Incitec fertiliser sale fuels calls to protect critical ag inputs

The potential sell off of Incitec Pivot's $1.1 billion fertiliser business to an Indonesian state-owned behemoth has also stirred calls for Canberra to view the sale as a good reason to reinvigorate the local manufacturing base for farm sector products.

Agriculture's increasingly heavy dependence on offshore suppliers of everything from fertiliser to crop protection chemicals, fuel and farm equipment has producers and distributors jittery about being too vulnerable to global supply chain volatility and disruption.

The closure of Incitec Pivot's gas-hungry Brisbane urea plant 18 months ago left Australia with minimal local fertiliser manufacturing capacity and particularly reliant on imported nitrogen.

Confirmation that Indonesia's Pupuk Kalimantan Timur (PKT) is definitely bidding for Incitec's eastern Australian operations, including its rich phosphate mine and processing plant in western Queensland, has triggered a burst of cautious farm sector comment.

"Regardless of any changes of ownership and control that may occur, it's vital farmers have a consistent, globally competitive and accessible supply of fertiliser to maintain productivity into the future," said NSW Farmers president, Xavier Martin.

Without certainty of competitive fertiliser access via local sources he said the grain, livestock and horticulture sectors faced heightened risks, costs and supply delays like those which left farmers dangerously short and paying extreme prices during the COVID-19 pandemic.

"Any potential sale of the Incitec Pivot business must not put any unmanageable risks into our landscape," Mr Martin said.

West Australian-based GrainGrowers chairman, Rhys Turton, said it was "time to talk about agriculture having some guarantees on the critical inputs it requires to operate".

This was particularly important if raw materials were already available in Australia and sought by offshore buyers with their own market priorities.

Quarantining some phosphate, and gas reserves to support urea production, were obvious starting points, but there was also "a whole package of arguments for improving our manufacturing capabilities here, too".

He wanted potassium and phosphorus added to Australia's critical minerals list given their importance to agriculture and food security.

Phosphate is already classified as a strategic material by the Department of Industry, Science and Resources.

Based in Indonesian Borneo, Pupuk Kalimantan Timur, produces about 6 million tonnes of urea, ammonia and blended nitrogen, phosphate and potassium products annually.

It is one of South East Asia's biggest fertiliser producers with output from 14 sites roughly equivalent to Australia's total annual fertiliser consumption habit.

Although PKT does not have an operational footprint here, Australia ranked as its biggest urea export market in 2021 and 2022, absorbing up to 287,000t and 346,000t respectively.

Mr Turton said farmers were closely monitoring PKT's possible Incitec Pivot takeover, noting the Indonesians had been attracted to asset opportunities in Australia, including Queensland's Phosphate Hill mine, because they could shore up PKT's own business demands overseas.

"We see potential for a degree of foreign risk emerging here," he said

"If the sale goes ahead there must be safeguards to protect local resources to ensure agriculture in Australia can continue to function efficiently."

Grain Producers Australia also wants the federal government and Foreign Investment Review Board to ensure any sale deal was not contrary to the national interest, particularly regarding local fertiliser supplies and manufacturing opportunities.

"We need to get fair dinkum about doing more about essential inputs - we can't afford to have our farmers coming second on supply availability and price," said chief executive, Colin Bettles.

Nationals leader, David Littleproud, said fortunately safeguard powers did exist to deny export approvals if Canberra had concerns about local resources being exploited, but more had to be done to ensure baseload gas supplies for energy-hungry fertiliser processors.

"In fact, it doesn't matter if you're trying to make fertiliser, EV batteries or high tech machinery for food production, you need an environment where energy companies are encouraged to develop a minimum level of gas reserves because we can't rely on renewables to do that job," he said.

It said it was ridiculous Australian domestic food price security was at risk because baseload energy support had been turned off by current government anti-gas policies.

Pupuk Kalimantan Timur has been reluctant to make any comment about its 11-month-long negotiations with Incitec, but said it was committed to growing the Australian business and continuing to service existing local fertiliser markets if the transaction went ahead.

Both PKT and Incitec have, however, cautioned the deal still may not happen, and industry analysts have been cautious about how a transaction might meet FIRB's approval.

"I think there's some rural sector cynicism - not xenophobia - about another overseas giant lining up to buy more of our key agricultural assets, and concern about what it could mean to input costs if this deal is not managed properly," Mr Littleproud said.

Incitec Pivot is Australia's biggest fertiliser business with processing sites at Geelong and Portland in Victoria and two in Queensland, plus distribution sites across South Australia, Victoria, Tasmania, NSW and Queensland.

Its Southern Cross Fertilisers division trades in the Asia Pacific region, India, the US and South America.

Aside from its potential $1b-plus spend on Incitec's fertiliser business, PKT is planning to open a new $2.2b urea factory in West Papua by 2027, capable of producing 1.1m tonnes a year, plus 850,000t of ammonia.

It also has a 100,000t NPK fertiliser plant on the drawing board for its base in Bontang, East Kalimantan, and another to produce soda ash.

PKT currently exports about 43pc of its urea output and 70pc of ammonia production, which respectively total about 3m tonnes and 2.7m tonnes annually.