Brazil Potash, which is based in Canada, will have a significant impact on the Brazilian fertiliser industry with its plans to increase production. The company wants to protect Brazil from geopolitical risk and fluctuations in international prices.
Autazes, the company’s Brazilian project, has received all necessary permits. It aims to reduce Brazil’s heavy dependence on potash imports, an essential nutrient in its vast agricultural sector.
Brazil is a large agricultural exporter that imports 98% of the potash it uses. This leaves Brazil vulnerable to disruptions in supply chains and geopolitical tensions.
Brazil Potash plans to capitalize on its location in the country, where transportation costs are drastically lower than international competitors. According to Matt Simpson, Chief Executive Officer, Brazil Potash’s initial goal is to cover 17% of Brazil’s import requirements and to possibly reach 50% within the next decade.
Matt Simpson, chief executive of Brazil Potash Inc. and Black Iron Inc., spoke with about the challenges of managing leadership positions at two companies amid geopolitical tensions.
The interview also discusses how the USMCA has eliminated tariffs for Canadian potash. It highlights the confusion that initially arose and the subsequent realization of this fact.
Matt’s view on food security and future agricultural production is a reflection of the growing global potash demand.
Excerpts edited:
Autazes Project
Autazes, a project of Brazil Potash, has recently received its full permits. What impact does this development have on Brazil’s agriculture sector, and how is the overall company’s view affected?
Brazil is one of world’s biggest exporters, with an annual revenue of $167 billion. The Achilles heel of Brazil is the fact that 98% of its potash is imported, despite the fact that Brazil Potash is developing the second largest basin in the entire world right there in their backyard.
Potash is a highly concentrated market. It’s dominated by Canada, Russia and Belarus. We would be facing a serious food crisis if one day Russian president Vladimir Putin decided to stop supplying the world with Potash.
Brazil is by far the largest global importer. Its growth rate is four times faster than the rest of world. A domestic supply shields the country from geopolitical risk, rail and port strikes which have occurred all in the last year.
What has changed since your company raised $50 million in 2020? Do you have ongoing talks with producers around the world about partnerships and acquisitions?
We have raised an additional $30 million since the regulations were passed. Currently, there are numerous discussions with various groups about funding for the construction project.
Cost-effective strategies
Invezz Based on your experience at Rio Tinto or Hatch and your knowledge of mining, operations, and design, which key lessons do you apply to Brazil Potash?
Our goal is to find a good balance between a larger company’s rigor in terms of proper governance, making investments decisions and being entrepreneurial.
Rio Tinto is a great company, but it may go too far with its bureaucracy, leading to delays and additional costs.
A lot of junior businesses lack rigor, because they are not structured. In order to keep the entrepreneurial spirit of the business, I am trying to apply the positive aspects of structure.
Invezz: Earlier, you discussed the advantages of potash produced domestically in Brazil. What will be the strategy of the company to leverage its advantage in order to remain competitive on the international market?
We plan to sell all of our products in Brazil, which is the largest market for imports worldwide with a 22% share. The cost of our mining and processing is very comparable to that of competitors.
Our location in Brazil is what sets us apart from everyone else.
All-in, our cost for extracting, processing, and delivering to a farm is around $130. This is lower than the $200+ spent by competitors on transportation. Our competitors actually spend two-and-ahalf times more on transportation than they do on processing and mining.
Invezz : What impact do you think Brazil’s production of potash will have on the fertiliser markets in the future?
In the beginning, we will produce 2.2 millions metric tons on a market of 63,000,000 tons per year that grows at a rate of 2,000,000 tons. Our production won’t have a significant effect on the global price. It will, however, change the pricing structure within Brazil.
Import dependency
Invezz : Brazil imports a large amount of potash, and it is highly dependent on this product. What percentage of potash imports will the Autazes Project cover?
In phase 1, we can cover 17% of Brazil’s imports. Over time, however, we may double or triple the production. We could realistically meet half of Brazil’s current demand with our domestic production. Brazil will never become self-sufficient.
Invezz : What is the time required to meet half of Brazil’s current consumption rate?
In our first phase, we produce 2.2 millions tons of steel. This is just 17% the Brazilian needs. After that, it would take at least five more years to double production and another five to get to half. It will be a long time before we reach our goal.
What economic benefits will Brazil receive from a level of potash production at home?
Logistics is everything. We can eliminate the transportation costs by being in Brazil, as they are approximately two-and-ahalf times higher than those of mining and processing imported materials.
This means that farmers can buy direct and save $50 per ton, as they don’t have to pay for the costs of working capital associated with importing material over a period of 100 days.
Tariff Impact
How have the businesses in the U.S. been affected by the trade war? What’s the current situation in Canada?
Canada has been a bit confused, to be honest.
When President Trump first announced tariffs on potash, he said it was a 25% tax. This would have increased their cost to produce food by 25%, or at least a part of it. Trump cut the tariff on potash to 10% just three days after declaring the 25%.
He then mentioned shortly afterwards that the USMCA (US-Mexico Canada Free Trade Agreement) applied, meaning that the tariff for potash was actually 0%.
Through all of this confusion, the USMCA only covers 10% of potash. Potash from Canada is not imported into the U.S., but is instead produced there and sent over.
All this confusion shows that tariffs have not had a direct effect on the price of potash. Globally, however, the prices of potash have increased quite a lot since the beginning of this year, and ever since these tariffs were announced. The rise in prices is due partly to the fears about tariffs, but also the problems that Belarusian producers and Russian producers are facing.
If you take the example of the Ukraine war, in which Putin invaded Ukraine in February 2022 for the first time, potash prices literally doubled in a matter of weeks after that invasion. It’s like an upward spike. The main reason for this is that Russia and Belarus provide about 42 percent of all potash in the world. The prices did drop, mostly because the potash wasn’t sanctioned. We all need food, so this was not affected.
Invezz: What is your balance between leadership at Black Iron Potash and Brazil Potash. Do you see any similarities between the two companies’ strategies and business models?
In a strange coincidence, when Russia invaded eastern Ukraine I was focused on Black Iron. This situation unfortunately put Black Iron in limbo around 2014 because of the uncertainty about how far Russia was going to push into Ukraine. The opportunity to run Brazil Potash arose at that time.
The uncertainty in Ukraine was slowing things down, but potash prices were rising. Around 2017-2018 we experienced a reverse, with potash prices starting to fall, which decreased some of Brazil Potash’s workload.
Over time, these two projects have been able to act as an arbitrage, which has allowed me to move back and forth.
It is my expectation that peace will come to Ukraine, and hopefully soon. Once that occurs, however, the management of both projects will be much more difficult. We’re still too early to predict when peace might come.
The ICD published an interview with Matt Simpson, CEO of Brazil Potash. He spoke about the strategic location that gives Brazil Potash a cost advantage on domestic fertiliser markets.
