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Brazil's bartering farmers raise risks for Nutrien

Corn as cash: To build up its Brazil business, Canadian fertilizer giant Nutrien is willing to barter by accepting grain as collateral against credit, similar to how it operates in Argentina.

Winnipeg, Manitoba

TAKING a page from its aggressive growth strategy in the United States, cash-rich Canadian fertiliser giant Nutrien Ltd plans to plough investment into Brazil in a bid to reap up to 30 per cent of farm supply sales in fertile pockets of the country.

But business in Brazil's farm sector - the world's fastest growing - strays far from the usual practices in North America's farm belt, where Nutrien is a top supplier of fertiliser, chemicals and seed.

It's a place where the ancient economy of bartering - in this case swapping crops for fertiliser - is still common, helping Brazilian farmers mitigate their high reliance on credit. Selling directly to farmers in the way Nutrien plans is a risk that rivals Mosaic Co and Yara International ASA are avoiding, senior executives from both companies told Reuters.

For Nutrien, going big in retail sales of seed, chemicals and fertiliser to Brazilian farmers is a way to manage another risk - volatility in wholesale fertiliser prices.

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Retail stores in the United States are a boon during times of high supply and low prices - as now - because they give the biggest global fertiliser producer by capacity assurance of base demand in a major farm market.

Brazilian barters typically involve farmers, grain handlers such as Cargill Inc and fertiliser sellers in three-way arrangements that see farmers commit a portion of their future harvest to the grain handler in exchange for fertiliser from the manufacturer.

Such deals are unnecessary in Canada and the United States, where chartered banks and government lenders provide ample credit to tide farmers over to autumn, when they can start selling their output. Brazilian farmers lack such willing lenders, so they rely on monetising crops that have not even been planted.

"Farmers use their soyabeans like their money; use their corn like it's cash," said Rick McLellan, senior vice-president of Brazil for Mosaic, which does some barter deals involving its fertiliser deliveries.

Nutrien, formed in January by a merger of Potash Corp of Saskatchewan and Agrium, disclosed the same month that it intends to become a major farm supplier in Brazil, stretching its reach beyond North America, Australia and Argentina.

Chief executive Chuck Magro revealed to Reuters that the company is looking to roll up as much as 30 per cent of farm retail sales in pockets of central and southern Brazil - a level that it calculates may not raise antitrust concerns. The growth plan hinges mainly on buying existing retail dealers.

Getting there may take many years, with price tags to buy retail dealers currently high, Mr Magro said, declining to place a timeline on his plans.

"What we're doing today is going to be a programme that will last many, many years," he said. "The vision is to have a North American-South American integrated company. If we can get there, that's a pretty powerful global complex."

To build up its Brazil business, Nutrien is willing to barter by accepting grain as collateral against credit, similar to how it operates in Argentina, Mr Magro said.

Julio Zavala, general manager at Brazilian fertiliser blender Utilfértil Indústria de Fertilizantes, which Nutrien owns, said the company is still devising its strategy for building retail. Utilfertil has already done some bartering with farmers through grain traders Cargill and Bunge Ltd, he said.

The Brazil venture could give Nutrien a grasp of the world's fastest-growing major agriculture market, or cause an expensive slip-up just as it woos investors back to an oversupplied global crop nutrient sector.

The stock is trading around the same level it opened at on Jan 2. Investors are focused on how Nutrien will spend some US$4.6 billion on growth in Brazil and shareholder returns after it sells stakes in companies SQM, Arab Potash Company and ICL Israel Chemicals to appease merger regulators, according to analysts.

Rival Mosaic sees too much risk in Nutrien's strategy to follow along. Brazil's retail system is "hugely fragmented," made up of many tiny players, said chief executive Joc O'Rourke. REUTERS

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