 million in 2009 to some 642 million, and that number continues to grow.
The United Nations and Asian Development Bank have stated that the current annual $80 billion investment in the region’s agriculture needs to rise by 50% to $120 billion to contain hunger and spikes in food prices.
Yes, food prices have stabilized from the global slowdown and food price crisis of 2007 to 2009, but they remain 85% higher than 2003 levels and are expected to continue to rise. In addition, the massive wealth creation in Asia has led to people with rising incomes demanding more diversified food choices, increasing the strain on Asia’s existing agricultural resources. Add to this the rapid population growth, climate change and deep water shortages, and the necessity of governments there to act to increase agricultural investment is clear.
I expect that this macro-environment will continue to spur sales in various areas, and one chief area is fertilizer. Fertilizer is key to nourishing the crops that feed Asia, and while there are many companies in the space, there are two that I particularly like.
The first is China Green Agriculture (NYSE: CGA). Headquartered in China’s Shaanxi Province, China Green Agriculture develops, manufactures and distributes humic acid-based, liquid compound fertilizer throughout China. The company has one of the most recognizable brand names in Chinese green fertilizers today, which enables it to operate on a national scale covering 27 provinces in China.
The other company is Yongye International (NASDAQ: YONG), a fulvic acid-based nutrient product manufacturer and developer. Yongye’s fertilizer is used to increase the yield of plants and animals. However, since animal usage only accounts for about 10% of its total revenue, the company’s main target is crops, which account for 90% of its total sales.
Both of these companies are making acquisitions to increase their production capacity, and both are leveraged to take advantage of the growing organic fertilizer industry. Worldwide fertilizer demand is booming in 2010, and it’s expected to grow at sustained rates for the next several years. That’s good news for food consumers, and it’s very good news for China Green Agriculture and Yongye International—and especially for their shareholders.
As of this writing, Robert Hsu was recommending YONG and CGA to subscribers of his Asia Edge newsletter.
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