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Corn as cash: Brazil's bartering farmers raise risks for Canada's Nutrien

Reuters  |  WINNIPEG, Manitoba/SAO PAULO 

By and Ana Mano

WINNIPEG, Manitoba/SAO PAULO (Reuters) - Taking a page from its aggressive growth strategy in the United States, cash-rich Canadian giant Ltd plans to plow investment into in a bid to reap up to 30 percent 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 is a top supplier of fertilizer, and seed.

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

For Nutrien, going big in sales of seed, and to Brazilian farmers is a way to manage another risk - volatility in wholesale prices. stores in the are a boon during times of high supply and low prices - as now - because they give the biggest global producer by capacity assurance of base demand in a major farm market.

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

Such deals are unnecessary in 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 monetizing crops that have not even been planted.

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

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Nutrien, formed in January by a merger of of and Agrium, disclosed the same month that it intends to become a major in Brazil, stretching its reach beyond North America, and

revealed to that the company is looking to roll up as much as 30 percent of farm sales in pockets of central and - a level that it calculates may not raise antitrust concerns. The growth plan hinges mainly on buying existing dealers.

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

"What we're doing today is going to be a program 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 business, is willing to barter by accepting grain as collateral against credit, similar to how it operates in Argentina, Magro said.

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

The venture could give 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 will spend some $4.6 billion on growth in and shareholder returns after it sells stakes in companies SQM, and to appease merger regulators, according to analysts.


Rival Mosaic sees too much risk in Nutrien's strategy to follow along.

U.S.-based Mosaic sells bulk to Brazilian farms large enough to own storage facilities, but has no interest in creating a network, said Brazil's system is "hugely fragmented," made up of many tiny players, he said.

"A lot of these are almost back-of-the-shed type operations and we don't want to get into the greater risk that goes with that," O'Rourke said in an interview.

Some 100 dealers in sell to farmers, and none owns more than 5 percent market share, according to

Yara sees different risk in any attempt to be a one-stop supplier: moving too far beyond its core expertise of and into seeds and

"That's a totally different business," said Cleiton Vargas, Yara's senior vice-of crop nutrition in

Yara sells about half of the it produces in in direct deliveries to mostly large, successful farmers and shares the risk of selling to smaller growers by utilizing other sellers, Vargas said.

While is a farm powerhouse, it still imported some 26.3 million tonnes of last year, according to association ANDA, which amounts to three quarters of the nutrients that farmers used.

According to a major group, new entrants are welcome because they potentially increase competition among input sellers, reducing prices.

"The more players, the better," said Antônio Galvan, of the Mato Grosso soy growers association Aprosoja. Commonly, Brazilian farmers band together in large groups and buy directly from producers in a bid to cut costs.

Others, like Cayron Giacomelli, barter crops for through grain traders including China's state-owned and Amaggi.

A potential acquisition target, distributor and cooperative Fecoagro, is intrigued by Nutrien's plan.

"We are open to anything," said

(Reporting by in Winnipeg, Manitoba and in Sao Paulo; Editing by and Edward Tobin)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, March 12 2018. 12:47 IST