Rio Tinto focuses on the Need to Feed

“Global yields are the lowest they’ve been in over a century. Arable land, water, everything is shrinking. Everything is in demand. Everything is expensive,” Bob Katsiouleris of Rio Tinto Minerals stated as an introduction to Tuesday’s Economics & Business graduate student lecture. “Rice yields in India today are the lowest they’ve been since 1950, “ he continued. “We’ll talk about why, what’s happening and how both from a socioeconomic, economic and marketing standpoint it’s critical to understand what’s happening and how we can step in and get the situation back under control.”

Rio Tinto Minerals, a borax-and-talc-focused subsidiary of the Rio Tinto mining company, has seen agricultural customers change from its smallest major market to its fastest-growing in seven years; the segment is now responsible for one-third of Rio Tinto Minerals’ business. The company’s other two major markets, Katsiouleris explained, were energy and urbanization, citing the use of borates as stiffening agents for wind turbine blades, additives in fiberglass used for insulation and key components in glazes on ceramic products such as floor tiles. After this introduction, Katsiouleris turned to one of the main questions that the presentation addressed: “Why is agriculture such an important component, and so critical to industrials companies, specifically borate and talc?”

The answer, he explained, lies in micronutrients, minerals that, in quantities as low as a few parts per million, can mean the difference between high, healthy crop yields and poor crops with low yields and unsavory flavors. “In the early 50s and 60s we had a lot of companies come to some of these countries and say, ‘Look, all you have to do is spread urea and nitrogen everywhere. You just have to make everything green, and everything’s going to be okay,’” Katsiouleris explained, describing the role of fertilizers in agricultural development of such countries as India, Indonesia and malaysia. “[F]ast-forward twenty years later [and] you have parts of the world that are completely deficient in minerals and metals. The zinc, copper, iron, boron and [molybdenum] deficiencies in soil affecting most of the world’s crops.” Results of these deficiencies include a 20 percent drop in rice yields in India, leading to dramatic food price increases and the social unrest. “You are not going to buy a house if you’re hungry,” Katsiouleris noted, summing up the implications of a food shortage for the rest of a nation’s economy.

Katsiouleris explained that more sensitive crops could see 30 to 40 percent swings in yield over a period of a year and a half depending on the amount of micronutrients supplied, however educating farmers about the value of micronutrients has proven to be an issue. “What we call the value and use for micronutrients is a very, very difficult subject,” Katsiouleris stated. “The most sensitive crop in the world for boron deficiency is oil palm,” he continued, noting that “the two largest markets in the world for crude palm oil are…China and India, and the amount of crude palm oil that those countries consume because there’s such a need for oil and food, year on year…is about fifteen to twenty percent.”

The oil palm industry is also where education efforts by Rio Tinto have succeeded: “We actually had an enormous amount of success in the Indonesian palm oil market by just convincing farmers [by saying], ‘Hey, look, take a sardine can, take one scoop of sodium borate, sprinkle it around your palm tree and that’s all you need.’ The farmer looks at me and says, ‘Hey, I can do this,’” Katsiouleris explained. “Resulting yields in the last five years: thirty percent increase. The size of the borates market for borates in oil palm…went from five thousand tons–I’m talking just Indondesia–to one hundred thousand tons of borate equivalent in oil palm…a simple technique can make all the difference.” In India, Rio Tinto Minerals has shown the power of micronutrients to the nation’s government, which recently instituted a 50 percent subsidy on micronutrients in an effort to increase crop yields and thereby decrease hunger. Katsiouleris also noted that TATA, a large Indian industrial conglomerate, is a large player in the micronutrient scene as well. “They’re smart,” he said. “No one’s going to buy a car if they’re hungry. No one’s going to buy a house, no one’s going to buy steel if we don’t solve this problem.”

The Chinese market, whose constituents have rapidly converted from a traditional rice, vegetable and fish diet to a Westernized, cereal-centric one, has proven much more difficult for Rio Tinto to enter. The reasons for the difficulty are twofold according to Katsiouleris: small farms (less than one acre versus the average Midwestern ten-thousand-acre farm) and price controls. “Why would a Chinese farmer use more of anything if at the end of the day he can only sell his crop for a certain price? Price controls in China and India and free market fundamentals are…probably one of the biggest issues we have,” he explained. “You have this issue in Russia, you have it in the Balkans, you have it in Ukraine, you have it in China and in parts of India. So there’s no way to change the demand in that supply-demand picture unless that changes, and a lot of that has to come through via governments and a lot of that…has to come through via subsidies.” Addressing the side issue, “The small amount of incremental revenue that a farmer makes…is not worth his while, unless it’s a big farm,” Katsiouleris continued. That said, the presenter was hopeful that increasing demand for food would cause the Chinese government to relax crop price controls and implement subsidies, leading to increased micronutrient use and increased yields. “Social unrest and socioeconomic factors in China today are driving…most of the government decisions,” he explained.

Rio Tinto may work directly with farmers from an education standpoint, however eighty percent of its agriculture-based revenue is derived from fertilizer companies, who mix micronutrients into fertilizers that farmers then use. “You mix [micronutrients] right in with the fertilizer…the way you steam-granulate fertilizers,” Katsiouleris said. “It’s been done in Indonesia, it’s been done in southeast Asia. One of the worst, from a technology standpoint on micronutrient technology,” he continued, “is the United States. We’re a year behind in taking the technology that exists…and being able to bring the micronutrients to the fertilizers.”

Katsiouleris ended the presentation with a question-and-answer session where he reiterated the critical nature of micronutrients in the global economy. “You’re looking at crop prices that are almost at historic highs with a weak US dollar in an economy that is relatively soft in the United States,” he explained. “It’s almost…a perfect storm for food prices, and the problem is…what are governments going to do if food prices really take off, because…that means inflation, and that’s the number one issue on everybody’s minds right now.”