Global Agricultural Productivity
SECTOR REVIEW
How Farm Commercialization Will Drive The
Next Decade of Growth
■ Credit Suisse has one of the broadest and deepest Ag Productivity research
teams on the Street. In this report, our global team lend their local insight
into the highly complex and critical issue of Farm Commercialization—the
single most important factor driving global agricultural productivity, and the
demand for fertilizer, seed, and ag chemicals over the next two decades.
■ Almost daily, we are asked, “aren’t you worried about demand destruction
with prices so high?” And while we understand the sentiment, and we
continue to look across the globe for any evidence of actual destruction,
simple economics tell us that we won’t find it. Farm incomes are higher than
they have been in years, and with demand for food high, and supplies low,
farmers may grumble, but they won’t cut back.
■ In fertilizer, the popular wisdom has become that we have just a couple of
good years left—before big new fertilizer capacity increases swamp the
market in the 2012-2014 period. That proposition will almost certainly prove
to be incorrect. Farm commercialization, the single biggest issue in “fixing”
the food supply problem, is building momentum only slowly, but should be
hitting its stride just as new capacity comes on line. The resultant surge in
demand for fertilizer and other ag inputs will be larger, and more
sustained, than anything we have seen so far. That should mean high,
not low fertilizer prices, particularly for P&K, but also for Nitrogen—the new
capacity may struggle to keep up with market demand. It should keep ag
chemical volumes moving higher. And ultimately, it should make GM seed
growth—already inevitable, the most sustainable growth trend of the three.
■ Farm commercialization is only beginning to show up in the headlines, but it
is the single most important driver of fertilizer, seed, and crop chemical
demand. Indeed, farm commercialization is the “critical link”—between
higher food production, and rising demand for fertilizer and GMO seed.
■ So should you rush back into the stocks? While we think there are some
increasingly attractive re-entry points in the ag productivity stocks right now,
the major impact from commercialization won’t be fully evident until at least
2012. While we do believe that the long term correlation to energy is
declining, that too will take time to play out. In this report, we attempt to
frame the issues and the likely direction of the ag input super-cycle, across
the next two decades. For your specific investment horizon, our global
research team is here to help.

Executive Summary
The price and profit surge in agricultural inputs—from fertilizer to chemicals to seed, reflect
the steady rise in demand for food after a decade of underproduction. Sensing a reduction
in pricing momentum, investors have begun to worry that the investment cycle is ending,
and stocks have reacted accordingly.
Two key concerns trouble investors most—talk of “demand destruction”, and the
significant increases in global fertilizer capacity coming in 2011-2014. Neither represent a
meaningful threat to the sustainability of pricing and profitability for Ag inputs, however.
Globally, we hear countless stories suggesting that farmers are cutting back, but the data
tell us a different story—farmers are having to adapt to higher input prices, and that
process is not a smooth one given the lack of free-market forces in the Ag business in
most parts of the world. But while farmers may be unhappy, they are not cutting back.
Indeed, farmers’ greatest worry in some markets is lack of access to the inputs they need.
Demand destruction simply isn’t a meaningful issue from a global perspective.
And new capacity? Our forecasts suggest that demand for fertilizer and other key
agricultural inputs will be rising more quickly just when the new capacity is starting to
reach the market. Indeed, our analysis suggests that currently announced capacity
expansions in nitrogen and phosphorus will be insufficient to meet market demand.
What is driving this gap in market perception? An under-appreciation of the impact of
nascent moves toward greater farm commercialization across many of the world’s most
important emerging economies. As demand for food rises, and countries (including China
and India) seek greater food self-sufficiency, public and private efforts are underway
across the world to drive agricultural productivity higher, and those moves will dramatically
alter the patterns and rates of growth for nearly all agricultural inputs.
In Brazil and Argentina, the commercialization process is already in its late stages, with
tremendous private investment moving into the ag sector. We believe that Eastern Europe
will be next, followed by Russia, and parts of Southeast Asia and China.
Commercialization is a massively complex issue, and each country faces its own
combination of obstacles and opportunity. Labor and infrastructure will make the process
most difficult for countries like India and Pakistan, while land transfer issues need to be
confronted in Eastern Europe, Southeast Asia, and Mexico. A host of other issues will
need to be addressed too, legally, politically, and culturally.
The macro “ag thesis” remains intact, but the drivers of growth are changing dramatically,
which will create new opportunities and risks, and make the old investment strategies
obsolete. Credit Suisse has among the broadest and deepest research coverage in the
Agricultural Productivity sector. Our global team of more than a dozen analysts frame the
complexities of farm commercialization, and the likely impact on fertilizer, seed, and Ag
chemicals markets. We conclude that shorter term trading opportunities remain abundant,
and that for long-term investors, the next leg of the Ag story has as much potential as the
last.

Stocks For the Long Haul
Sentiment swings within a super-cycle can create buying opportunities, but our global
team are not universally bullish right now. In this report, we address the probable direction
and pace of commercialization activity across two decades, and conclude that the outlook
for the various ag input groups with follow different paths.
Our individual stock ratings (exhibit 1) reflect our view over the next 12-18 months, but
given the inherent volatility of the fertilizer group, the exceptionally long time horizon for
seed, and the relatively weaker pricing power for the ag chems, valuations and
opportunities are shifting substantially, in some cases.
Below we list some of the stocks that we plan to watch most closely over the next half
decade, as commercialization begins to change the landscape. Each of these companies
is positioned to play a central role in meeting the growing demand for ag productivity.