Issues and causes

The potash industry is in punch and players in this industry must be proactive to deal with the emerging issues. For instance, Michael Wilson, the CEO and the President of Agrium Inc., have to deal with some issues that are crucial to the development of the company. One of the many challenges facing the company is the unprecedented fall in the share price which is at 7 percent. The share price has fallen from $91.43 to $85 in one f its busiest trading sessions in a day before the announcement. This fall in share price can be explained by the latest breakup in the BPC cartel after Russian producer Uralkali opted to exit the BPC cartel (‘punch up in the potash industry (A): Agrium Inc. The fertilzer hits the fan’, 2015). This break up had devastating effects on the industry especially in the financial strength of the players in the industry. It is a pressing issue at the organization that puts the future of the organization in doubt. Decline in the share prices can be a bad signal to the company’s competitiveness.

Still on the financial issue, the CEO must also be able to deal with the slump in the stock price. It is reported that the stock price also slumped by 5.4% after the BPC cartel break-up. The slump in the stock price was far less than that of its closest competitors at a whopping 20%-25% drop. The slump could have been caused by the increasing pressure on potash prices. Pressure on the prices on potash products could have been caused by the free entry to the industry where there are new entrants in the industry at will. It is evident that BHO is the latest entrant in the potash industry.  Wilson has an objective of looking a way forward to revive the company from the financial crisis the company is currently experiencing.

Agrium’s CEO also has to deal with the projected expansion of its annual potash capacity at Vanscoy. It is projected that the expansion will increase capacity by 750,000 tonnes that will be an increase of 40% of the current levels. It is a tough decision as to whether or not the organization should continue with its expansion plans. The decision would be greatly determined by different factors in the sector. For instance, the management must consider the effects on the decreased prices of potash products and the projected increase in demand and strike the balance. The cost of completing the expansion program would also be of great concern to the president considering that it is expected to cost around $1.7billion (‘punch up in the potash industry (A): Agrium Inc. The fertilzer hits the fan’, 2015). It will also be of major concern to the CEO to determine the effect of the expansion program to the stability of prices in the industry. Considering the imminent entry of BHP in the market, the CEO must decide whether to engage in price wars with a volume-over-price strategy or slash the production to accommodate new entrants. The former will make it difficult for the new entrant to steal the market

Main competing companies in the potash industry

Industry analysis

Potash industry is a big industry that deals with extraction and selling of potassium chloride in different parts of the world. Most of the products from this industry are used for agricultural purpose where they are used in growing of wheat, rice, corn, oil palm and rubber among others. The leading markets for these products include; China, Canada, Brazil and India. Potash production is economical only in 12 countries all over the world. However, Russia, Canada and Belarus account for over two-thirds of the global production with Saskatchewan being the leading area of production. The players in the industry are mostly cartels with BPC and Canpotex talking the largest market share. These cartels help the producers in transportation and delivery of these products to their intended destinations. BPC and Canpotex control over 70% of the global production. This gives them an opportunity to set the prices of the potash products to the markets.

The international markets are controlled by the cartels who dictate production through quotas and fixing of export prices. Greedy players in the market are punished through expansion of production. Cartel members are however allowed for free domestic markets where they are allowed to compete on prices. Agrium is in a primary industry together with Mosaic and PotashCorp. PotashCorp is the world’s largest company by capacity. Its headquarters are in Saskatchewan and has employed over 5,866 people. Its main source of revenue is from the export of potash. It is, however, worth noting that the company also plays a significant role in the local market.  The company is also listed in Toronto and New York Stock Exchange where it has been able to supplement its revenues. It has also been noted that the company also leads the way with production costs which has approximated at $100 per tonne.

Agrium Inc. is another player in the industry. Its main source of revenue is through retailing of agricultural services in South America, North America and Australia. The company also exports crop inputs and services to different parts of the world. It is also prudent noting that the organization is listed both in Toronto and New York stock exchange.  The company’s headquarters are in Calgary, Canada and has employed over 14,500 employees. It is prudent noting that the company is much diversified and thus it only generates 3.7% of its revenue from potash. The cost of production at this company is estimated at $110 per tonne.

Mosaic company is another major player in the industry. It has its headquarters in Minnesota and is recognized as the world’s largest producer of potash and phosphates.  It is also listed in New York stock exchange, and it employs over 8,400 people. The company generates most of its revenue (29.4%) from potash. It follows PotashCorp in contribution to Canpotex with 37%. It is, however, worth noting that among the players in the industry, Mosaic has the highest production cost that has approximated at $135 per tonne (‘punch up in the potash industry (A): Agrium Inc. The fertilzer hits the fan’, 2015). Nevertheless, the company is still competitive due to geographically diversified revenue base that includes United States, India, China and Brazil as well as from developed markets like Canada thus covered against price fluctuations. The company also enjoys the world’s largest mines in Esterhazy and Saskatchewan among its five potash mines.

PEST ANALYSIS

PEST analysis is an important marketing tool that helps the management of an organization in effective planning. It refers to political, economic, social and technological factors that are likely to affect the normal operations of the organization. These macro-environmental factors are essential for strategic planning of the organization.

Political factors

Political aspects have great influence in the success of any organization. For instance, Agrium is a company whose business relies on the political stability of different countries within which it operates.  Political powers can also put in legislative laws and regulations that could hinder the development of this business in a great way. Being in an industry involved in the chemical production, the company is expected to be environment conscious and act in agreement with the different environment acts in different parts of the world. It is, however, wise understanding that the company has strict environmental policies that guide the production process of the company. Besides the environmental laws, the company is also subject to other health and safety rules and regulations that must be strictly adhered to.

Economical factors

Economical factors are also critical to the success of any organization. Economic stability in the different countries where the company operates will be essential especially in such a time when the industry is at the economic punch. For instance, fluctuation of interest rates and exchange rates could have devastating effects on the company. It will have adverse effects in sourcing of raw materials, paying debts as well as generating revenues. High-interest rates would greatly hinder expansion of the production unit since borrowing the huge sum of money required for the expansion would be very expensive. In essence, the economic downturn would have adverse effects on the company’s profitability as well as the working capital.

Social factors

Social factors would also be of significant importance in the analysis of this market. For instance, the company can suffer from negative consumer attitudes especially from the international market (‘punch up in the potash industry (A): Agrium Inc. The fertilzer hits the fan’, 2015). People may be of the opinion that these fertilizers may the cause of some of the lifestyle diseases like cancer and thus opting to use organic fertilizers that could hinder the development of the company.

Technological factors

The modern economy has been experiencing dynamics in technology advance especially in the 21st century. While some of these advances could be to the advantage of the organization, others would be detrimental. For instance, technology advance would hasten sourcing of raw materials, processing and timely shipping to the required destinations. On the other hand, future innovations and technology would lead to the development of seeds that require fewer crop nutrients that could adversely affect the business.

SWOT analysis

This is another essential marketing tool that helps the management identify areas that require urgent attention for improved business performance. It is a tool concerned with the strengths, weaknesses, opportunities and threats facing the business.

Strengths:

• Agrium enjoys pricing power over suppliers and customers in North and South America region
• The company has strong environmental policies that make them more competitive with their competitors.
• The company enjoys a strong reputation in the retail market.
• The company has diversified sources of revenues and does not over dependent on Potash products.

Weaknesses

• Agrium’s brand image has suffered immensely from violation of environmental regulations.
• The company lack strong partnership in the outside markets.

Opportunity

• There is projected growth in demand for the increase in world’s population increases.
• There has been the emergence of new technologies in the agricultural sector.
• Expansion of markets to other markets especially in Asia and European markets.

Threats

• Agricultural and fertilizer industry is subject to strict environment rules and regulations.
• The industry is quite volatile where there are new entrants in the industry as well as increasing demand for more sustainable products.
• Increased substitute products and use of organic farming are also another threat facing the company.

Conclusions

From the above analysis, it is evident that the breakup of the BPC cartel had a significant impact on the financial situation of the other members in the industry. A slump in earnings per share and share price would have adverse effects on the success of the company. The competition within the sector is also very stiff, and it is, therefore, imperative for the management to be proactive so as to remain competitive in the industry (‘punch up in the potash industry (A): Agrium Inc. The fertilzer hits the fan’, 2015). It is prudent for the organizations to have strategies to prevent further entrants in the industry considering the volatility of the industry.

Recommendations

After analysis of the potash industry, Michael Wilson has a responsibility of ensuring stability and economic development of the Agrium Inc. The competition in the industry is very intense, and I would recommend that the CEO must be proactive to ensure that the company remains competitive. It is also worth noting that the company has a higher production cost compared to PotashCorp ad should act swiftly on this matter. The CEO would also be recommended to ensure speedy completion of the expansion of the production unit that would provide the organization with a competitive edge.  In essence, the company is in a strong position and only a few strategies will be needed to get the company to the desired position.

References

Punch up in the potash industry (A): Agrium Inc. The fertilzer hits the fan. (2015). Ivey Publishing.

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