Thank you all for joining us today. We have a group of people listening on the webcast. My name is Richard Downey. I'm in charge of investor and corporate relations for Nutrien. I want to welcome you all to Nutrien's first Investor Day. I have a couple of safety announcements. Nutrien is a company that's focused on safety above all else. For those in the room here with us today, emergency evacuation is take the stairwell out to the north wall in Queens Park Ballroom, that's the left of the stage. Muster point is on Simcoe Street, near Rabba Fine Foods. You're going to exit out of the north side of the hotel by Simcoe Street. Washrooms are located to the right of the registration table at the back door there.
Designated smoking areas is near the smoking areas on the front drive, south side of Porte Cochere. Cell phone use, a reminder everyone, if you could just set your cell phones off or to vibrate. If you have to take a call, please step outside while the presentations are going on. With those announcements, I will just remind you've got in your booklets the forward-looking statement, so that's Nutrien's forward-looking statement. I'd like to take the opportunity now to have Chuck start off the day with a high-level strategy overview of the company. Chuck?
Thanks, Richard. Good morning, everyone. It's great to see a full house here today. Hello for those that are dialed into our webcast. Thanks for joining our first Investor Day as Nutrien. I fully accept that this is a large time commitment for all of you. We believe that we shouldn't have these unless we have something important to say. Today, after 17 months of working through the merger, the management team and the board of directors now feel we know the full potential of the company, and we can see it actually unfolding right before our eyes. There's still some moving parts. We're going to share with you our latest thinking around the five-year potential for the company.
I do want to start by saying no matter what market conditions we're facing. In agriculture, as you all know, no two seasons are the same, we believe that Nutrien is the best-positioned company to create long-term value. We have significant leverage to the upside of the cycle, the financial strength and stability to allocate capital more effectively than any of our peers. There is significant downside protection because we are less volatile than most of the industry. Here's today's agenda. You're going to hear from our business leaders this morning, Mike Frank, Susan Jones, and Raef Sully, who will talk about the plans and objectives that they have for each of their business units. We're going to show you a demonstration today of our digital platform for retail. It's part of our multi-year journey to become the ag retailer of the future.
Pedro Farah, our new CFO, he'll close up the day with a long-term financial outlook and how we plan to deliver long-term value. Before dedicating the day to our long-term plans and investments, let me quickly give you an update as to what we're seeing in the markets today, along with a bit of a longer-term outlook. It's been three weeks since we released our first-quarter earnings. The weather has improved in some areas but has remained challenging in many others. The planting rates have improved but are still well behind the five-year average. While it is likely that some corn acres will go unplanted, there remains strong conviction with growers to plant corn. We'll have to wait and see what happens.
The good news is crop prices have firmed over the past few weeks, the recent U.S. government announcement around farmer aid packages are really going to help farmer economics, especially in the U.S. in 2019. Fertilizer prices are firm and holding in most major markets. Overall, we expect a solid year and a solid first half. We are holding our guidance ranges that we provided to you in the first quarter. However, some earnings could move from June to July, especially in retail, because of the planting and how late it is. If we do see significant acres shift from corn to soybeans or not get planted, then we will trend to the bottom end of our first-half guidance range. The longer-term outlook, the fundamentals look very good.
For the financial plan that we show you this morning, we are expecting crop prices to improve, but only modestly, with grower economics also improving slightly. Stable to higher fertilizer prices as supply-demand fundamentals continue to tighten over the five-year window that we're going to talk to you about today. With that market update, let's talk about the future of Nutrien and the prospects going forward. Today, there are three key messages we would like to leave you with. Nutrien is the best-positioned company in the ag sector. We have created a leading integrated platform that has unique competitive advantages. We have a focused strategy to deliver shareholder value through the cycle. I'll touch on each of these in a little bit more depth in the next 15 minutes or so. We believe Nutrien is the best-positioned company in the ag sector. Why?
Two reasons: our position in the ag value chain and our integrated business model. It starts with our direct connection to the farmer. It's our people and equipment on the farm providing independent crop advice and full agronomic solutions. That means we have more data, insight, and perspective on what farmers need or will need to grow a crop. We have the supply chain capability to bring products, services, and technology to the farm quickly and at a lower cost than anyone else. The second reason we feel we are the best-positioned company is our business model. We are both integrated and diversified. We are truly a one-stop shop. This allows us to still have significant leverage to improving ag fundamentals but be more stable and resilient as the markets turn down. When the markets do turn down, we will have the capital to allocate to create value.
Importantly, we have created a proven track record of success. We take pride in delivering on what we say we are going to do. Back in January of last year, we made a commitment to deliver synergies, complete the required divestments, and continue to grow the business, all while completing a very complex merger. We achieved all of this. We successfully stood up the organization. We have assembled a fit-for-purpose leadership team with extensive industry and international experience, and you'll meet many of them today. We delivered CAD 621 million of synergies compared to the CAD 500 million we originally committed to, and we did that in just 15 months. We completed the necessary divestments, capturing CAD 5.3 billion in net proceeds, above what most people thought we could deliver. We continued to deliver growth from the base business through retail acquisitions, record nitrogen, and potash sales volumes.
At the same time, we continued to effectively allocate capital. We funded accretive retail M&A transactions that consolidated our core markets while bringing value to our farmer customers. We returned more capital via dividends and buybacks than any of our peers, and we strengthened our balance sheet to be ready for future opportunities. This chart shows our adjusted EBITDA since the merger. In 2017, the pro forma EBITDA was CAD 3 billion. 2018, the first year as Nutrien, we delivered CAD 3.9 billion through a combination of synergies, growth, and the market fundamentals improving. 2019 guidance midpoint of CAD 4.6 billion. Again, a mix of higher prices and controlling our controllables. Overall, expect a 55% increase in EBITDA since the merger started. The strength of our business model and the execution of our strategy clearly shown in these results. Let's look at the integrated network.
We already have a leading integrated ag business in North America. Today, North America accounts for 80% of retail's earnings, and retail makes most of its earnings in the second quarter in North America, so there is still seasonality to the retail earnings stream. The second and third quarter will always be important to North American retail business, but it would be nice to have higher earnings and cash flows in the first and fourth quarters as well. We should see that after the Ruralco transaction is complete in Australia, and as we continue to grow our South American business. Our earnings and cash flow in retail will continue to diversify and smooth out, which will de-risk our business over time.
Also, as this platform continues to grow, we can send potash and nitrogen to different parts of the network to take advantage of seasonal premiums in the different markets, improving our overall margins. This North American, South American, Australian platform would be truly unique in our space, providing us with significant integration opportunities, reducing our volatility and risk, and smoothing out overall earnings and company cash flows. Now let's talk about the specifics of what we see as the benefits for our integrated model. To us, there are two types of benefits, both operating and financial, with the integrated business model. Fertilizer integration is important because moving bulk commodities is very expensive. Keeping as many tons closer to our production facilities, that brings significant value. This just isn't about fertilizer and retail. It also includes our Loveland Proprietary Products business.
Loveland today is a business with CAD 2 billion in revenue, over 300 products, primarily in crop protection and specialty nutritional, with 12 manufacturing facilities around the world fully integrated with our retail network to ensure optimal value creation. All of these businesses share logistics providers, warehouses, and distribution infrastructure like mobile fleets, helping us to be more efficient and have lower costs to serve our customers. Since the merger, we have increased our asset utilization rates across the board because we've moved more product to our retail network, and that has helped us lower our overall cost of production as well as our delivered logistics costs. You can see that we increased total fertilizer sales to retail by almost 1 million tons last year alone, and we still don't have all of this fully optimized quite yet.
We have seen logistics cost savings of CAD 12 to CAD 14 a ton on the Nutrien supplied fertilizer tons to retail. This is a significant advantage in any commodity business, and it is one of the reasons why we were able to exceed on our synergy targets. Now switching gears to the financial benefits of our integrated model. This simple chart explains it well. Nutrien is designed to create value throughout the cycle. The first part of this equation is just how the company is built. Around two-thirds of our earnings are levered to the fertilizer markets, which historically have been more cyclical in nature. The balance comes from retail, a business that has a proven track record of stability through the ups and downs of the market. In essence, shareholders get upside opportunity with production leverage and protection on the downside because of the stability of retail.
This is truly unique in our industry. The second part comes from how we are able to deploy capital differently than our peers to deliver shareholder value. The stability of our earnings and the strength of our balance sheet allows us to invest through the cycle. This means we can have opportunistic opportunities when it comes to investing into production assets. We can invest when others don't have the capacity, and that's at the bottom of the cycle, and still have the capital to invest in retail growth throughout the ups and downs of the market. We have been following this playbook for years. Just look at the merger. It's no coincidence that it happened at the bottom of the cycle when we combined two large production businesses. Since then, we have been allocating capital primarily to retail and returning capital to shareholders.
This is how we plan to create long-term shareholder value. This morning, we announced an almost 5% increase to our dividend, the second increase since the close of the merger, and now we have taken the dividend from CAD 1.60 a share to CAD 1.80 per share on an annualized basis. Over the past 17 months, we've also repurchased more than CAD 3 billion of stock because we have the confidence to do this because of the integrated model. Let's talk about what you can expect as we continue to allocate capital in this manner and the value we expect to create. While our business plans and strategies are anchored in things we can control, like operating excellence, strategic execution, and capital allocation, we have significant leverage to Nutrien prices. For every CAD 25 a ton that fertilizer price goes up, our EBITDA will increase by about CAD 650 million.
The earnings scenarios we will walk you through today include what we believe is a realistic view of fertilizer pricing. When you consider that we are still well below mid-cycle levels, we simply see more upside than downside, and the supply-demand fundamentals for fertilizer are improving. For the five-year plan, which we will share with you in just a minute, we have assumed flat to up $25 a ton in potash pricing over the five-year window relative to where we ended the first quarter of this year. For nitrogen, anywhere from flat to up to $50 a ton from Q1 levels. You can see that that would still have us slightly below mid-cycle pricing levels. This may be conservative. We really don't know because as always, forecasting commodities can be tough.
What we do know is we do not need significant improvements in fertilizer price to drive shareholder value. Let's have a look. This is the first five-year plan we have built for Nutrien. We believe it is clear and a very simple plan. Each business has line of sight to its key objectives, and you'll hear from those leaders today, but I'd like to walk you through the big picture and how it all fits together to create value over the next five years and beyond. Here we go. By the end of 2023, with our current view of the markets and our strategic priorities, we see a pathway to grow our EBITDA from $3.9 billion in 2018 to about $6.5 billion in 2023. You can see the full range of the numbers outlaid for on the chart.
This equates to almost a 70% increase from 2018 or about $2.6 billion of EBITDA growth. That's about 10% compounded annually. This increase comes from a combination of what we can control and market prices. We believe we can grow our earnings by 45%-50% with management actions only. Independent of market prices. Things like growing retail, optimizing our costs across all three business units, brownfield expansions, and further integration opportunities across the network. Fertilizer prices could add another $700 million to $1 billion of EBITDA or 20%-25% to the overall earnings growth in this period. In every plan, there are assumptions. There are three that I would like to mention this morning. First, farmer economics. Our view is that margins for growers will expand slightly over this outlook window.
For example, by 2023, corn prices are between $4 and $4.50 a bushel, similar to where they are today. Fertilizer demand continues to grow at the long-term historical average. For potash, that's between 2.6%-3%. In nitrogen and phosphate, that's around 2%. Finally, the third assumption, long-term demand for grains and oilseeds remains steady, like we've seen for decades. A few high-level comments on each of the businesses. In retail, strategically, we want to consolidate and digitize the industry while growing our market share in our core markets. In order to do that, we plan to allocate more capital to retail than it will actually generate in this period to deliver on this strategy. We believe that this will have long-term shareholder benefits.
By 2023, retail EBITDA will be between CAD 1.8 billion and CAD 2 billion, up nearly 60%, and retail will be about a third of our total Nutrien EBITDA. Retail will not only be bigger, it will be better, and Mike Frank, our CEO of the retail business, will discuss that in just a minute. In potash, strategically, we plan to fortify our industry-leading position by further network optimization and cost reductions. We do plan to sell some of our excess 5 million tons that we have today as the market needs it. We are preparing to add low-cost incremental brownfield capacity over the next decade. By 2023, we expect potash EBITDA will be between CAD 2.3 billion and CAD 2.7 billion, up around 60%, with cash costs of somewhere between CAD 50 and CAD 55 per ton across the network.
In nitrogen and phosphate, we plan to continue to optimize our network from the merger, leverage our retail integration, and work towards optimizing our product mix and energy consumption. We plan to grow our nitrogen sales volumes by almost 1 million tons by 2023 through new projects and improved efficiencies. By 2023, we expect nitrogen and phosphate EBITDA will be between CAD 1.9 billion with flat pricing and up to CAD 2.6 billion with increased market prices. Here is the high-level capital allocation plan for Nutrien. In the next 5 years, we expect to generate between CAD 22 billion and CAD 25 billion of cash from operations, depending on the price of fertilizer, and we expect about CAD 4 billion in 2019 alone. We will invest about CAD 6 billion in maintaining our existing and our growing asset base over that period of time, so about CAD 1.2 billion per year.
After sustaining capital and supporting our existing dividend at the level we announced today, we believe we have about CAD 11 billion-CAD 14 billion to invest in the business and return to shareholders over the next 5 years. About half of that amount, or CAD 5 billion-CAD 6 billion, will be invested back into the business, primarily in retail. The remaining capital of CAD 6 billion-CAD 8 billion is unallocated today. We will assess the best use of the capital over time. Certainly, some of the capital will be returned to shareholders in the form of higher dividends and buybacks, like our track record has already shown. This is our current thinking today.
For investors, I would consider this to be a high-level framework and not a definitive commitment because the board and the management team obviously need the flexibility to adjust our plans as market conditions change and opportunities present themselves. To wrap up my opening comments, a few takeaways. With modest market set of assumptions, farmer economics improving only slightly, fertilizer pricing increasing but staying below the mid-cycle levels, the company has the ability to generate very significant cash flows. We have used the same capital allocation playbook for years, and it has proven to create value throughout the cycle. Today, we believe we have some fantastic investment options in our core businesses, which you will hear about. Even after that, we have significant unallocated capital, which can be returned to shareholders over time.
All of this is possible because of the people, the assets, and the business model we have created from the merger. Now I'll turn it over to Mike Frank to talk a little bit about the retail plan. Yep, good.
All right. Thank you, Chuck, and good morning. This morning I'm going to walk through our strategy to build the ag retailer of the future, how we're going to bring new and unprecedented value to our customers, and building Nutrien Ag Solutions into a larger, more efficient, and more profitable retail business. What you'll hear from me is that ag retail is changing and Nutrien Ag Solutions is leading the way. I'll discuss the macro market very briefly because mostly I want to focus, as Chuck talked about, on what's in our control. I'll show you how we're going to become more efficient, how we're going to better serve our customers, lead the digital, and finally, how we'll consolidate the industry, all in a highly value-creating strategy that will benefit our customers and our shareowners.
We believe we're at the bottom of the ag cycle in the U.S., the last three years has been challenging for our customers and everyone that serves them. Despite that, we've been resilient and have seen our EBITDA margins increase in four of the past five years. We do anticipate some recovery in the next five years, as Chuck mentioned. When corn's over $4 a bushel, that leads to grower strategies where they're not just trying to minimize risk, but they're back in the economics of trying to maximize yields and maximize their profitability. I think this is a great chart that really shows how over the cycle of corn prices, our business continues to grow.
When you look at this chart, you'll see that over the last eight years, we've proven we can successfully grow our retail business in good years and bad years for commodity prices. Our success at growing EBITDA margins in the past several years really does show the strength and resiliency of our retail business. We're talking about the ag retailer of the future. On the next several slides, I'll show you what this is, how we'll transform the ag retail industry, and finally, why we are uniquely able to lead this change and why it matters to our customers and our shareowners. We are transforming ag retail through scale, efficiency, digital leadership, and whole acre solution selling. This change will take investment, and it'll take focused execution.
We expect to invest CAD 4 billion-CAD 5 billion in our retail business over the next five years, and we have four key focus areas where we will invest our capital dollars. The rest of my presentation will build out these four focus areas. Firstly, we are going to continue to consolidate the retail industry. This is where the majority of our investment will go, likely over 80% of it. Our focus, as Chuck mentioned, is in the Americas and also Australia. At the country level, our focus is really in the U.S. and Brazil. Secondly, we will build the leading digital ag retail platform, where it is really the combination of our local agronomist and the digital platform that will drive grower value and increase our business with them. Thirdly, we will drive organic growth and increase our network efficiency.
Finally, we will enhance our proprietary products offering through innovation, collaboration, and focused acquisitions. Today, our retail competitors are operating in the 1980s model of ag retail. In fact, most co-ops and independents do not have the resources or scale to make the investments needed to serve the growers of today or the future. That's why our leadership in these four areas will also become a catalyst for further consolidation. The grower of the future will have new demands. In fact, we are already hearing this from large growers today. They will expect an even more robust and responsive and efficient supply chain, a supply chain that is both local for in-season service and also global in scale for product portfolio. They will also expect a digital experience that allows one-stop shopping, from price discovery to agronomic tools and connectivity with their local agronomist.
They will expect a seamless omni-channel that allows them to do business where, when, and how they want. More than anything, and this is our most important point of differentiation, they want someone that can bring this all together in one holistic approach, an integrated solutions offering, including products, services, digital, finance offerings, and dealing with people that they know and trust. Growers want whole acre solutions to minimize risk and optimize their outcomes. This integrated customer experience is what growers will expect from the ag retailer, and this is where Nutrien Ag Solutions is going. Let me break it down into those four buckets I mentioned previously, starting with our plans on driving organic growth. Over the next five years, we will invest in foundational capabilities to drive organic growth, and our investments will be focused on digital, supply chain, marketing excellence, and Nutrien Financial.
We expect this investment will translate into a 2%-3% organic growth CAGR between 2018 and 2023. Let me dive deeper into each of these specific areas. The first is digital, and I will get into much more detail in our digital presentation, but just to tee it up, we have three pillars in our digital strategy: crop planning, digital agronomy, and omni-channel. Omni-channel is e-commerce and a whole lot more. We are leading the industry today, and we are making significant strides in the tools that we are now offering our farmers and our agronomists. You will see in much more detail in the presentation just following this, where we will dive deep into digital, and we will also show you a video so you can see exactly how it works today. Let me move to supply chain.
We have the largest supply chain in global inputs agriculture, bar none. Our network and capabilities are second to no one. Our model in the past has been to optimize the supply chain at the local branch level. Other than purchasing power, we haven't truly leveraged the size and scale of our supply chain. In the past 12 months, we have stood up a new central supply chain team, and we're now looking at all of our assets, our inventory, our logistics across the entire network, and we have found significant opportunities from procurement to transportation, distribution, and warehousing. We believe there's significant margin opportunity here, this will take some time. We've gotten started. Let me just give you two examples.
Now in 2019, we have set up 18 distribution centers across our business in North America so that we can reduce the inventory that we're holding at the branch level. This will help us increase turns, lower overall inventories, and also reduce obsolescence. A second example is that we've now completely centralized our supplier purchasing. We started this year with over 800 crop protection suppliers. Today, we have 650, and by the end of the year, we expect to be down to 500. These are just two examples of how we've gotten started. There's significant opportunity to create a more efficient and leaner supply chain. To do this successfully, we really believe you need to have scale, resources, and focus. Uniquely, we have all three. Let me move now to marketing. As a retailer, we're great at selling. Historically, we haven't developed our marketing excellence.
We've now created a central capability, and we're using analytics and data science to improve our pricing effectiveness, our portfolio management and SKU management, and ultimately, our solution selling and our whole acre solutions. We are now mining our vast customer data to bring analytics and tools to reduce churn, to focus our sales team on the highest customer opportunities, and ultimately engaging our customers uniquely and individually based on their own needs and the key attributes that they're trying to solve for. Look, we'll continue to be a great sales organization, but we've now added marketing discipline, and this will help us grow customer share, satisfaction, and grow our margins. Finally, on the organic growth area, we are building a captive lending unit within the Nutrien company, Nutrien Financial.
Our objective is to professionalize and scale our grower lending for inputs that they purchase from us. Based on our pilot over the last two years, we know this strategy creates the opportunity to increase our share of wallet with our key customers and also add value to Nutrien. Over the years, we have built our retail business largely through M&A, and we believe there continues to be a significant consolidation opportunity in the industry. Going forward, we are targeting an average of CAD 100 million of acquired EBITDA per year through accretive acquisitions. The last 12 months has proven this opportunity, with 26 acquisitions closed and CAD 55 million of year one EBITDA, which doesn't include Ruralco, the third largest ag retailer in Australia. We expect that deal to close in Q3 of this year, and in 2020, the EBITDA contribution from Ruralco alone should be over CAD 70 million.
As a reminder, these tuck-in acquisitions are highly accretive as we bring in the value of our proprietary products, the overall purchasing power of Nutrien Ag Solutions, and our proven business model. Our acquisition focus will be dialed in on our core geographies, the U.S., Canada, Australia, and Argentina. As we've been saying for a while, we will also now target Brazil. However, the vast majority of our activity and investments will be in the U.S. The U.S. is a $40 billion ag inputs retail market, and it's still highly fragmented, and it's where we also have our highest EBITDA margins. In the U.S., we are targeting to have 25%-30% market share by our 2023 five-year plan timeframe.
In Brazil today, our presence is small, but we have proven our model of full service retail to growers that farm in that 100 to 2,500 hectare size area. We will target approximately $1 billion of investment in Brazil in our five-year plan. The current market for high service retail and specialty nutrition is approximately $7.5 billion. That's the addressable market that we're targeting in our five-year window. Lastly, our proprietary products portfolio differentiates our product offerings. They solve real grower problems, and they enhance margins. We've continually increased the % of gross margin from our proprietary products, and we believe that the runway continues. At the end of the five-year plan, we see our % of gross margin from proprietary products at 29%.
Some of this will come from increased penetration from our existing portfolio, and some will come from continued strategic acquisitions like the Actagro acquisition earlier this year. This part of our business is also critical because it really drives synergies on acquisitions, and it gives us unique differentiation and value, creating opportunities in front of our customers. Our proprietary products are often combined in the tank with branded products, along with our services to really create those whole acre solutions. The final section brings this all together into our financial metrics. Here are the new retail metrics for the five-year window from 2018 to 2023. Firstly, EBITDA margins. We will continue to focus on EBITDA margin improvement, and our target by 2023 is to have, across our global network, over 10.5% EBITDA margins and over 11% in the U.S. Secondly, average non-cash working capital to sales ratio.
Our supply chain focus will help us reduce working capital, and we have a plan to drive our working capital to sales ratio down to 17%. Thirdly, cash operating coverage ratio. Our scale gives us the opportunity to be more efficient. Even with the investments that we're making in our organic growth transformational initiatives, we believe we can reduce our cash operating coverage ratio to 59%. Fourthly, U.S. EBITDA per location. This is a new metric. In the past, we've shown adjusted same-store sales as a proxy for organic growth. While this may make sense in a typical consumer retail business, we don't think it's the right metric for ag retail.
We'll continue to report adjusted same-store sales, now we'll start reporting this new metric of EBITDA per branch, which we believe is a better measure of true organic growth and strength in our business. We'll back out branches that have been acquired in the past 12 months so that it's a good quality measure. As you can see here in 2018, our EBITDA per branch was right at CAD 900,000, and by 2023, we will drive this to greater than CAD 1.1 million per branch. Fifthly, proprietary products as a percent of total margin, which I mentioned earlier, we are targeting 29% by 2023. Finally, we've added two new digital metrics, which we believe reflect the utility and the value of our digital platform, and I'll get into that here in the next presentation. The first metric is total digital platform-generated revenue at greater than 50%.
What that means is that over half of our business will be ordered online in our digital platform, and those orders can come in from growers or from our sales agronomists. Since this is an omni-channel, we're agnostic to where and how that order gets put in, but we have the fundamental belief that when that digital platform is the gateway into ordering products, that that will help increase our business. Secondly, grower engagement on the platform. This is growers themselves going into the platform and using it to do something, use one of the more important tools, like ordering products or putting their farm plan in the tool, paying bills online, or using one of the digital agronomy tools. That's how we'll measure engagement, and we see that at greater than 65% of the growers that are on the platform by 2023.
When this all comes together, as Chuck mentioned, we are targeting CAD 1.9 billion of EBITDA in our retail business by 2023. Depending on both commodity prices and the level of M&A activity, we would range-bound 2023 from CAD 1.8 billion-CAD 2 billion of EBITDA. Hope you can see that our strategy is clear. We are building the ag retailer of the future, which will serve farmers of today and tomorrow. We are uniquely positioned because of our scale and resources to consolidate and professionalize ag retail. We have a winning strategy and a winning team. With that, let me transition into a focused presentation on our digital platform. This presentation is going to be a little bit of a show and tell.
I'll show you where we are today with our digital platform and where we're going, then we'll run a video that will help you see exactly how it works. I think what's important to know is that we are already the leading, have the leading ag retail digital platform. No one else is close. In fact, in 2018, we were awarded the top innovation in U.S. agriculture for our digital platform, which we launched on July 1 of 2018. Since then, we've added numerous features. When you think about our position in the value chain, we have the relationship with the grower, we have the most grower data, no one else is close, and we have the ability to sell and service the whole acre solutions for the grower.
When you think about that, I think that you'll conclude as we have, that the digital interface with growers is most naturally owned between the retailer and the grower, not at the basic manufacturer level and not with a digital-only company that really doesn't have a relationship or a supply chain at the local level. Not only that, but you will also see that this digital interface between the grower and the trusted retail advisor has the opportunity to make our relationship with our customers even tighter and stickier. Our digital platform will be a strong source of our organic growth going forward. Let's get started. This is the same wheel that I showed on the previous presentation.
This wheel, I think, really captures the complexity of farming and why we are unique in how we can simplify the complexity and bring one solution, one cohesive and holistic approach to how we serve our customers, solving their problems and being their trusted advisor and partner. In that way, digital is both an enabler and an accelerator of all the elements of the Nutrien retail platform. This model is different than the retail model of the past, which was really selling one product at a time. We will pull together all the information, services, products, financing, and agronomic advice into one whole acre and whole farm solution, and the digital platform becomes the glue. I think it helps if we start this by really thinking like a grower. Our customer's business cycle starts with the planning window.
We really believe that there's five separate windows over the course of the growing season that's shown at the top of this slide. The planning window, not the planting window, is where it all starts, and this happens right after harvest. The ability to look back after harvest and review the latest information. How did each field perform? What drove yields up or down? Did we select the best seed for the field? Did we have the right amount of fertilizer? Did we effectively control pests and diseases? The planning window looks back, but then it looks forward. It's in this planning window that our agronomist will sit down in the office or sometimes at the kitchen table with our customers and plan the next year's game plan.
I'll be coming back to this order, but when you think about it starts with planning, then there's all the activity right before planting. There's the planting window, then there's the in-season window where they're monitoring for pests and making sure they have the right amount of nutrients in the field, and then finally harvest, and then it repeats itself. Our digital tools are linked together to help across each one of these windows. Our digital platform itself has three distinct pillars: farm planning, digital agronomy, and the omni-channel. By connecting these three pillars in a seamless way, I'll show you why our customers will benefit through better decision-making, a more simplified and convenient buying experience, and a deeper relationship with our sales agronomists and with Nutrien Ag Solutions. Here's how to think about it. As I said, it all starts with the planning phase.
This is where the grower and the agronomist sit down to plan each field for the next year. Of course, this takes place in the farm planning tool that's now digitized. This digital tool can be preloaded with a good, better, best recommendation. We call it our bronze, silver, gold plans. When our agronomist is sitting down with the grower, it's already preloaded on a field-by-field basis with what the data science is suggesting that grower could or should do for the next season. We also, as we're sitting down, we use our digital agronomy tools to customize it even further. From seed selection, variable rate planting, soil sampling, and variable rate fertilizer plans. And then, of course, all of the crop protection, nutritional seed treatments, and everything else that goes into the field to create a successful harvest.
Once you build that plan in every field, then you have a plan across your farm, or what we would call a farm plan. The farm plan eventually is your playbook for the next season. It also becomes a business plan. You can take that plan into a third-party lender and apply for credit, or you can seamlessly apply for credit through Nutrien Financial. Those are the first two parts of our pillars, the farm planning and the digital agronomy. Then comes the omni-channel, which is the e-commerce tools that are all linked to the farm plan so that you don't have to go back in, and every time you want to buy a product, add a product to your cart.
You can simply go to the farm plan and buy it all or buy select products in that farm plan to activate our supply chain. These are the tools that are here and now, and I'll show you how they actually work. Seed selection is a critical decision. What's on this slide is our proprietary Find My Seed tool, which we think is the best tool in the industry. We've pulled together all of the public data and private data on seed products, and we have an algorithm that selects the top seeds for each field, and it shows the grower multiple brands. Other seed tools today in the marketplace are showing the one brand that that company is trying to promote, where we're agnostic because we have the broadest portfolio of seed brands in the industry.
We show them the options for any of the brands that they could purchase. We also have a proprietary tool for developing variable rate seeding and fertilizer recommendations. Using data science, we can sharpen these decisions, which are really critical when it comes to the field. Our growers are then able to choose the best seed directly into the farm plan. The old model, when you think about it, there used to be a seed-only seedsman that would go out and, with knowledge in their head, try and recommend the best product for the grower. Now we know that our digital tools can outperform a seedsman every time. We beta tested this tool this past spring, and for 2020, the Find My Seed tool will be available across North America for corn, soybeans, and canola seed selection. Here's another example of our agronomy tools.
Last year, we acquired a company called Waypoint Analytical. This is the largest and most capable soil and tissue testing company in North America. They have 18 labs across the U.S., and we're now using their capabilities to improve our speed of turnaround. More importantly, we have now built a seamless interface with our digital platform, so the soil or tissue testing results can come right into the digital agronomy interface and will provide the fertility recommendation and variable rate script seamlessly. Now our customers are in control because they can use the data uploads into their Nutrien Ag Solutions digital platform. Simultaneously, our sales agronomists also receive the data into their employee experience portal, which allows them to follow up with their customers and confirm the fertility plan on each field.
For those growers that don't do a grid soil test, we also have our Echelon HD satellite program that will analyze the past several years of crop density and weather to predict the fertility needs on each field. Again, all of this is uploaded in a seamless interface in our customer portal. Our customers can then buy it now without exiting the portal. One site, one screen, adding custom application and delivery options. As we get closer to the planting window, our weather stories have become very popular as growers are watching the forward weather, and that's especially been popular this year. These videos provide not only forecast information, but also they interpret how the various atmospheric events, like precipitation and temperature, are impacting their growing decisions.
Another helpful tool is our tractor time feature, which models soil moisture and temperature levels for each of the grower's fields and lets the grower know when conditions are conducive for field work. The same information benefits our field sales organization, who have a real-time view of the weather and field-level conditions faced by each of their customers. We continue to build several grower engagement tools, which gives our customers a reason to come back into the portal every day. We want the Nutrien Ag Solutions portal to be their key source of information for their farm. Once the crop is planted, it's all about ensuring that that crop has the right nutrients and protection from pests.
It's the combination of our agronomists in the field using the scouting app and satellite and drone imagery that are part of our Echelon package that allow us to monitor and manage the fields for our customers. Taking plant tissue samples and running them through our proprietary NutriScription analysis tool at our labs also identifies any nutrient deficiencies. Finally, implementing the plan with a click on the platform to get our custom application units into the field in a timely way to help our growers optimize their yields. It's really the combination of our high-touch sales agronomists, our local supply chain, and our digital tools. It's this combination that differentiates us from everyone else. The final part of the growing cycle is the harvest.
As the grower completes his harvest, yield data is streamed from the grower's equipment right into the Nutrien digital platform, where it's recorded in the digital farm plan. This yield data, together with the records of all other activities that have occurred on the grower's field, enable the grower and the Nutrien crop consultant to comprehensively review the results of the growing season. This review leads directly into the planning activity, and the cycle repeats itself. I hope you can see how our strategy combining our three digital pillars, field and farm planning, digital agronomy, and omnichannel, creates a platform that will help our customers and our sales agronomists year-round. We formally launched the platform back in July of 2018. In less than 12 months, we've seen great execution by our teams and strong engagement from our customers.
As of today, we've processed more than CAD 174 million in online payments from our customers. This past January, we rolled out our e-commerce capabilities, starting this year with crop protection products. To date, we have more than CAD 32 million in digital orders for those crop protection products. So far in Q2, we've had 5.9% of our orders come in through the portal. Every week, we see the adoption rate and the uptake in this tool increase over the previous week. We've also seen tremendous engagement from our growers. We now have customers that represent 58% of our revenue signed onto the portal. As we continue to add new functionality, we're seeing strong and growing engagement on the digital platform from both our customers but also from our sales agronomists.
I think what we'll do now is we'll show you a short video that will walk you through these tools. You'll see that this isn't a marketing video. This really is just a video with some screenshots and narration to help you understand how our agronomists will work with our customers to use these tools. If we can roll the video.
In working with a grower to plan for the upcoming year, the crop consultant uses the farm planning tool to create a comprehensive plan for the inputs for each of his grower's fields. The crop consultant leverages bronze, silver, and gold programs, or good, better, and best, to quickly provide a plan tailored to each of the grower's fields, allowing the grower to optimize for his own goals and accounting for the productive potential of each field. The grower and crop consultant can then use the farm planning tool to review the farm plan from a farm, crop, field, timing, or input category perspective. When satisfied with the plan, they can then review the per acre cost of the plan and the total plan budget.
The farm planning tool also allows the grower to quickly calculate how his input cost, overhead costs, market price for crops, and yield goals will impact his profitability. A critical part of the planning phase is selecting the optimal seed. The Nutrien Digital platform provides the grower the Find My Seed tool to aid in this important decision. The grower searches for corn seed for his farm, selecting first his state, then county from a map. He chooses the brand of seed he is interested in. In this case, DEKALB and Dyna-Gro. He presses results. The Find My Seed tool presents top-performing seed for his geography. He clicks to learn more about the top-rated seed from Dyna-Gro and views more details about the product. Once the grower is satisfied, the crop consultant adds this Dyna-Gro seed hybrid to the grower's farm plan.
As the date for planting draws nearer, the crop consultant recommends the grower take advantage of a variable rate planting prescription to get the greatest overall yield from his seed purchase. The Echelon HD seed tool enables the Nutrien crop consultant to increase seed planting density where yield potential is higher, while decreasing seeding rates where yield potential is lower, thus increasing the overall profit potential for the grower. By also drawing a static rate zone and assigning an historical used planting rate to that area, the crop consultant and farmer can compare the performance of his flat rate check strip against the variable rate prescription's performance on the remainder of the field. As the grower and the crop consultant review the field's yield after harvest, they are able to see the superior performance of the variable rate prescription to a flat rate approach.
As the date for planting draws near, the grower frequently visits the Nutrien Ag Solutions digital platform to get accurate and highly localized weather forecasts, together with in-depth stories and videos of the weather that impacts his farm in Illinois. The weather videos on the Nutrien Digital platform are created and narrated by our on-staff meteorologist who describe recent weather events, provide short and long-term weather forecasts, and explain the interaction between weather and agriculture in the region. With the recent heavy rains, the grower uses the tractor time tool to see whether conditions are good for him to run his planting equipment on his fields. Today does not look good. He checks tomorrow, and conditions are improving. He adjusts the tool to look at conditions one day later and sees that he will be able to get into his fields and get his planting underway.
As the growing season progresses, the Nutrien crop consultant alerts the grower to the infestation of Japanese beetles in his corn fields. The grower logs into the Nutrien Digital platform and searches for the product recommended by his crop consultant, TOMBSTONE HELIOS. He quickly finds the TOMBSTONE HELIOS products and selects the quantity he needs. He notices the recommendation of an adjuvant, Loveland FRANCHISE, and clicks through to learn more. Loveland FRANCHISE increases the effectiveness of the insecticide and reduces drift, which is a concern for the grower. He selects the appropriate quantity and adds the product to his shopping cart. He clicks through to the shopping cart and places his order. The crop consultant is alerted in the Nutrien employee portal that his grower has placed his order for the insecticide TOMBSTONE HELIOS.
When scouting the grower's field, the crop consultant also spotted early signs of foliar disease infestation, and he calls the grower and recommends he purchase a fungicide, Satori, to protect his yield by reducing additional foliar disease infestation and crop stress levels. The grower agrees to this recommendation, and the crop consultant opens his Nutrien employee app, selects the grower from his customer list, taps to search for Satori, selects the product and quantity needed, and adds a note to the branch that the grower will pick up the TOMBSTONE HELIOS, FRANCHISE, and Satori at the same time. The crop consultant is online, so the order is placed immediately. Had he been offline, the order would have queued up and been automatically submitted once his device was back online.
After purchasing the products to deal with an insect infestation in his fields, the grower is notified as invoices for these purchases are generated. He logs into the digital platform and selects the invoices he wishes to pay. As he selects invoices, the payment amount calculates automatically. He then clicks pay and follows the quick and easy steps to complete the transaction.
All right. I think by watching that video, hopefully it gives you the perspective that, look, the grower can go in and use all these tools by themselves if that's what they choose to do. But the agronomist that serves them also has access to all that same information. And what we're experiencing, at least right now, is it's that combination of the agronomist bringing these tools to the grower and them using it together is really creating a lot of value for the grower and for our agronomist. Let me go back. To date, as you can see, we've made significant investments, and we've created a very interactive, seamless, and quality tool. This just kind of lays out some of the work that lies ahead.
As we build out our Nutrien Financial business, we will build more capability in our digital tools to make financing and purchasing really go hand-in-hand and be easy and seamless for our growers. We also believe we're in the early days of digital agronomy. We are now building tools that will provide more insights for fertility, both macro and micronutrients. We're also working with other companies to bring their digital agronomy tools onto our platform to help our customers and agronomists make more informed decisions on plant health, insect outbreaks, and weed detection. We believe that our digital tools need to be extremely intuitive and simple to use.
We started with this goal in mind, we're also getting feedback every day from our users, we'll continue to improve our tools to make them more convenient while also improving utility for the growers and our agronomists that serve them. Commercial optimization is about how we leverage the tools and the data to really help our sales agronomists. In fact, I believe for the next several years, these tools are going to be of most benefit to our agronomists. Improving planning, agronomic recommendations, customer targeting, and overall improving their efficiency. Ultimately creating a unique insight that leads to even stronger relationships with our customers. It's really been impressive how quickly our sales agronomists have embraced the digital platform. Finally, we believe the leading digital platform in ag retail won't be built by one company.
That's why we built our platform with an open architecture to allow us to bring other tools and solutions onto our platform. The collaboration with Lindsay Irrigation is an example of that, where our customers, through the Nutrien Ag Solutions portal, can now access the water management tool that's been developed by Lindsay. We have APIs set up with John Deere, with Climate, and many others. We're working closely with our large basic suppliers as each of them are developing digital agronomy tools. Our objective is to put the best agronomy tools on our platform, our approach is a make, buy, or partner approach, whichever is more efficient, creates more value for our customers and for us. Finally, I want to bring it back to organic growth.
Creating the leading digital ag platform in retail will help us acquire new customers because we believe that this will be a significant point of differentiation when we look what's happening in the marketplace today. As we introduce our capabilities to new customers, we believe we have a great opportunity to convert them to become a Nutrien Ag Solutions customer because they can't get these same digital tools from the retailer that they're working with today. However, our main focus right now is getting our existing customers engaging in the portal and training our sales agronomists on how these tools can help us create whole acre solutions.
Today, most farmers buy inputs from multiple retailers, we believe we can increase our share of wallet with existing customers by bringing them onto the portal and changing the conversation from a product sale to a solution sale. This platform will also help us create efficiency and expand margins from order entry and processing to supply chain forecasting and planning to target account management. We believe we can become more efficient because of these tools across our entire enterprise. Finally, and most important, our customers will win. They'll win in the field, they'll gain greater convenience, and ultimately they will win in their bank account. All of this will help drive organic growth. We're at the beginning of our digital journey, and the engagement and results so far have really been outstanding. In the coming years, our digital platform will become central to our growers' business operations.
We have two simple but powerful KPIs that I mentioned earlier. The first is platform-generated revenue again. As I mentioned in the last presentation, we're targeting over 50% of our revenue will be ordered directly into the platform, either from the growers themselves or through our sales agronomist. Second is grower engagement. We're building a platform that we believe our customers will come into on a very regular basis to really help them manage their entire farm, gain important insights, and then conveniently do business with us. We believe that when we are in 2023 and we're looking back, we'll say that Nutrien Ag Solutions digital platform changed what farmers expected from their ag retailer, and it was a defining element in creating the largest and most profitable ag retail company in the world.
Thank you, I'll ask Chuck to come back up, and we look forward to your questions.
I'll actually ask Jason Newton, our head of market research, to come up. We have a short question and answer period now before the lunch. We'll have a longer one at the end of the day after our head of Potash and Nitrogen Phosphate and our CFO present their pieces of the picture. I tend to focus this Q&A session more on the retail or on the ag shorter term. Please put your hand up and there's lots of them. Go ahead.
Thanks. This is Andrew Wong from RBC Capital Markets. The CAD 100 million EBITDA target per year for M&A is pretty high relative to the historical rate that you guys have had. This is a multi-part question. First, are there enough opportunities in the pipeline, and where would they come from? Is it among the independents, the co-ops, maybe the larger competitors? Second is what's driving your desire to kind of accelerate that spend? Then just third is what's the expected return rate on these investments? Thank you.
Yeah. Mike, why don't you give your perspective, and then I'll give mine.
Sure. Real quickly, is there the opportunity to achieve CAD 100 million of EBITDA? We believe there is. In fact, the challenging market conditions of the past three years, this year it's no different, in fact, it's maybe even more challenging. That's part of the catalyst for the consolidation opportunity. Then I think, as retailers understand how ag retail is changing and large farmers especially are expecting more from their retail, they know they need to invest. I think a lot of retailers are making that decision on do they want to invest and try and survive for the next 10 or 20 years, or is this a good time to exit? We're very active, as we've mentioned, in the past 12 months. We've been very active in the marketplace, and we think we can continue to be.
Now, look, I think just like this year, some of our acquisitions in Q1 were larger ag retails, Security Seed that were based out of Kentucky and Van Horn out of Illinois. These are well-established, well-run companies, the fact that they decided that this was the exit window, I think that sent some shockwaves into the industry as well. We're optimistic that we can continue to consolidate the industry as we have.
Just one other commentary. Brazil is part of that now, right? CAD 200 million a year, there'll be about CAD 20 million-CAD 25 million of EBITDA a year coming out of Brazil. If you take that off the CAD 100 million, yes, it's an increase in our core businesses, what we've seen is the pipeline is quite robust right now, we do believe that we're at a tipping point when it comes to at least the North American retail business, where with the advent of the digital tools, just the supply chain efficiencies that are needed now to be effective in this business, we're seeing a lot of independent owner-operators decide that now is the right time to exit the market. In many industries, we've seen this, I think the ag retail industry is poised for a ramp-up in consolidation, especially in the U.S.
Maybe one last point on that. I mean, the last six months, we've seen unprecedented mergers by the co-ops. The co-op system as well, which is over 30% of the U.S. market is served by co-ops, that model is not working. Co-ops are combining today to try and get scale, but we're also having conversations with co-ops. I think there could be opportunities to consolidate not just the independent side of retail, but also selectively with some co-ops as well.
Hi.
Oh, sorry. We expect the same returns we've seen certainly in our North American business, which would be high teens IRRs. Brazil we've said we need the higher returns in Brazil. That's why we're taking it a little slower. The one thing that was on the slide that Mike covered was also in Brazil will be around build. We think that
There's a lot more opportunity to actually build greenfields in Brazil so we get a fit for purpose facility in the core markets that we're looking for. Expect the same returns that we've seen in the last three to four years.
Mike, just two questions on digital. You talked about how farmers use multiple retailers in addition to Nutrien Ag Solutions for their purchases. How do they benefit from the digital platform when you don't have a full history of what they've done in the past? Sorry, maybe my second question, you showed two KPIs, one on total platform-generated revenue and the other one on grower engagement. Can you talk about a return on investment? It seems like that's hard to measure for the digital platform.
Sure. Yeah. Look, today, the average farmer uses about three retailers, they're doing that for multiple reasons. When we really try and understand the motivation to use multiple retailers, it's usually because of price discovery, also supply chain capability. Now that they can get price discovery on our tool, they know they're getting a fair price. We also have the largest supply chain, bar none, we can serve the entire farm operation. Your question was, if we haven't been serving the entire farm, how do the digital tools help? We have capabilities in our digital platform where we can go back, looking through satellite data, we'll know what they've done in the fields over the last several years, at least from a crop standpoint. That gets us a starting point.
We can also look at plant density to also get some estimates on yield. Of course, they can come in and share with us their yield data, we can easily upload that into our system, that gives us then a running start to preload their crop plan with that good, better, best or bronze, silver, gold plan. It's quite simple. Most farmers have their data on a data stick, they can bring it in and we can upload it. I think on your question with regard to how do we know we're going to get a good return? Ultimately, this will be judged based on our ability to grow our share of wallet with customers and acquire new customers.
Because we'll be able to look at our customer growth with growers that are online engaging with us versus there'll be some growers that won't be online engaging with us, they'll still be customers. We'll be able to look at both groups that really understand what kind of value are we driving from the digital tools and the digital investment.
Yeah, just one other comment on that. Mike's answered that question very well in terms of the returns, the overlay is the strategy, I think that's really important. Today our business is high value, it's high touch, we've got 3,500 agronomists. We've got this direct on the farm relationship that is really important. Now we're going to layer on top of that another moat, if you will, which is the digital relationship with the farmer. You have this direct relationship, now you have a digital relationship, in the next year or so, we'll build more financial relationship with them, with the Nutrien Financial. We're building these multiple relationships strategically around the grower. Why are we doing that? Because we fundamentally believe that the company that has that relationship with the grower will be successful.
Digital is part of that overarching strategy to really build a solid relationship on multiple fronts with the farming community.
Chris Parkinson, Credit Suisse. Clearly, digital ag has a lot of facets that you can go down and explore, ranging from kind of seed selection to CPC applications, et cetera. How would you assess your own competitive positioning right here, right now, versus some of your other larger competitors who are pursuing the same opportunities, the WinFields, the CHSs of the world, obviously FBN. Are there pieces where you think you could be a little bit stronger? Are there pieces where you think you have a large competitive moat? Then also, would you be open to further collaboration down the road as well? Thank you.
Yeah. If you look at our platform versus our retail competitors, there's really no one, at least in traditional retail, that's built out a comprehensive platform that links up farm planning, digital agronomy, and the omni-channel parts that we have. I think we're the only retail company that's made that investment and that has those tools in the field today. You mentioned FBN, obviously, it's a digital-only platform, we believe that it's our high touch along with the digital platform that really differentiates us, which is, I think, why they haven't had much traction with the tools that they're bringing. From a collaboration standpoint, we're investing. The majority of our dollars are going into the farm planning tool and the omni-channel tool. That's where we really believe we can get a good return on investment.
There's a lot of money going into building digital agronomy tools, which is why we're more interested in partnering in that space because we have access to so many growers. Everyone we talk to that's investing in that space wants to come onto our platform. We believe that there's going to be likely more partnerships in digital agronomy than in the farm planning and the omni-channel side of this. That's how we're thinking about this at this point in time.
Steve Byrne, Bank of America. Does your seed selection algorithm include seed genetics of seeds that you don't sell? Say your growers buy direct from a seed company. Just curious, what's the breadth of the seed genetics you have? Is the algorithm just driven by yield or does it also incorporate price? Just wondering how you think that might impact the selection of Dyna-Gro versus other seed brands.
Yeah. Good. Steve, to answer your first question, yeah, our algorithm shows all seed brands. This is a tool that we acquired last year when we acquired Agrible. Agrible wasn't an ag retailer, so they were agnostic as to what brands farmers were choosing. That's the tool that we are putting on our platform because we believe that. Firstly, we do have the widest selection of seeds, bar none, because we have brand seeds, we have DEKALB, we have Pioneer in a lot of areas, we have our Dyna-Gro brands, we have the widest portfolio. We also think it builds credibility. If there is a seed that we don't sell and it's one of the top four or five seed choices, we think that helps our agronomists have that conversation with the grower.
In some cases, there may be a seed that they should go across the street to buy, but we'll still try and sell the rest of that solution around it. We've talked about that a lot. We actually think at the end of the day, we don't want to use these tools just to drive more sales of what we sell. We want to use these tools to build stronger relationships with our customers to make them successful with the belief that when we do that, they will buy more from us of everything else. On the price question, the tool today doesn't toggle between yield and commodity price and expected then both revenue and gross profit. That's one of the changes that we're working on for the future.
Today what you need to do is you can select a seed, then you can run your profitability tool. It's in the same platform, but it's two separate toggles today. Ultimately, we'd like to have this that you could select a seed, know the price, run the mathematics right on that screen, then also use some other seeds. You can then make that seed selection both based on yield, other agronomic traits, and price of the seed.
Question on the longer-term operating metrics. Look at the targets for EBITDA margin expansion, kind of 50 basis points plus, a modest improvement in cash operating coverage ratio, some reduction in working capital. I'm just trying to make sure I'm thinking about the pieces because the mix of proprietary, the shift towards digital, I would think that those would have more operating leverage associated with them. Maybe that's a helpful kind of segue to look back where the retail business didn't hit all the targets from the 2016 Analyst Day on operating coverage or working capital intensity and maybe some of the drivers of where there were surprises on the cost side there.
Adam, I would say, look, as you know, the last three years have been tough for growers from a commodity price standpoint. If you go back to the second or third slide I showed, like in the U.S., each of those years, the market for seed, chem, and fertilizer sales in total have declined. It's been a very challenging market. Our organic growth, the way we've measured in the past in terms of same-store sales, we've kept our same-store sales about flat in a declining market, so we know we're gaining share. Even in the first several months of this year, the crop protection market in the U.S. is up 0.9%, and we're up over 7% year-to-date. Our strategy's working. We're gaining share in a very tough market.
I think, I wasn't here back in 2016, but the expectation was that the market was going to be a little bit stronger than what it's actually been. As we said in our assumptions going forward, we're expecting modest recovery. Now, the recovery we've seen just in the market in the last two weeks with December corn over 420, those are good prices. Those are prices where our customers can make money, and they're going to maximize their yields. When they do that, they also buy more products. I think we are investing in these initiatives to grow our organic growth. They've got a good return on investment, but they are also increasing our cost basis. That's the strategy we're pursuing. I think when we're successful through this five-year window, there will be more leverage. We'll be a bigger company.
Some of these investments will be needed in this period, like our supply chain investments. Once you make them, they should then have leverage beyond that. That's how I would think about it.
Just a couple more comments on that. When I look back on it, we hit our EBITDA margin target, which I think was a pretty aggressive target when we set back in 2016. Where we fell short was on working capital, the biggest one that we fell short on, there was a whole host of reasons why that is. The primary reason is in the last, for example, if you look at the metrics that were on the chart, last year we didn't have a fall season. Even this spring, we've been carrying a lot of inventory going in. On a normalized basis, we certainly think we're closer to it, but we need to invest in some more supply chain efficiencies and really consolidate the number of places that we actually hold inventory in the U.S. That's what it's coming down to.
In order to do that, we need the technology, we think that having the planning window, the digital interface, will really help streamline the overall supply chain. The last comment I'd make is this. You're seeing what I would call a marginal increase in EBITDA margins by 2023 going north of 11% in the U.S. There's a tipping point for the digital tool that once we get to the numbers that Mike has outlined, we think there'll be a significant margin enhancement cost reduction opportunity because the transaction cost is a lot less when you do through the digital platform than you do in a manual way. You need a significant portion, like retail today is CAD 12 billion-CAD 13 billion in revenue. We need to see CAD 5 billion or CAD 6 billion of revenue coming into the digital platform.
At that point, I think you're going to see significant leverage. That will probably come at the end of the five-year window or even tip over beyond 2023.
John Roberts, UBS, back here. Chuck, you started the meeting with some cautionary comments about how much planting is yet to be done. How does the retail footprint of Nutrien look versus what we see for the overall North American market? Does this set up South America for a really strong year, are you going to be chasing acquisition? You want to deploy CAD 1 billion down there into what could be a really strong market. Maybe things won't be available for sale down there.
Yeah. Why doesn't Mike just give you a perspective on what he's seeing right now in the markets, and then I'll come back and answer the South American question.
Yeah. John, I think if your question is on whether and does it impact our retail footprint more or less than kind of the overall U.S. market? It's probably, since we have a large share across the U.S. at around 20%, we're probably affected just like the entire market. We have a little bit higher share in the Southeast, strong share in California, which it's wet there, but the market's still strong. I would say we're probably a pretty good reflection on the overall market. I think your point on South America, you're right in the sense that they've had good both corn and soybean crops for the most part. Their local currency is devalued against the U.S. dollar, so their cost in local currency versus the commodity prices that they sell really in U.S. dollars and export out of those countries.
Farm economics are pretty strong today in Brazil. We've been talking for the last year about our investments in Brazil, and so far we've only made one, which is a company called Agrichem. That being said, we also have about five greenfields that were in the very stage of building. We're going to be smart in terms of the acquisitions we make. We're not going to overpay. We know what multiples make sense. We also know that in the early days, we won't have as many synergies there because we have a smaller footprint, and we don't have as big of a proprietary products business. We will, again, over the five-year window, we've got our targets, but we'll take our time. Right now, as we think about the acquisitions that are in the pipeline, they're much heavier in the U.S.
Just a few more comments. The one differentiation I think in North America for us is Nutrien really doesn't use the river. The river has been an issue. There's a lot of flooding. Product hasn't been able to flow to the right markets. That's why you see a lot of in-market premiums. Our distribution business is really built with having physical inventory in those markets. That is the one advantage that I think Nutrien has, is that when the markets are ready to go, we don't have to rely on bringing product up the river, and that has been a major issue for some of our other retail competitors. Mike answered the question well in Brazil. We have no intentions of chasing multiples or companies. We've got a slow and steady investment thesis.
We've now stood up an office in Brazil, we have people on the ground. We're getting very smart in terms of which assets are the ones that go after. The reason we haven't pulled the trigger is we haven't found either the right combination of assets and value. We don't plan to accelerate that just because we've decided we're going to invest in Brazil. We are building, which I think will put some creative tension, I think when it comes to valuations, and it gives us another option, which I think could be interesting in a market like Brazil.
Hi, Joel Jackson, BMO. A few quick questions on digital and retail. You've given a guidance of 2%-3% organic growth CAGR. That's about, I think, CAD 30 million-CAD 40 million a year of organic growth. Is that net or gross up to CAD 60 million-CAD 70 million spending on digital ag? My second question is, when you talk about 50% of sales or revenue will be driven in retail by digital orders by an employee or a grower. In that scenario, how much of do you envision actually being the grower physically pulling the trigger on the sale versus the employee doing it for him? The third question is, thinking about all that, how will your store doing orders differently? What type of employees do you need?
Do you need the same number of stores, same density of stores, where employees could be in hubs or call centers? How does that all change?
On your first question, real quickly, it's net of the investment. Hopefully, that takes care of that. They're large investments, but they're good investments based on the 2%-3% CAGR growth. Look, I think on the 50% of orders that we expect to come through the portal in the early days, we're seeing this right now, most of this is coming through our sales agronomist. They're in the field, they're talking to the growers, the grower says, "This is what I need" they make that plan, the agronomist puts the order in while they're standing there. As they're doing that, the growers are saying, "Well, that's pretty cool" our sales agronomist says, "Yeah, look, you've got this power too as well." I think over time, over this five-year window, there'll be some shifting towards the grower.
If I was to estimate it today, I think that 50% will still be more coming through our agronomist than the growers. Look, it's 30 days, and we'll see how this plays out. Your point on how will this change our branches. As Chuck mentioned, this creates a lot of efficiency. When the orders are coming in online, when bills are being paid online, this changes a lot of the work that we've traditionally done at the branch level. Can our branches serve a larger geography? That's probably true over time. Do we need fewer people to service the same amount of business over time? That's probably true as well, we believe we're going to grow business, this isn't about getting rid of people.
We do think we have more leverage with the organization we have as we grow our business with these digital tools.
Thank you. Vincent Andrews from Morgan Stanley. Another question on retail. If we've got two sort of identical farms in a particular state and one grower wants to be the analog guy and the other guy wants to go super digital, the analog guy is using your high-touch service model, and they ultimately order the same suite of products from planting through harvest. Does one of them pay more as a function of the higher touch service at analog versus digital? Those baskets of goods, which one is more profitable to you? I understand, Chuck, what you said about over time, you need to scale in digital, how will that play out?
Vincent, the answer to your first question is neither one will pay more if they're buying the same suite of products. Again, our whole vision with our omni channel is to give the power to our growers to buy how, when, and where they want. Whether they want to call an agronomist to place an order, or they want to sit in their cab or their kitchen and place orders. They're going to get the same price. We're bringing a lot more discipline, and I talked a little bit about our marketing focus, to how we price to growers. We're going to continue to have individual grower pricing.
The grower logs on if they're using the digital approach, and they get their individual price, which is based on the size of their farm, the loyalty of their business, their credit worthiness, how much service they get. We'll have customers at the same branch that will get a different price depending on some of those things. If two growers are exactly the same and one is analog, as you said, and one's digital, and they're buying the same suite of products, they'll get the same price and the same service opportunity. What was the second question, Vincent? Sorry.
The profitability.
Well, look we want to make the right decision for the grower. Our digital agronomy tools are obviously going to be set up to make both the right agronomic choice, but they're also going to feature our proprietary products wherever that fits on the farm. Over time, we could see a little bit more proprietary products being driven through the digital channel, I think, from a mix standpoint.
Yeah.
A lot of growers will say, "I've got a pest problem," or, "I have a weed problem. Just make it go away." They do not have a preference on the chemistry that is used for that. At that point, we will obviously use our proprietary products. Some growers will want certain brands, and that is okay too. That is why we have the full service and the certain products on all the shelves, is because not all growers are the same or want the same thing.
This is-
Yeah.
This is P.J. Juvekar from Citi. You are the right guy to ask this question given your background at Monsanto. When they bought Climate Corp, they had taken the early lead. Now you have a full suite of products, and now Monsanto is owned by another company. I guess, how do you guys compete? Where do you stand competitively? My second question is on your price discovery tool. How does that work? Can a grower go to your discovery tool and compare prices of let's say, herbicides across counties or regions? Can you just tell us how does it work? Thank you.
Sure. PJ, firstly on the question with respect to Climate. Again, our strategy is very different than what I think the Climate strategy is based on how they talk about it today. We are really building this so that we can plan the farm and ultimately implement that plan. As I said, there is a part of this that is digital agronomy, and we have our Echelon tools, but we are also agnostic. If we have somebody else at BASF or Climate or Corteva or a startup comes up with a better digital agronomy tool, we will put it on our platform. If they are charging, we will charge a rent for it. We will expose it to our growers. I think, our ability to work with, whether it is Climate or whether it is Corteva or any one of our other large basic suppliers, I think this fits hand in glove.
I don't see this as a competitive space between us and them. They've got their seed tools, we've got our seed tools, we're testing both, ultimately, again we may have some agronomy tools that we have two or three different options, but over time, I think there'll be tools that will perform better in some geographies, that's what our agronomists will get comfortable with. On price discovery. Today our growers can go online, they can discover the price of all of the crop protection products that they can buy from us. Once we get into next season, the end of this year as we start heading into 2020, they'll be able to do price discovery from us on crop protection, fertilizer, seed, and services. They'll be able to order their full suite of business from us and do it online and get pricing.
It's very individual pricing.
We don't compare it to a price of a farmer in another area or another geography. Again, we're running a pricing software that helps us determine what's that right price for that grower, that's how we're setting up the pricing. Now, our sales agronomist also has some flexibility that if they want to work with the customer and adjust the price down a little bit, they can do that as well. We still have given some flexibility and ownership of this with our sales agronomists. What we don't want to happen is the grower goes online, gets their price, then calls the sales agronomist and gets a lower price. We're trying to stay really disciplined on that so that the grower can have trust. If they're ordering online, that is the best price that they can buy from us.
Jacob Bout, CIBC. Just a question on investing in Brazil and some of the inherent risks there, namely the barter system that they have there and the extension of credit to the farmers. Talk about how you plan on dealing with that risk. Maybe a secondary question here, just on nutritionals and the importance of that in Brazil.
Yeah. Jacob, I'll let Mike talk about the nutritionals. The barter system in Brazil is very similar to Argentina, well-versed in it. It actually is a good way for us to manage currency risk. We actually think that that's helpful, and we have experience with doing that. Credit is always going to be an issue in Brazil. It's one of the things that we're taking a careful look at. Are there alternate ways that we can get credit available to growers, not expose our balance sheet? What I'd say to you right now is that is an area that we're still spending a lot of time. It's one of the things that Pedro is working on now, that and some other key risks in Brazil. We do think that there is a pathway. Others have been very successful.
Canadian companies actually going into the ag business in Brazil and not exposing their balance sheet overly. We've talked to those companies, but that is an area that we're still working through the final touches on how much credit, how to limit the exposure, and we do think there is a pathway for that, but we're not quite ready to roll that out yet.
You want to talk about nutritionals?
Sure. When we think about our growth opportunities in proprietary products, the two biggest areas are nutritionals and the space of biologicals. Both those areas are very interesting to us. Of course, as a Nutrien company, we're very interested in continuing to grow our footprint with the micronutrients and products like that. When we look back over the last three or four years, it's by far the fastest-growing segment within our proprietary products business. We see that runway continuing. Now, we're also going to continue to grow our post-patent chemistry, our adjuvant business, our seed treatment business, and so we actually think there's a growth opportunity across our portfolio in proprietary products. Nutrien, the nutritionals, and micronutrients is definitely a growing business for us.
I know there's still questions out there, but we've got to have time for lunch. We're already over time. There is going to be another Q&A session again at the end of the day, and there's quite a bit of time for that. I'll ask everyone to be back and ready to go in 35 minutes here, quarter to the hour, and rejoin us online at that time. Thank you. Okay, Ken. Testing one, two, three. Good afternoon, everyone. Please take a seat. If you need more food, there is more chicken out there and dessert and coffee. For those of you online, we're going to get underway here and walk through the plan and the outlook and the strategy for potash and nitrogen phosphate. Then Pedro, our CFO, will come up and talk about capital allocation. I'd like to introduce Susan Jones, Head of Potash.
Come on up, Susan.
Good afternoon, everyone. Today, I plan to take you through Nutrien's potash advantages, both as an industry and as a company specifically. We will then take a look at what we accomplished in 2018 and why we were so successful in our execution. Finally, I will summarize our five-year plan, including our new targets, and as part of that, highlight our next generation of potash and the initiatives we're undertaking. Moving to Nutrien's potash advantage. The potash industry is a unique industry. Resources can only be found in limited geographies, and potash has a long-term sustainable growth trajectory. Further, it is a highly consolidated industry with significant barriers to entry, including the time it takes to bring on new projects, as well as significant capital required to do so. Within this industry, Nutrien is best positioned to create value.
We are the largest potash producer in the world, with assets located in a superior geological region and centuries worth of reserves. We have an experienced team that has been in the mining distribution and sales business for over 60 years. Our team operates the safest, most reliable, and efficient assets as part of a diverse and flexible mine network. We're able to maximize our margins by supplying our product through Nutrien's integrated business model right to the grower, meeting our customers' product needs while minimizing costs. We possess an additional 5 million tons of extra capacity, as well as additional brownfield opportunities that will allow us to position product into the market as demand grows. Looking at 2018.
2018 was a very successful year for Nutrien's potash business, in which we achieved lower costs, record production and sales volumes, and all the while, our net selling prices improved 17% on a year-over-year basis. This resulted in an increase in our EBITDA of over CAD 500 million over 2017. In addition to this, post-merger, we successfully integrated our potash network and delivered on CAD 80 million per year in potash-related run rate synergies as we were able to bring the Vanscoy mine into the broader network of six potash mines. We have a long history of successful execution, and we expect to continue to see our volumes increase and cost decrease as we maintain and improve upon our position as the number one potash producer in the world. Moving on now to our five-year plan. We expect demand to grow at rates of 2.5%-3%.
As you can see on the left-hand side of this slide, demand has grown at an annualized rate of more than 4% over the past five years, well above the long-term average of 2.5%-3%. This growth has been driven by strong potash consumption trends in all major potash markets. Going forward, we expect growth to refer to more of a long-term historical average of 2.5%-3%, and we believe that we will see this consistent growth coupled with a stable pricing environment. As you can see on the right-hand side of the slide, we see higher demand coming from key growth markets such as China, India, Malaysia, Indonesia, and Brazil, but also in the FSU and Africa.
In China, potash application rates are increasing as a result of increased soil testing and improved agronomic practices, and we have seen domestic production been reducing last year, and we expect it to reduce as well over the coming years. This will need to be offset by imports. In Southeast Asia, we view the Indonesian government's mandate to increase fuel-powered plants with biodiesel from palm oil constructive to demand as we move through this five-year period. In Brazil, we expect further crop area expansion to continue in nutrient-deficient regions. Although India continues to face political barriers to significantly growing potash demand, the agronomic need and willingness of farmers to improve yields persists. We also see greater demand for NPK application, particularly in Africa.
Although temporary pauses can occur in certain countries, the underlying fundamentals of food demand that encourage increased pot application and the need to address declining soil fertility levels will enable strong potash demand growth in the years ahead. In this demand environment, we plan to be selling 15 million tons, with upside to 17 million tons, into the market in the year 2023. The upside will realistically be achieved if demand is greater than expected, new supply ramp-ups are slower than announced, which we're currently seeing, or competitor supply falls short. We have the largest, most diverse, and flexible potash network in the world, with a proven track record to supply quality product to the market as needed, and we are investing in our supply chain to ensure we continue to effectively and efficiently do so.
We will increase our tons as the market grows and plan to have approximately 2 million tons of available operational capability that we can quickly move into the market through increased demand or competitor shortfalls, as we did, and you saw in 2018. We are uniquely positioned through our integration with retail and expect to grow as our retail business grows. Ultimately, our customers have ambitious growth plans, and we will continue to grow so we can be there to support their business. I thought it would be worthwhile as we think about our five-year outlook to reflect back on the last decade. During 2011 to 2015, we saw slow demand growth and increased supply into the market. In that time, our volumes held flat and prices declined.
Looking at 2015 to the current year expectations for 2019, we've seen good demand growth alongside a number of supply-side delays and closures. In this environment, global inventories remained fairly tight. As we look forward to 2023, we see a balanced market with stable prices. We also see a number of scenarios where demand surpasses expectations or supply falls short of the market's needs. As we saw on the previous slide, historically, an average of approximately 7 million tons is removed from the market each decade as a result of ore depletion, poor economics, or production issues such as inflow, and history tends to repeat itself. In these scenarios, we are the only producer with excess capacity and flexibility to sustainably capture demand needs. We do intend to strategically utilize our excess capacity to ensure we remain in a stable pricing environment throughout the period.
We know that escalating prices are not in the best interest of growers, we intend to ensure that prices remain stable. I'd like to highlight for you our robust supply chain that exists today to efficiently move our product into the market. Starting with North America on the left-hand side of the slide. We're the most reliable potash supplier in North America. We have over 1.5 million tons of storage capacity, which enables us to strategically position potash in the market in time for the season. When the season is delayed, as it has been this year, this is a time we shine due to our supply chain and close relationship with all of our customers who we have built a trusted relationship with over many years. We have a dedicated rail fleet and strong working partnerships with all North American Class I carriers.
If you look at our offshore markets, they're serviced by Canpotex, who has an experienced sales team with five offices around the world. They have rail, marine experience, and we leverage our key port assets in Vancouver, Portland, and New Brunswick to ensure that product reaches international markets in a timely manner. We're known globally as providing quality Canadian potash to customers in time to meet their needs, a significant amount of our increase in sales last year was due to our ability to position potash into the international market when our competitors were unable to do so. As I mentioned, we expect to increase our tons as the market grows and plan to operate with a buffer of capacity, ready to move product into the market when needed.
We have 5 million tons of capacity in place at existing operating sites that can be quickly brought on for minimal capital. In other words, all of this available capacity has already been bought and paid for over the last decade, putting us in a unique position as the only producer with available tons to move into the market quickly, nimbly, and flexibly as needed. As you can see from this slide, we've been very successful in driving down our cash costs over the past five years, and we expect this trend to continue. We expect our cash cost of production to be in the range of $50-$55 per ton as we ramp up our volume and realize significant benefits of our Next-Generation Potash Initiatives that I will describe in the next few slides.
At these levels, we expect to have the lowest cost potash network in the world. Moving to the Next-Generation Potash. Potash mining and the methods used by producers today are not dramatically different from those that have been used for decades. We are moving potash mining into the next generation, bringing together operational excellence, digitized operations, and technology leadership. We will be the safest and lowest cost potash producer network known for innovation and industry leadership. To do this, we are creating proprietary means to create higher levels of productivity, lower costs, and create a safer work environment for our people. Firstly, we'll do this through operational excellence. We are going to be leaning out our supply chain from the cutting face in the mine through the mill, as well as our logistics channel out to our customers. What does this exactly mean?
It means we're going to run more often. It means we're going to be producing more tons when we're running. Examples of this are increased realized ore grade and increased borer hours. We are going to recover more in our mills for optimal feed rates, we're going to be doing everything we can to lower our costs, including energy management and reagent consumption. As we lean out our supply chain, we will streamline our current processes, leveraging technology like big data analytics and automation to drive even more value from our existing processes. Over time, we will provide a leadership role in technology through precision ore management, advanced process control, real-time worker connectivity, fully automated operations, predictive maintenance, and remote operations and visibility. Now let's take a look at how these initiatives will drive down our network costs.
While our cost position benefits as we increase our volumes, you can see that on the slide, we expect our increased volume to simply offset the cost of inflation over the five-year period. The controllable cost savings directly attributable to actions we are taking through Next-Generation Potash Initiatives are expected to drive our costs lower by $7-$12 per ton. The great news is we expect to achieve these savings in a multitude of ways by leveraging volumes across all of our sites. This is the real step change that will be achieved through our initiatives. What are we seeing with Next Generation? Our Next-Generation Potash work is already well underway. We will be investing CAD 500 million over the next five years with expectations of an IRR of more than 25%.
We are leveraging our world-class expertise to deliver material impacts by 2023 by reducing our cash costs and unlocking latent capacity with minimal capital. We are redefining our mining methods, which will improve safety and environmental outcomes. We are also integrating our network with our transportation, distribution, and retail to manage our supply chain to meet any market scenario quickly and cost-effectively. As you can see, we are already seeing results. For example, at our Rocanville site, we have more than doubled the time our boring machines spend capturing optimal ore. This provides higher production output for the same time and cost. We have also increased tailings recovery by 10%, which retains tons we would otherwise lose. These two initiatives alone are forecast to result in an additional 180,000 tons of potash per year without additional cost.
With the expectation for significant cost savings from our next-generation potash initiatives, the opportunity we see for volume growth and a flat pricing environment, what I mean by that are today's prices, we expect EBITDA to be in the range of CAD 2.3 billion-CAD 2.7 billion in 2023. We expect to generate between CAD 11 billion and CAD 12 billion in EBITDA over the five-year period. There is also an opportunity and leverage on price in our five-year window. You can see with prices increasing by only CAD 25 per ton over the period, our expected EBITDA in 2023 would be CAD 2.7 billion-CAD 3.1 billion. Now looking beyond 2023, we do see continued opportunities for growth.
Not only do we have the ability to increase our production to 18 million tons that has been bought and paid for, we have line of sight to add an additional five million tons of brownfield expansion opportunities given the size and scope of our current network. Our brownfield expansions can be brought on for CAD 500-CAD 700 per ton, which has an expected IRR of approximately 20%. This, as you can see, is equivalent to a current pricing environment. This is significantly cheaper than greenfield expansions. Our view is that in order to achieve an IRR of 10%, expansions would have to be executed for CAD 800-CAD 1,000 per ton. There are two key reasons why our expansions can be done for cheaper and have a higher IRR. Firstly, our previous expansions required sinking of shafts, multiple greenfield mills, and major infrastructure.
Our next wave of brownfield expansions will not require that significant work. We can leverage from the past capital deployed. Secondly, we have the benefit of bringing on this additional capacity quicker than anyone else, and certainly much quicker than traditional expansions. This will be done in increments across all of our sites, with the first additional three million tons spread across three different sites and expected to take only three years. This contrasts with greenfield expansions, which in our experience take seven to ten years to bring on. We have a track record of success with our expansions over the past decade, and we will utilize this experience to efficiently bring on these additional tons with minimal risk.
We are the most experienced, lowest cost, and most diverse producer to bring new tons to the market. We will be evaluating these brownfield opportunities as we increase our sales volumes over the next five years. To reiterate my key points today, we have the largest potash network in the world with a proven track record to supply quality product to the market. We expect demand to grow at 2.5%-3% in a stable pricing environment. We will strategically place volumes into the market to ensure prices remain stable. We plan to sell up to 17 million tons of potash in 2023 if demand warrants it. We will have 2 million tons of cushion within our network at any given time to take advantage of opportunities as they arise, as we did last year.
Our next-generation potash initiatives will allow us to continue to aggressively drive down our costs, increase our capability, and improve our reliability and flexibility. We will be preparing within this five-year period for growth beyond 2023 with additional brownfield expansions that we can bring on quickly and in increments. We will be setting the bar and improving upon our position as the potash industry leader and the largest underground soft rock miner in the world. Thank you. I will now turn the floor over to my colleague, Raef Sully, who is our Executive Vice President of Nitrogen and Phosphate.
Good afternoon. Thanks for coming and listening to us. We appreciate it. Susan said I'm Executive Vice President of Nutrien, and I lead Nutrien's Nitrogen and Phosphate business. What I want to do this afternoon is just talk through high-level Nutrien's assets and the opportunities we see in them, give you some perspectives on what we've accomplished in 2018, provide an overview of our five-year plan, and describe some of the high return investments we think we have in nitrogen. Let me start by introducing Nutrien's nitrogen and phosphate assets. You can see from the map that with the merger, we've brought together two very complementary businesses. Our nitrogen business is now the third largest globally, and second largest in North America, producing nearly 8 million tons of ammonia and 11 million tons of nitrogen product sales.
Our phosphate business is now the second largest in North America, with annual P2O5 production of close to 2 million tons, with a much lower cost base and more profitable product mix. We think it's now a stable and profitable business, which is something neither party could say about their legacy phosphate businesses. In 2018, we achieved a combined EBITDA of CAD 1.5 billion and sold over 14 million tons of product. When we consider that we're in the early stages of a price recovery in the fertilizer cycle, we're excited by the cash flow potential that we think this business has to offer. We also see great opportunities to reinvest some of that cash into our nitrogen assets in low risk, low cost, high return investments. These include brownfield debottlenecks, expansions, and energy efficiency projects. We'll come back to those at the end of the presentation.
The nitrogen and phosphate business delivered growth in EBITDA of 41% between 2017 and 2018. We expect to see further growth in 2019 of around 12%, which should see us hitting our midpoint earnings range. Turning to the product mix portfolios for nitrogen and phosphate, we see the two portfolios are well diversified and competitively advantaged, providing the potential for solid earnings and cash flows under a range of different scenarios. In nitrogen, our product portfolio is weighted slightly towards agriculture, with 55% of volumes going into fertilizer and 45% going to industrial customers. The industrial business provides good ratable demand throughout the year at attractive margins and allows us to run at higher rates out of the agricultural season. From a product mix perspective, our nitrogen portfolio is balanced between ammonia, urea, and downstream products.
As we look forward, some of our key investments will be in our downstream capacity and in increasing the flexibility of our asset base to ensure that we're capturing the maximum possible value from our portfolio. In phosphate, our product portfolio is heavily weighted towards agriculture, with about three-quarters of our sales volumes going into fertilizer. From a product mix perspective, our phosphate portfolio is balanced between dry and liquid products on a volume basis, but most of the business' profits come from the liquid products, which include both high-end phosphate-based starters and purified industrial products. In North America, we are the largest producer of these liquid phosphate products, a position we don't have in the solid phosphate market.
Although the phosphate business is relatively small in the overall portfolio, the merger has allowed us to create a stable, profitable business with more opportunities for improvement than either company would have had with the standalone phosphate businesses. I want to outline now for you the major elements of the strategy within nitrogen and phosphate. There are three pillars to the strategy that apply across nitrogen and phosphate. First pillar is operational excellence. This is our bread and butter, and whatever other strategic moves we make, we have to stay focused on this. We have a good scale now in both businesses, particularly in nitrogen, and also have good cost positions that we need to use. Our focus will be on safe and reliable operations and driving productivity and efficiency improvements.
Reliable operations are safer, more productive, lower cost, and obviously, we want to make as much as we can for as little cost as possible. We've made good progress on both of these efforts recently, with existing legacy efforts being accelerated by the merger. The second pillar is executing the synergy plan. We need to make the most of our complementary assets. Here, the focus is on optimizing our newly combined production footprint and product mix, leveraging our extensive retail chain where it makes sense, and optimizing our extensive newly combined distribution and supply network, and then delivering the remaining synergies, which are now mostly in the phosphate business. Putting the assets together has allowed us to change where we make products and improve our margins through better product mix.
It's also allowed us to sell more product to retail because of the proximity of the retail chain to our production assets. The third pillar is making targeted expansion investments. We don't think it's economical to build new greenfield nitrogen plants in North America, but we do believe that there are some debottleneck and brownfield expansions as well as energy efficiency projects in nitrogen that make sense, and I'll talk about those a bit later. In phosphate, we think there are some low-cost opportunities to move our focus away from solid products to more liquid production. Now let's focus on nitrogen, and let me start with a view of what we think is going to happen from a global supply and demand perspective. We can break the global nitrogen market into two distinct periods in the last 10 years.
During the period 2009 to 2014, demand growth was nearly double supply growth as limited capacity growth was met with robust demand growth. Prices moved up strongly with NOLA urea peaking at around $700 a short ton in 2012. During the next five-year period from 2014 to 2019, supply growth clearly outstripped demand growth, due largely to the large volume of new capacity coming online in the U.S. Again, price action was strong, but on the downside with NOLA urea prices moving from the low 400s in 2014 to trough levels around $160-$170 a number of times in 2016 and 2017. As you know, 2018 was a better year, with average NOLA prices moving from around $210 up to $260, and currently we see them in the range of $250-$260.
Looking out over the next five years, the supply-demand dynamics of the global nitrogen market give us reasons to be optimistic about the outlook for nitrogen prices. We see stable demand growth outside of China, with overall global growth close to 2% per annum. On the supply side, we see limited new capacity coming online as prices remain below greenfield replacement economics. Let me remind you that many of these announced projects are in unstable regions of the world or in regions lacking the infrastructure required to access the necessary raw materials. As a result, we see a tightening in global nitrogen supply over the next few years and stronger pricing as a result. Our own analysis would suggest greenfield ammonia production in North America would cost between $2,000 and $2,500 a ton of production, which would require prices to be consistently well over $400 to justify the investment.
Turning now to our low-cost position in the market. You will note that our supply comes from three of the lowest-cost jurisdictions globally. Over a third comes from Western Canada, is on AECO Gas, which often trades well below CAD 1. This provides us a great cost advantage into the northern plains area of the U.S. as well as in Western Canada. One-third comes from U.S. on Henry Hub. Now, it's important to point out here that in the U.S., like in Canada, our asset locations allow us a competitive advantage. Our sites are mostly away from the direct competition with river-borne product, which allows us to experience less price volatility than we typically see in areas closer to the river. This was particularly so this year.
As a result of an application hangover from last year, delayed planting this year due to weather, and river access above St. Louis being delayed, NOLA experienced a lot of price volatility. At our sites, we did not see this. Whilst we experienced delayed volumes, prices were higher and more stable than our competitors experienced. Finally, less than a third comes from Trinidad. Trinidad is not as good as the U.S. or AECO, but it is good compared with the rest of the world and allows us to access many of the growing global markets, like Brazil and Africa. All three jurisdictions allow us to make good margins on our product compared with our competitors. Over 70% of our supply is in North America, and as a result of our physical locations in market, our margins are excellent.
We believe our cash margins in North America are the best in the world. As I mentioned previously, asset reliability is a key part of our operational excellence strategic pillar. Reliable plants are safer, lower cost, and allow us to better keep our customer commitments. Overall performance starts with good reliability in our ammonia asset base. Looking back over the past number of years, we've seen a sustained improvement in reliability of our ammonia. Our performance in 2018 was very encouraging. We achieved a utilization rate in ammonia of 92%, which was a six-point improvement over 86% achieved in 2017. Going forward, we expect to see further improvements in this key metric. Our target for 2019 is 94%, and our medium-term goal is to achieve a utilization rate across our asset base of 96% by 2023.
To achieve our goal of 96% utilization, we're driving three important initiatives: leveraging best practice in engineering and maintenance and reliability across the network. Improved market access by supplying Nutrien retail channel more effectively. This will allow for higher sales and a reduced incidence of asset curtailments due to high inventory. Finally, optimizing our turnarounds. The combined business now has 13 ammonia plants at nine sites. These larger numbers will allow us to better space the turnarounds and smooth our production profile. It also lends itself to increased learning. We fully expect the cost of turnarounds to come down in real terms as we make them shorter and more effective. The payback on this improvement in reliability is attractive.
Without any additional sustaining capital, we're able to deliver a meaningful uplift in production of 200,000 tons of ammonia or 350,000 tons of urea, which equates to increased earnings in the order of CAD 70 million. Prior to the merger, both legacy companies reported different cost of production metrics. Going forward, we will be transitioning to report the Controllable Cash Cost of our ammonia production. Ammonia Controllable Cash Cost is defined as the cost of production, cost of product manufactured, less the cost of natural gas and steam input costs, and less depreciation and amortization. Through a combination of improved ammonia asset utilization and a strong focus on cost reduction over the past few years, we've seen a meaningful reduction in our ammonia cash cost of production, as you can see from the graph.
Looking forward, we expect to see further improvement in our ammonia cost and are introducing a target of $41-$42 by 2023. We will report against this metric on a quarterly basis starting in quarter two 2019. Next slide highlights the strength of our combined nitrogen production footprint and route to market via our retail distribution channel. We think of our business in two distinct systems in North America, which we refer to as East and West, and our Trinidad export base. There is little overlap between East and West manufacturing bases and supply chains. The ovals on the chart provide an indication of the geographic reach of each system. There are four points to note here. One, both systems benefit from being in-market and away from regions directly accessible by river-based product, providing logistical advantages and superior netbacks and profitability.
Two, all of the sites have access to low-cost, reliable gas supply. Three, the combined network now gives us sourcing flexibility to key Midwest locations, increasing our flexibility to supply and ability to optimize the network in-season. Fourth, our production base is backed up by the extensive retail network shown by the green dots, which allows us to sell more product to retail. I should note here that legacy PCS, or our East system predominantly, sold zero tons to retail prior to the merger. It should not be surprising, therefore, that the merger has given us an opportunity to sell more product to retail at a lower cost because of the proximity, the lower costs coming from lower transportation costs. In 2018, we sold 1.7 million tons of nitrogen products to retail, which was an increase of about 200,000 tons.
Looking forward, we see an opportunity to increase those sales to retail by an additional 200,000-300,000 tons. I'm going to talk briefly now about what we see as our nitrogen investment opportunities. We currently have about $300 million in approved projects. These are small but high-return projects at a number of our existing sites. There are seven projects here across five sites. They're a combination of energy efficiency, small brownfield expansions, and product mix optimization. Together, they will conservatively give us over $100 million in extra EBITDA, with IRRs for the individual projects ranging from 20% up. We're also currently considering a couple of larger projects. These are again brownfield expansions and product mix projects. Again, they have a return over 20% and are low cost compared with greenfield sites and have the potential for substantial increase in EBITDA should we decide to do them.
We hope to make that decision on these by the end of the year. Compared with greenfield projects, these projects are much cheaper, running $460-$500 a ton of production, compared with $2,000+, and so have much higher return. They can also be completed much quicker. Of the approved projects, the first will be completed in early 2020. Let me now turn briefly to phosphate. The merger has arguably had a bigger impact on our phosphate business than any of the other business units. We closed Redwater MAP production on the eighth of May this year. Late last year, in December of 2018, Geismar was shut down. Nutrien no longer needs imported rock and has now ended its Western Sahara rock contracts. The remaining phosphate production at White Springs and Aurora is fully integrated.
Going from three sites to two and ramping up production at White Springs has allowed us to reduce our cost of production by CAD 80 a ton, or nearly 25%. Although 50% of our product by volume are liquid agricultural products and industrial products, they make up 90% of our gross margin. The merger has allowed us to change our product mix, improving overall margins as we push more P2O5 into our liquid agricultural and industrial products. In addition, we're now producing a sulfur-enhanced MAP product at our White Springs facility. This product should command a premium in the market over standard MAP and allow us to improve margins on the remaining solid product that we will produce. We think it's an excellent product and will compete strongly with Mosaic's MES product in the market. You can expect us to ramp up marketing on this product in the fall application season.
We're also exploring additional industrial opportunities. Let me now touch on the phosphate synergy projects. We remain on track to deliver merger synergies of CAD 80 million in increased EBITDA. Most projects are complete, and of the three main projects, the Aurora phosphate expansion was completed on time and under budget. The White Springs Y train restart was completed on time, on budget, and is currently in production. Doubling the Redwater ammonium sulfate is on track to finish on time and on budget, with the ramp-up starting at the end of quarter three this year. Effective 2019, ammonium sulfate is reported in nitrogen, and therefore, nitrogen will realize the EBITDA bump from the AAS project. Realizing our phosphate synergy plans, optimizing our production portfolio, and completing the several investment projects I mentioned will add approximately CAD 250 million in EBITDA.
This plus our current 2029 pricing will take EBITDA in 2023 up to CAD 1.9 billion. We also believe that prices will increase modestly over that period. Another CAD 25 increase in price across all products will add CAD 400 million in EBITDA. An additional CAD 25 per ton increase in nitrogen products would add an additional CAD 300 million, we could see EBITDA for nitrogen and phosphate in the range of CAD 2.3 billion-CAD 2.6 billion. This does not include the other potential projects that we're considering that could add additional EBITDA to the numbers shown on the chart. All in, we could nearly double our EBITDA from 2018 levels in the right pricing environments. Let me conclude by summarizing.
Between 2019 and 2023, nitrogen and phosphate should generate between CAD 9.5 billion and CAD 11.5 billion in EBITDA. We'll be able to do this because we have distinct geographic advantage for assets being located in-market with access to low-cost, reliable gas. We have access to our own extensive supply chain as well as retail network. We have numerous opportunities to continue to lower cost and improve efficiency and productivity. We have a number of attractive low-cost, high-return projects in nitrogen to invest in, and we're on track to complete our phosphate business integration. Thank you very much. I look forward to your questions later, and I'm going to hand it over now to Pedro Farah, our Chief Financial Officer.
Thank you, Raef. Good afternoon, everybody. My name is Pedro Farah. I'm the CFO for Nutrien, new CFO. Earlier today, you heard Chuck speak about how Nutrien is the best-positioned company in the ag sector due to our strategy, the success of the merger, the advantages of our integrated model, and our path to create significant shareholder value. I will be hitting on the same points but through the financial lenses. I will then summarize and aggregate the financial impact of the three views as presented by Mike, Susan, and Raef. To start, on a personal note from someone who has worked in different industries and large companies, I continue to be impressed with what I see at Nutrien. I joined Nutrien because of four factors: its scale, leadership position in the industry, international ambition, incredible growth prospects, and management quality.
If I was surprised by anything, it was to the positive on each of these factors. Nutrien is not a reluctant industry leader but a determined one. Nutrien has the scale, the financial capacity, and the skills to deliver on multiple fronts. It recognizes that international growth opportunities need to be responsibly explored. It is focused on providing high-quality growth opportunities by balancing immediate shareholder returns with long-term strategic objectives. It has an experienced and balanced team that is aligned around a common purpose. It's not a cliché that I'm very happy to be part of this company. Now to the presentation. First, I will highlight how we think about capital allocation. I will address how our integrated model provides unique advantages.
Lastly, I'll walk you through how we are going to focus on growth that is aligned with our strategy to create superior shareholder value. Let's get to it. We believe that we have the best assets in the industry and a disciplined capital allocation approach that positions us for success. Let me illustrate that by describing our 2018 capital allocation. We deployed our operating cash to first sustain our assets and second, to provide a predictable growing dividend. As Nutrien has a large cash inflow from divestments in 2018, we allocated this discretionary capital in order of priority. First, we invested in high-return organic projects. We completed high accretive M&A, and finally, we returned excess capital to shareholders as evaluation of our Nutrien shares supported this action.
We finished the year with above-normal liquidity and low leverage. We have since announced CAD 1 billion in retail acquisitions this year and announced another 5% buyback program in which we are very active. While we received a large cash inflow last year, the approach we took to allocating capital was not atypical. I will further describe our capital allocation model and the advantages of our integrated business model in the coming charts. You heard about this concept again from Chuck, but I would like to offer the benefits of the integrated model from a CFO perspective, focusing primarily on the financial benefits, including Nutrien's low-risk profile, our measured approach to sustaining capital, and our approach to dividend and consequence, robust financial flexibility. Firstly, I would like to acknowledge how difficult and volatile the last few months have been for agriculture in general and our sector specifically.
While the whole ag industry has been impacted, Nutrien has outperformed its peers, which we believe is a testament to our business model. Not only we have produced comparatively stronger shareholder returns in this difficult market, but we have also done so at lower risk versus our legacy companies and also versus most of our peers. Our lower EBITDA volatility, which is shown on the left, translates into lower share price volatility, which is shown on the right. Chuck mentioned that one of our main advantages of our integrated business model is Nutrien's resilience through the cycle. Lower volatility is a great expression of this resilience, and we believe that it will result in a lower cost of capital over time. The other main advantage is Nutrien's simple, clear capital allocation strategy.
You can think about that as a Maslow pyramid, and our first priority is to sustain the assets we own to certify that we have safe and reliable operations. The next layer above is protecting the balance sheet. We target an investment-grade credit rating throughout the cycle, which provides reliable access to capital and financial flexibility to be opportunistic. We look to secure a stable, predictable, and growing dividend stream to our shareholders, and which can be funded entirely by our retail earnings and cash flow. The balance will be allocated on a compete for capital basis. Our internal approval process and strict hurdle rates ensures that we are locating capital to the best alternatives on a risk-adjusted basis. Let me drill down on sustain.
Sustaining our assets is our number one priority because we believe that safety and integrity of our assets are critical to our reputation, our bottom line results, and predictability of earnings. The stability of our operations and consequent earnings also gives us confidence to allocate the funds required and avoid unproductive accelerations or decelerations in capital deployment. Our sustaining capital spending is supported by a robust benchmarking process, where we evaluate each of our production facilities against comparable assets in the industry and establish an appropriate level of spending to accomplish our priorities. Our 2020 to 2023 forecast calls for similar levels of spending, adjusted for the expected growth in potash production volumes and significant growth in retail operations. Our sustaining capital is of similar scale to our core depreciation and amortization historically.
Another top priority of our capital allocation strategy is to provide stable, predictable, and growing dividends over time. Nutrien's current dividend yield, including today's raise, or yesterday's announced raise, is approximately 3.7% towards the upper end of the peer group range. Our dividend is very affordable and represents just 42% of the company free cash flow, approximately 85% of retail's free cash flow based on current guidance. Importantly, Nutrien's dividend payout represented approximately 25% of the total dividends paid by our broad peer group in 2018. In 2018, our share buyback represented 40% of all buybacks by the peer group, and I believe the percentage for Q1 it was about 47%. Let's complete the capital allocation discussion with the balance sheet. Nutrien's balance sheet is in excellent condition and provides the company ample access to capital and strategic optionality now and well into the future.
The finance capacity showing the charge is illustrative of our ability to debt fund some significant investment options. The predictability of our earnings gives us confidence to stretch our balance sheet temporarily if and when attractive opportunities surface. We believe that our business will support meaningful amounts of additional leverage. The CAD 14 billion-CAD 20 billion depicted may be in fact conservative. To be clear, we target an investment-grade rating, and by that I mean BBB flat. While we illustrate leverage levels on the slide that could be above acceptable levels for that rating, we believe that this would only be temporary and associated with a potential large acquisition, which would allow us to quickly delever to return to investment-grade levels. Let me close by summarizing and quantifying our path to create superior shareholder value in the future.
We believe that Nutrien is going to create significant value for shareholders through increased returns on capital through three key levers: quality and disciplined growth, enhanced margins, and improved asset utilization. You heard about our success to date, which include a highly accretive retail acquisition strategy, merger synergies that have delivered in excess of CAD 650 million ahead of schedule, and increased operating rates and reduced costs in our NPK business. Looking in the future, we see quality growth with our continued focus on retail consolidation and efficient nitrogen and potash volume growth. Enhanced margins with the transformation of the retail business through digital and expanding our proprietary offerings. Potash technology initiatives, which will further lower our costs. Finally, asset efficiency, in which retail will optimize its working capital position and the optimization of NPK business, which will create more profit from the existing asset base.
I will briefly frame each of the business unit plans according to these three drivers of returns. Starting with retail, as you heard from Mike a little earlier. Our retail business is positioning itself for the next wave of agricultural productivity through investments in digital and new products and services. In summary, we expect that over the next five years, the retail business will grow EBITDA by 50%-65%, that it will improve U.S. retail EBITDA margins to over 11% by 2023. Meaningfully increase proprietary product sales, and we'll accomplish all of this while becoming more efficient as measured by a lower cash operating lab coverage ratio. In addition, we expect to lower our working capital to sales ratio. For perspective, a single-day improvement in managing inventory receivables or payables is worth about CAD 25 million-CAD 35 million to Nutrien.
Susan told you earlier about her plans to optimize potash operations in our network. From my perspective, potash has great growth potential and optionality, which is not being appropriately valued today. This business can and will provide significant earnings growth with little to no further investment. Today, 5 million ton capacity can be brought to market when required at minimum costs. New technologies and initiatives will further reduce our per ton cash costs. A further step-up in capacity is under consideration, and this will provide additional future growth with attractive returns at current prices. In summary, potash is positioned to generate significant incremental profits even at flat prices. You heard from Raef that he has plans to optimize our production at work and pursue high return investment opportunities in nitrogen.
Optimization plans will increase capacity utilization across nitrogen and phosphate business, and will both provide additional volumes and improve margins. We expect IRRs of over 20% on these future investments, and so far we have allocated CAD 300 million of capital. Investment capital, which will increase our net production capability by over half a million tons of product. This is failing a bit. A smaller portion will be sold into the spot market. The nitrogen and phosphate business will continue to be a significant profit driver for Nutrien. As you can see from the chart, we foresee marginally more potential price upside in nitrogen than we do in potash and phosphate.
To put it all together, the business unit plans I previously referenced support our path to significant long-term value creation. Without NPK price appreciation, we can foresee a 50% increase in EBITDA by 2023. We call this controllable, as there are specific actions that can be taken to achieve these results. With modest price upside, we see a potential to achieve CAD 700 million to CAD 1 billion of additional EBITDA by 2023. We accomplish all of this while being disciplined in the way we deploy capital. The good news is that we do have a large amount of capital to deploy, as you'll see from our next slide. To that point, we expect to generate CAD 22 billion to CAD 25 billion of operating cash flow over the next five years. In deploying this capital will follow our simple and clear capital allocation strategy.
Sustaining our assets would account for about CAD 6 billion or 25% of the expected cash flow. Next, not depicted on the page, but consistent with our capital allocation strategy, we ensure that our balance sheet is protected, and we don't foresee any material debt reductions in the five-year window. We'll support our existing dividend, which amounts to CAD 5 billion or 25%. We have identified several highly accretive investments, which would account to CAD 5 billion to CAD 6 billion, or 25%-30% of the expected cash flow. Lastly, we'll deploy the balance on a compete for capital basis. We'll measure returns to shareholders against future investment opportunities, and that accounts for CAD 6 billion to CAD 8 billion of 25%-30% of our total cash flow. Based on our forecast, we believe we can reinvest in our business and return significant more cash to shareholders.
In aggregate, on a compete for capital basis between growth investments, acquisitions, and additional returns to shareholders, we'll deploy CAD 11 billion to CAD 13 billion over the next five years. Before I turn to Chuck to wrap up the day, here are my takeaways. Nutrien's accomplishments in the last 18 months are impressive, but we're only getting started. Today was intended to provide you with Nutrien's capital allocation plans and the immense potential that it is for cash flow generation and returns to shareholders. Clearly, Nutrien is a free cash flow-generating machine. This will be further strengthened as we deliver results and continue to prudently grow our business. We will leverage our unique position across the value chain and focus on innovation and technology to be a leader and consolidator in the ag retail market, continue to return value to our shareholders, further consolidate our leadership position across the wholesale business.
Thanks. Chuck?
Thanks, Pedro. Look, I'll be brief with my closing comments so that we have enough time for Q and A's. Today was our first Investor Day. I hope we've provided you with a perspective that the entire management team and the board shares, that Nutrien is a great business with a strong investment thesis. That was really the focus of today's discussion. We believe we are best positioned in the ag sector with a unique and value-enhancing business model and a clear plan to focus on creating long-term shareholder value. Personally, though, I believe that Nutrien is more than just a great business. We're also a great company with great people. We are a company that is working hard to ensure we are more sustainable and that we minimize our impact on the environment, and that we welcome and accept all people that we work with.
Today, we are working hard to baseline ourselves across these areas. Before we set bold targets for improvement, we first need to know where we are today. In the future years, you will not only see us set cost, earnings, and other financial metrics, but we'll also set sustainability, environmental, and diversity targets. That will be a topic for the next Investor Day. With that, we'll open up the floor for questions. I'll ask the ELT speakers to join us on the stage here.
Thank you.
Jonas Oxgaard from Bernstein. You had a page 10 earlier where you showed the cycle and your strategy based on that cycle. If I just take the picture as granted, you are showing that in a declining NPK environment, that is when you should be focusing on retail and dividend. Is that a reflection of where you feel the cycle is? I realize that is a somewhat leading question, but can you talk more about the cycle overall?
Actually, the interpretation is a little different than the way you have described it. In a declining cycle, and let us just talk about the peaks and the valleys. At the bottom of the cycle, that is when we believe production assets will be undervalued, and there will not be a lot of competitive tension to buy those assets because most of the pure plays will not have the balance sheet. Retail is a little different in our view. Retail is something that we should invest throughout the cycle. What we have seen is that valuations really do not change between the peaks and the troughs. They are readily available, and consolidation of the retail business from a strategic perspective is really important. At the bottom of the cycle, you will see us allocate capital to production.
At the top of the cycle, we will look at repairing or making sure that the balance sheet is strong, and throughout the cycle, we will invest in retail. We think we have the liquidity, the cash flow generation potential, and the balance sheet to do all of that.
Yes, hi. Charles from Jarislowsky Fraser. Chuck, strategically, over the years, you have added a lot of pieces to the puzzle to deepen the moat, increase the stickiness with the farmer. Is the digital platform the last piece of that puzzle? Now that you pretty much do it all except the harvesting part, is there an opportunity in the mid to long term to maybe go full outsourcing where you would have maybe some compensation related to yield or profits? Does the farmer really care how much he buys from Nutrien? In a world maybe also where millennials are not into farming as much as previously they were?
Yeah, it's a great question. I'll give my views, and then I'll have Mike comment. We'll break it up between what's in the five-year window and what's beyond the five years. In the five-year window, we think digital and Nutrien Financial are the next pieces to fortifying that relationship with the farmer and building what I'll call these really important moats around the farmer. We do think that there will be a period of time, probably within the five-year window, but most likely past that, where we will switch from just being an inputs company to be more of an outputs company. With our investments in digital, in data science, in analytics, we think that we'll be able then to work with farmers to share the risk but also share the return of working with them on yield security.
This is where I think the industry is going to head towards, is those that just provide inputs will become quickly commoditized, and the real value, we think, will be in having a stake in the game when it comes to farming outputs. We think that we're going to be the best-positioned company, and some of the investments we're making today is to prepare us for when growers are prepared to share that. I just want to have Mike, he'll give you the next level of detail.
Sure. Well, it's probably staying similar to what Chuck said, maybe just in a bit of a different way. I talked a little bit about the retailer of the past, and the retailer of the past was a retailer that sells product by product. In fertilizer season, you're selling fertilizer, then you sell seed, then you sell crop protection, and it's one-off transactional. We're moving to a model, as I shared in my presentation, where we're now creating whole acre solutions. We see the next wave to be solution selling. I think the wave after that is outcome based-selling. We're using data science and all the data that we're pulling together where we can certify or guarantee certain outcomes in the field.
I think we'll have to have enough data where we can partner with a reinsurer, but where we can go to a grower and either guarantee a yield or guarantee a financial outcome. I think that's the next evolution past solutions.
Hello. Hi, Alex Fokanwa, HSBC. Just following up on the ag economics. Talk a little bit about two issues. One is competition with FBN becoming sort of an aggregator and partnering up with some of the distributors. How is that a threat to your business model? The second is on connectivity. Seems like more and more you're going to demand more connectivity to reach to your final clients, and it doesn't really depend on you for that to happen. How will you cope with that? If I may just add one more question. When you talk to farmers, most of them seem to think that you actually have too much technology right now, or all the technology that they need, and they don't necessarily see the final results there. How are you going to be able to show him that it makes sense to continuously invest?
Thank you.
Sure. Alex, I missed your second question, let's come back to that here at the end. On the FBN front, look, their model is very different than our business model. We don't see them as a competitor. We can probably talk a lot about what they're doing and the success or lack thereof that they're having, but we don't feel the impact in the business. We have some of our customers that buy their annual subscription, which we think is fine, and they can bring the data in, help make seed decisions or help with pricing discussions. We're very proud to stand in front of our customers and talk about our pricing. That's why in the last two or three years, we've seen our EBITDA margins increase and we've seen our crop protection margins, for the most part, be flat.
The threat that I think some people thought maybe was coming with FBN hasn't played out for us from our perspective. Your point on are the growers seeing technology, I guess my experience is different. When I was in the field last week in Illinois, and as growers are now thinking about planting into May or early June, they can look back over the last decade or two, and a couple of decades ago, planting in June in Illinois meant that you were definitely going to pay a yield penalty. Whereas today, they don't expect that. They still expect that they're going to generate yields over 200 bushels an acre if they can get their corn in. It's because of the seed, it's because of the traits, the fertility management, and all the other tools and technologies that we can bring to bear.
I actually think farmers understand today that all of the tools that we can bring to them in our toolbox is really helping them be more productive and really manage their risk in tough years like the one we're in right now.
Yeah. Hey, guys, just real quick here. It's Steve from Raymond James. Question for you, Susan, on the potash side. What are the triggers that you see in the market that really will green-light the need for these incremental new tons? I don't know if it's a demand-side issue, if it's a supply-side issue or a combination thereof, but what do you need to see in the market to green-light the new incremental brownfield tons you've highlighted? Secondarily, what assets do you see these investments going into, and how long does it take to bring it online? I think you gave us a cost estimate, but timeline and market milestones would be helpful. Thanks.
Yeah, Steve, great question. In terms of, you've hit both of them, which is we see it will be a combination of demand and supply. Really, let's just talk on the supply-side for a minute. We have seen, even just very recently, what was expected of supply coming into the market hasn't come on as quickly as some expected. What I would say from our expectation is we know that not only do these expansions take a long time to come on, but when they actually start to come online, it does come on gradually. That's what we're seeing now. We have built in terms of our supply scenario, supply coming on as has been announced.
If there are factors that cause, if there's a mine flood, if they don't come on as quickly as people have announced, then that's when we're saying we will be ready to move our supply in. I just want to reinforce, the reason we talk about a buffer of 2 million tons to move into the market is because these supply gaps, I mean, I'm going to call them, can happen in big chunks. I mean, we're not talking 100,000 tons. We can talk 1 million, 2 million tons that can come on, and we want to be ready to feed the market. Then certainly on the demand-side, if you look at the appendix, we do have a bit of an outline of what we expect to see for supply as against demand.
In a 2.5% demand scenario, we really expect that to be balanced with supply coming on. If we do see greater demand coming out of China, if we do see greater demand out of Africa, out of Brazil, really out of any region during this time frame, we're going to need to be ready with our volumes to move into the market. I guess just one final point I'd like to add is. From our perspective, and I did talk about this in my presentation, the focus on supply chain, I cannot underestimate. Those that have supply chain, and we have significant storage both in North America, but also a well-oiled machine moving out to the international market.
The supply chain is really going to provide that competitive advantage, and that's where I do believe that we are there, and we can service the market in these short windows because we've got the supply chain that we're continually focused on.
Steve, are you asking about our incremental 5 million tons from 2018 to 2023?
No, the brownfield investments.
Oh, sorry.
Yeah.
Talked about a whole different story.
2018-2023.
Above 18 million tons.
Yeah.
Yeah. We see that really coming across our entire network, and I would say you can think of it as fairly evenly distributed. The great piece about that, and as I mentioned, it can be done in increments. It can be done in short periods of time. This isn't a binary decision where we say anything above 18 million tons, we bring on 5 million or nothing. Just think of it across our sites, excluding Patience Lake. Across five sites, we can bring that on pretty equally.
Just to give a little bit of color. That 5 million tons requires no shafts, requires no mills. This is really important. This is just new hoists, more mining equipment, more people, and a little bit of debottleneck in the existing mills. That's why it's so cheap, that's why it's so fast. That's, I think, a unique advantage we have because we've already spent CAD 8 billion or CAD 9 billion over the past decade building that hardware.
Hi, Ben from Scotia. Just to kind of continue on that same train of thought. CAD 500 to CAD 700 per ton of CapEx for 5 million tons is CAD 2.5 billion-CAD 3.5 billion. You just did a write-down for CAD 1.8 billion for the New Brunswick mine. Can you just kind of triangulate the need to spend that incremental capital when you just shut down New Brunswick? The second point is, Chuck, in your opening slide, you talked about higher crop prices over the midterm, but now you're looking for a deceleration of the potash demand growth rate from 4.2% in the last five years to, I think you said 2.5% or 2.6%.
Yep.
Where is that coming from and why when you're expecting crop prices to increase over the midterm?
Yeah. I'll have Susan talk about the market on the New Brunswick and kind of rationalize that with the new tons. This is pretty simple in our views. New Brunswick would cost an order of magnitude more to try to get tons out of it. This is, like I was saying, the six mines, or as Susan was saying, the five mines, we already have the shafts, we already have the mills, and this is so much lower cost spend than trying to do anything in any of our other assets. If you look at when the tons are needed, I think it's important to look at that. If you think about our 18 million tons, we will be out of capacity. The 18 million tons will be in the global market somewhere between 2025 and 2030, depending on the growth rate.
I'll have Susan just articulate why we think it's 2.6% to 3%. We have some time to make these decisions. There's no rush here because we can do this fairly quickly. It is truly the lowest cost tons that we've got to put into the market over the last 15 years will come now. We know where those projects are, and we don't need to make those decisions tomorrow. In fact, if you look at our capital outlay, we don't have significant capital at all in the five-year plan, simply because we don't need the tons. We want to keep the 2 million tons of buffer. We have to start making decisions to, I guess, to answer the question directly, when do we have to make the decision?
We think we need to make the decision on some, not all of the 5 million, most likely in 2020 or early 2021. You want to talk about the market?
Yeah. Ben, you're contrasting it to the last five years? Is that what you're? Yeah. Look, if you can think about it by market, and in the appendix, it has broken out our views by market. The way we look at it is we do expect to see a similar growth trajectory as we saw in the last five years in certain key markets. We had China, significant growth in the last five years, we expect to be going to more normal levels. We expect India to be quite similar. We do expect to see an increase in African consumption over the next number of years and good consumption in Brazil. Really, the appendix lays out by market.
What I would say is the key for us is to ensure there isn't demand destruction, is that you don't have prices heating up in the market. That's why I talk about ensuring that either inventory buildup doesn't happen and you have demand destruction, or you have significant prices heating up. If you think about the context, if you go back to 2008 and 2009, when we had significant increase in prices, we didn't have excess capacity in those days to place in the market to ensure the prices remained stable. We have that today, and that's why I'm reinforcing the importance of that, because we believe in a stable pricing environment. We'll continue to see that growth. You should see it as a stable, incremental growth, and then as there is extra need with gaps in supply, we'll place those large volumes. Does that help?
Raymond Goldie, independent analyst. I have two questions for Mike. The first is that I wonder if the increasing resistance of weeds to glyphosates is a threat or an opportunity for Nutrien. Secondly, I think it was Jason, about four years ago, made a presentation comparing the demographics of farmers versus the demographics of farmers who use your digital products. Have you updated that?
Sure. Raymond, firstly on the glyphosate-resistant weeds, obviously this is a growing issue across all crops and all geographies. I would say, even though we wouldn't wish it on anyone, it's an opportunity for us because at the end of the day, we're really strong in agronomy. We have very broad portfolio and tools of products. Now, most growers are using multiple modes of action on every acre. We've got the ability to both recommend and service that. As we showed in the presentation, over 40% of what we sell, we custom apply. We're well-positioned to be able to mix two or three products in tank and really solve the growers' problems. I think our customers would view us as helping them solve a challenging weed issue.
In terms of demographics, look, today the average farm age in the U.S. is 57 and a half years. We've done a lot of research to understand on the digital tools, is there a demographic, either based on farm size or farm age, where these tools are going to be more or less adopted? It's interesting, obviously, larger growers are more interested in digital tools. There's clearly a size, and the more sophisticated the grower is, the more he's interested in these tools. On the age piece, there's less of a correlation. In fact, when we did the research, growers under 35 said that they want mostly to talk to an agronomist. Because they're early in their career, they get a lot of value from talking to a trusted agronomic advisor to really help them make that decision.
Growers from 35 to 75 age bracket are very interested in digital agronomy tools, over 75 it drops off again. There's maybe a little bit of a play there, but it's not exactly the way you think. A 25-year-old coming into farming isn't likely going to say, "Give me all the digital tools and leave me alone." Our experience and the research would say those young farmers coming in really want to talk to a trusted advisor, again, that's the strength of our network. We can do both.
Parkinson, Credit Suisse. Regarding your Trinidadian nitrogen assets, there have been two challenges. One is gas availability, the other is potentially trade. On the gas availability side, can you just give your perspectives on near term, what seemingly was some sort of improvement over the next few years due to new pipeline capacity? Obviously some plans with Venezuela fell through, the long term, a little more uncertain, let's say. On the trade side, obviously you have some issues with exports to Europe, then also the potential for intermediate or long-term new West African supply, which has been a newer market for that. Could you sit on those two perspectives separately? Then also, are these still essentially core assets to you, or are they potentially something you'd look to divest in the long term? Thank you.
Let me just answer the question about supply in Trinidad first. For 10-year period there, we were experiencing curtailments of 10%-15%. In the last two years, as we've settled the new contract with the government and new investments have been made, those curtailments have dropped off quite dramatically. We're running at about 5% this year. We were about 5% last year. Just so you're aware, between BP, Shell, and EOG, there's $11 billion of investments earmarked for the period 2017 through 2021. There's already been one and a half BCF a day brought on in 2017 and 2018. Those projects are progressing. Now, obviously the investment has to overcome the decline in the existing fields. In the next three to five years, we would expect to see curtailments no worse than they are today. At 5%, we'd expect to see them slightly better.
Longer term, we don't actually need the Venezuelan. The government doesn't need the Venezuelan fields to be whole. We would like it if they happened. If they happen sometime in the next three to five years, we'll see an improved gas position. I'm not too worried about the supply there. I think it's a lot better than it has been for the last decade. The other question was about marketing. All of the Trinidad tons, we have about 40% of the production there on the island. All of those tons were, 5 million tons were going into the U.S. Of those, now only a small proportion actually goes into the U.S. All of them have found other homes. We've been quite successful at marketing our tons into Northern Europe and into Africa, Morocco. We don't see too many issues with that.
In fact, the Moroccans in particular are very interested in continuing to deal with us. We've got some good customers in Northern Europe that are looking for alternative supply from traditional suppliers into that market being the Russians. Trinidad is a very good, stable market for them, a very good, stable supplier. We think that they'll continue. We don't see too many issues. As to whether it's a core asset or not, I think it remains under review and will continue to remain under review.
The contract we've got now will go for another four years. I guess as we come into discussions in the next three years, we'll review where we're at and see what the outlook looks like, make a decision then.
Hi. Thanks. Is this on? Hi. Thanks. It's Andrew again from RBC. Just two questions. One is on share buybacks. Given the current share price right now, I'm sure you're looking at that and thinking you could probably get a pretty good return on your own share buybacks versus other projects. How aggressive would you want to be on that versus spending on other projects or maybe delaying your spend on some of these growth opportunities? The second question would just be on potash pricing, going back to that. What price level do you want to see? You're talking about pricing, you don't want it to be too excessive. What does that actually mean? Thank you.
Pedro will talk about share buybacks. Susan and I can answer your potash question.
I think on share buyback, we do have an active program right now. I agree with you. We do have a nonlinear share buyback, so the more the prices drop, the more we buy. That's kind of how the program was designed. It accelerates as the price goes down. The program is on board. The good news is that we have enough cash to do the share buyback and the investment, especially because we are trying not to trade off 20% IRR investments for the long term with a short kind of return on a share buyback. We think we can do both. That's what we'll continue to do as long as the valuations are attractive.
Andrew, on the potash question, look, I wish it was as simple as saying we had a magic dial. We don't. We've learned some things from the boom and the bust in the potash industry. I think that's what we're trying to articulate. We've learned that if you have significant acceleration of price, it incents poor behavior, and it's very difficult for farmers. At the same time, if the price gets too low the opposite happens. Our perspective is one of we certainly think that we can make very good returns for our shareholders, and that's what we're really focused on, by optimizing our network, driving costs out, and growing volume, what I would call responsibly as the demand calls for it. Last year is probably the perfect example.
We increased our sales by 1 million tons. The market price went up by CAD 50. I do believe that we are very good when it comes to understanding how to optimize value. I wouldn't want to give a number except to say that obviously if we get into the territory to incent greenfield builds, I don't think that's good for the industry. The good news is we're far away. Greenfield builds right now in the potash industry makes absolutely no sense. We are a long ways away from talking about that. You'd have to have brownfields sub-CAD 800, like we articulated today, even for brownfields. I think that having that in the back of your mind will give you sort of a framework of how we're thinking about our potash business.
The only thing I'd add to that is the real benefit we have having the integration to the grower is I have real-time discussions with Mike in terms of what's going on in grower affordability. I think that's where we start from is grower affordability and how we can ensure this is sustainable.
Sorry, I just wanted to follow up a little bit on that incentive pricing. BHP recently, they gave out some figures on their Jansen projects. Does that CapEx change the way you think about incentive pricing? How does that get incorporated?
Well, look, I don't want to speculate on what BHP is doing. Our own view is that over the next five years for grower affordability, prices should be remaining stable with what we can see today. Certainly from a greenfield perspective in Saskatchewan today, our own view is that prices need to be significantly higher sustainably to justify that return. That's kind of really what I'd say on that.
Yes. Thank you. Steve Byrne, Bank of America. I wanted to ask you about your level of conviction in your 2% CAGR on nitrogen demand. Do you see potential upside from that in some regions of the world that have below average yields are now getting above average genetics, and maybe potential downside from new technologies that could erode the nitrogen demand?
Yeah. Steve, I'll introduce Jason Newton, our head of market research, and he'll answer your question.
Steve, historically, we've seen that nitrogen demand, it rises pretty steadily over time. We've actually gone through a period over the last few years where nitrogen growth has been below those historical levels, which are in that 2% annual range. Typically, historically, when you go through a period of time where nitrogen demand growth is below 2%, then you see it rebound above that level. The 2% that we referenced in the presentation excludes China. We do expect that Chinese growth will be relatively flat and bring overall global nitrogen demand growth below that level. It should be noted also that nitrogen in total globally is about 80% ag and 20% industrial. We expect the ag demand growth to be below the 2% level and industrial demand growth to be above that level and bring up the total global rate to 2%.
Steve, I'd also just add that, look, we test extensively all the new products that are pre-commercial, whether they be from startups or from big R&D companies, in terms of the microbials and the biologicals. There's lots of claims out there about products that can help reduce overall nitrogen use. We haven't seen technology yet in our testing that would play out the claims that some folks are making. From a retail standpoint, if there's technology that can help our customers, we want to be on the front end of it, and so we're testing extensively those technologies.
Mark Connelly at Stephens. Two questions. First, for Raef, can you talk a little bit more? You said that you're working on projects that were going to improve your nitrogen flexibility, but the five that you listed weren't really that focused on, maybe optimization a little bit. It didn't look like you were putting a lot of money into flexibility. That's my first question. The second question is on Loveland, which really didn't get much attention here today. Can you talk about the plans for Loveland and specifically about the importance of exclusivity? You've talked about exclusivity a number of times, and I'm curious, how critical is it in your mind for Loveland's product to be exclusive? Because I would think that that would tend to limit growth.
The projects, there are seven of them, about CAD 300 million. They're at five sites. They're a mix of ammonia, urea, and nitric acid. For the urea and nitric acid, we're in situations where with the combined network, we figured out we've got some additional ammonia, we're going to upgrade it. It's just a mix of those that allow us to be in the market and either put the molecule into ammonia directly or more urea or nitric acid or UAN.
Yeah. Mark, on Loveland Products, for those of you that don't know, we talk a lot about proprietary products in our retail business. The chemical side of proprietary products are branded Loveland Products. The seed side, we have a couple seed brands, Dyna-Gro and Proven. We have different brands for our proprietary products, but chemical products are largely under the umbrella of Loveland. I would say exclusivity is very important because we have a broad footprint where we can access growers, and this gives our sales agronomists something unique that competitive retailers don't have. Again, you can think of this in the categories of adjuvants, nutritionals, seed treatments, post-patent chemicals, biologicals, and microbials. There's a whole portfolio of products and, of course, seed. Having a differentiated product with deeper margins is very motivating for our sales organization.
That gives us a lot of fuel in our tank. We like the fact that we've got access to the market, and we can bring those products exclusively through our channel. Now, we also do distribution in some places, we do look for opportunities where maybe we have gaps in the market, where we will sell our products through a third-party retailer. Recently, with some of our acquisitions like Actagro, those products have opportunity beyond North America and beyond some of the countries where we have a retail footprint. We also are actively looking and talking to other companies about taking those products internationally. I would say from an exclusivity standpoint, in North America specifically, we like our position.
Outside of North America or where we don't have a retail footprint, if we have technologies that fit, we're looking for those market opportunities as well.
Joel from BMO again. I'm going to ask two questions on potash, one by one, if Rich allows me. First on potash cost. As you scale up potash, hopefully 13-15 and 17 million tons, you talk about lower cost. The way I understand your portfolio, you've optimized the portfolio to focus on the lower cost on heavy Rocanville mix. As you go more higher realization rates, aren't you now producing higher cost tons? It's great you're going to sell more, wouldn't that actually lead to cost inflation?
It's a great question, Joel, and really leads to why we're doing the next generation potash. If we didn't do anything today and we weren't leaning out the supply chain and adding that technology and really moving it to the next level, you're absolutely right. You get to a step change. If you think of what we recently did with our Vanscoy facility, we took those volumes down, and we basically lifted and shifted that to lower cost mines. As we roll out the supply chain, I should just talk about when I talk about operational excellence and what we're doing, we could go in today, and we've got the capability by the end of this year, all of our boring machines at Rocanville will be ready to go automated, operator not present.
Before we start simply automating our machines, what we're doing is we're saying we want to increase the time we're cutting at the rock face. We want to make sure that all of our conveyor belts are operating efficiently. We want to make sure that we don't have any log jams in our shaft all the way through underground efficiencies in the mill. We will automate that, and all of that is going to drive down our cost. You're absolutely right. If all we did was ramp up volumes, we would see a step change, by the time we get to that, the overall network cost will be that much lower.
Royalties. As you ramp up and get to 17 million-18 million tons, that's great. If you do produce 5 million tons more, will you have to pay the usual PPT, all the different taxes? Do you have holidays? You agreed, Potash agreed 18 years ago to build more capacity. You got certain benefits. Some of them have been clawed back, credits and times maybe to a little audience.
The next 5 million tons, would you pay a lower PPT, I guess a lower royalty per ton than your current 13 million tons if price was the same?
Yeah, the way the potash taxation and royalty regime exists today, it's on a flat per ton basis. We would just continue to pay on a per ton basis. On a cost per ton, you can expect to see it basically neutralized. You don't get a benefit the more you produce.
5 million tons.
Oh, if we do the next brownfield.
Yeah, the next 5 million tons.
Yeah. We do certainly for the next brownfield. This is now we are getting into all speculation of what may be the taxation and royalty regime when we did that, assuming all else being equal, we are subject to holidays for that.
It would be holidays?
Correct.
Vincent Anderson at Stifel. I had two questions on retail. The first one is you put out a slide that showed a pretty large total addressable market for U.S. crop input financing. The implication that Nutrien is probably underway crop financing versus their actual share of the U.S. retail market. The question there is, how important is it that you grow your capacity for crop input financing to actually get farmers to use Nutrien as a one-stop shop? How big do you get in that before you have to worry about risk management on the crop marketing side of the equation?
Sorry, can you just restate your question?
Right.
Just so Pedro can hear it.
Yeah, sorry. With regards to crop input financing, you put out a fairly large total addressable market there. How important is growing your share of the crop input financing arena in the U.S.? How important is that to gaining adoption for Nutrien as a one-stop shop for crop input? Is there a point where you get large enough in that where you have to start worrying about crop marketing risk management on the other side of the equation from the borrower?
Okay. Why don't you start with financing, and Mike, you can comment.
Okay. Maybe Mike can opine.
Sure
on how important that is. I'll say how we do it. Mike, you want to start?
Yeah. On one of my charts, we showed that the U.S. market for inputs at the retail level is about $40 billion. We know that on average, growers borrow about 60% against their farm inputs. It's about a $24 billion-$25 billion book of business where farmers are borrowing in order to buy inputs. When we look at our business, we're borrowing about 20% of our sales to growers when we give them more than 90-day terms. That's what we run through today, kind of our extensive credit process. We know that our customers today are buying some inputs from us where they're going to a bank or another third-party lender.
As we piloted over the last two years, this concept of Nutrien Financial, where we more professionalize our credit processes and work with growers to finance their whole book of business for inputs they're buying from us, they give us more business. Again, we think it's a very important part in combination with everything else we're doing to create more organic growth. Our experience in this has been successful, and we think we can do more of it.
Just to supplement from the point of view of how we would do that and why we would be competitive. Obviously, on our existing balance sheet today, we'll have some limitation from the point of view of leverage to compete with different financial institutions. We are in discussions with credit agencies so that we will be able to leverage Nutrien Financial without impairing any of Nutrien corporate credit rating. In essence, we'll be able to leverage them, we believe at least seven to potentially up to 10 times. What that do is that we'll start measuring that business on a return equity basis like any other financial institution, that will allow us to reduce the cost of financing to our growers and have access to better credit.
Today, we don't want to be the sort of a creditor of last resort, we'll like to be a core creditor. That will both expand the credit and reduce the risk for us at the same time.
Thank you. Still entertain one more?
Sure.
Still on retail, we've seen a number of large crop consumers like Kellogg and General Mills investing in programs to source more sustainably grown crops directly from farmers. But up until now, I've only really seen them partnering with very small agronomy companies to really work with them on the data side. Do you see this as a place where Nutrien can really monetize their Echelon program by starting some of these programs and offering them to farmers and consumers alike?
Yeah. It's a significant opportunity for us. One of the reasons why we bought Agrible, and Mike will explain, I think, where this is heading. It's still a small part of the U.S. market, this is growing, and I think it could be quite an opportunity for us.
Yeah. Vincent, Agrible, as Chuck mentioned, was one of the digital companies we acquired last year, and they had built a really good interface that was being used by Anheuser-Busch, General Mills, PepsiCo to create traceability from the farm gate to their processing plant. We've now expanded that tool, and we're working very closely with those food companies to help them think through their supply chain and how they can develop a traceability technology between the grower and the inputs that they're buying. We see an opportunity there. Again, as we blend it in with our retail business, then we also have the ability to sell those same inputs to farmers, and it all comes together kind of into that integrated portfolio package.
P.J. Juvekar from Citi. In one of your charts, you showed that working capital to sales ratio went up in 2018 when we're expecting it to go down. Was that simply because of the bad fall season that you ended up holding a lot of inventory, or was that something else? Secondly, a question for Jason. African swine fever in China, what impact would it have on grain demand in 2020, potentially subsequent fertilizer demand? Are you concerned, or are you just watching from the side? Can you just give us your view on that?
Yeah. PJ, I'll take the working capital point. I think there's probably three reasons that our working capital last year was historically at high levels. One is because if you go all the way back to the insecticide, fungicide window in the U.S., it was smaller than normal, and we didn't sell as many insecticides and fungicides. That's a window, and if you carry them over, you're carrying them over to the next season. That's one. Number two, as we all know, the fall fertilizer window also was not good. Our fertilizer sheds and our anhydrous tanks, we went through December 31st with them full.
Thirdly, with the tariffs coming on crop protection products, we also made some strategic decisions, and we worked with some of our suppliers to secure products into our inventory that didn't have the effect of the 10% tariffs. All three reasons ended up putting us in that position where we were in the low twenties from a working capital standpoint.
Yeah. On the question on African swine fever, obviously, it's going to have a significant impact on the hog numbers within China. The estimates are wide ranging, but many in between 20% to over 30% of the hog herd in China could be impacted. We spent a lot of time looking at this, and what we can say is there's a lot of uncertainty with respect to what the impact of that will be. We expect it to be relatively short term in nature, but what you can expect is, obviously, the number of hogs in China will decline, that's going to have a negative impact on what's being fed in China. We'd also expect that there will be offsets.
Livestock prices have increased, and we'd expect that feeding in the big livestock markets like Brazil, like Russia, Europe, will benefit from an export perspective, and the U.S. as well. Also within China, you could see consumption and also the production of beef and poultry increase that has an offset. In addition to, we've seen in past disease outbreaks that the weights of the existing livestock go up. There's a whole bunch of different offsets. We think it'll have a short-term negative impact on the rate of global grain and oil seed demand growth. Longer term, what we've seen in these crises in the past is that you see a very robust growth rate in demand once the herd size starts increasing again.
We know that long term, that meat consumption trends continue to increase in China and the rest of the developing world, and we don't see that changing. In terms of fertilizer demand, that's another thing that's uncertain along with the overall impact. If you look at what trade flows will be impacted, it has the potential to have a negative impact on soybean imports into China. From a fundamental standpoint, it probably continues to provide support to corn, as we've discussed. From a North American acreage standpoint, even if you look into South America, it could potentially provide support to corn and other feed grains, which is positive for Nutrien consumption.
Jeff Zekauskas, JP Morgan. I have two unrelated questions. The first one I think is for Chuck, and the second one is for Jason. In your presentation of the retail business and in the overall company, there's been a stress on EBITDA margins and improvement in EBITDA margins and improvement in EBITDA growth. It's also the case that you have a large acquisition agenda, and there don't seem to be explicit return on capital and return on asset targets. I was wondering, as the first question, if you're worried that you might skew the incentives a little bit too much in the direction of growth and not enough in the direction of return, and how you might protect yourself against that.
The second question for Jason is, over a five-year period, when you think about corn and soy yields in the U.S., given the amount of innovation that's happening in data, digital, traits, and germplasm, do you have a view, assuming weather is the same, of how much yields change over a five-year period on some kind of percentage basis? Do you think over a five-year period, climate change will make a positive difference to yields or a negative difference, or you can't tell?
Okay, Jeff. Look, when we look at retail and your question is, are we focusing too much on EBITDA or absolute growth and how the incentive programs work around the company.
We don't compensate, certainly this table on EBITDA. This table is compensated on TSR. We do have to balance, and we have those metrics on return on capital. The issue, of course, is when you're buying retail assets for those that have been part of this story for a little while, the return on capital is influenced by a lot of accounting, because often we have to write up the assets, and you have a lot of intangibles and goodwill because you're buying customer relationships. We don't think that is the best measure for a retail business that is growing by acquisition, but it is something we watch. We do focus very heavily on discounted cash flow and on returns on that.
We have a strong view that if we get the balance between efficiency targets, whether it's a return on assets or some other return metrics that we watch very carefully, and the proper IRRs, that it will drive what we're all looking for, which is a TSR. Now, as you go deeper into the organization, because they're a sales-based organization, we do compensate them on earnings, usually at the local level, whether that's a division or a branch. They have to pay for their capital. If we buy assets in a division, that divisional manager has to pay for that capital before their incentive programs kick in. There is even a balancing act at the local level where they can't buy their way towards bigger bonuses.
The system won't allow them to do that because they need to have a sufficient return for all the capital, even at the local level. Hopefully that helps answer the question. Jason, good luck with the next one.
I'll start on it, and Mike, you probably have some ideas as well. I guess if you look back historically, the average, look at corn yields in the U.S., they increase by about two bushels per acre per year. That's a relatively long-term trend. I do think if you look back over the past five or six years, there definitely have been what appear to be above-trend yields and not necessarily years with ideal weather. There's been some years with really good weather and some years where it's been a bit surprising how high the yields have been. I don't think it's a long enough time period to say that there's a trend. I think if you look back long term, there's always been innovation in agriculture and seed technology and agronomy that have contributed to the trend yield increase over time.
I think we're probably getting to the point where we're past some of the within seed genetics and agronomics. Supporting that in digital is really the next step to take the data and continue to drive trend yields higher.
Climate change? Positive, negative, or neither?
I think it's uncertain what impact. Obviously, if the climate is changing, there may be different parts of the world that have different weather trends over time and climate trends over time, and it could potentially shift what crops are being grown in certain regions of the world. Certainly, there's too much uncertainty to speculate on the impact.
Yeah, just one more for Mike on the retail side, on the digital platform side, sorry. As farmers search for this proverbial one-stop solution as opposed to 20 apps, it does strike me that the player or handful of players that establishes first one or two real fully integrated platforms will have some sort of real competitive advantage. We've talked a lot about FBN today, could you maybe just focus a little bit more on how your platform is differentiated versus the other key existing retailers in the channel and just give us a sense of maybe it's capability that you have that they don't, if you can perhaps quantify the time or lead advantage that you have, first mover to market.
It does strike me as you start integrating these other, I'll say players, as you backward integrate them into your model as well, you are really starting to establish that solution, but I don't have a good sense for how you're positioned relative to the other traditional-
Yeah, Steve. Look, if you look at traditional retail, the larger retail businesses have some sort of digital agronomy tool, most of them do. I would say the common elements that most of these companies have would be a variable rate fertilizer tool and a variable rate planting tool. That's probably where the industry's at today. No one's built a field and farm planting tool. No one else has an omni-channel tool like we do. As far as I know, no one else has built a tool that's built with an open architecture in mind to bring other technologies onto the platform. That's why, again, in the digital agronomy space, we are investing very little of our capital and our focus in that area. Other than, since we are a Nutrien company, we want to have the best Nutrien advisor.
When it comes to other agronomic decisions, weeds, fungus, insects, we think there's other companies that are going to invest their dollars, and most of them are suppliers today, which we have very good relationships with. We're already a route to market for their products. We should put their technologies on our platform, and that's where I think this is going. That's how we've built our platform to be really broad in terms of being a one-stop shop, and no one else is doing it.
Steve, we do think first-mover advantage is huge in this industry. If we can get
An integrated model with our agronomist and a platform that is easy to use, and they can conduct business with us when they want, where they want, and how they want. It's going to be very difficult, I think, for competitors to move our customers away from us. When you map on then Nutrien Financial on top of that, because our research shows that growers that we lend money to, we get a higher share of their wallet, and the turnover is a lot less. You put those three things together, and I do think that there is some strategic urgency to really accelerate the investments in this area, as well as, we've seen in the last two years that the industry is consolidating more rapidly than even we thought it would. I think part of the reason is because of this.
Jacob Bout, CIBC. When you think about your portfolio of wholesale assets, how important is it to match your wholesale production with retail needs? Will this shape future wholesale fertilizer M&A decisions? My first question. The second question is just simply just on the Chinese potash negotiation. I think you were talking about a price increase in the last quarter. Are you still thinking that?
Yeah. Susan can answer the potash question, Jacob. For us, it's part of how we would look at if we're talking about M&A in wholesale. It's part of the way we would look at our synergy opportunities. The merger played out exactly the way we thought it would. In fact, a little bit better than we thought is we knew, for example, Legacy Potash Corp wasn't selling much product at all into retail, especially in the nitrogen portfolio.
We showed you today that's worth about CAD 12-CAD 14 a ton. It's one of the considerations that helps us when we look at M&A and holes in our overall network portfolio. For us now, we're not only thinking about North America, we're also thinking about a North America-South America integrated model because Raef mentioned Trinidad, we also think there's opportunity to move Trinidad tons into Brazil at the right time if we had more of a network for it, so that we don't have to move as many tons into North America and pressure market premiums. There is a strong desire for us to build a North American-South American integrated network where we can move production tons, whether it's in season in the south or in the north, to optimize market premiums and overall margins.
It is a consideration, and how we would model our synergies would be based on that. You want to talk about China contracts?
In terms of China contracts, I'll reference two things. One is lots of questions around timing. This is obviously the great debate at this time of year. I think our expectation is that they'll probably start negotiations sometime after IFA. Yes, our view is they still are going to need to come up. One of the things that I want to point out is there's a lot of focus on port inventories. Port inventories have started to come down, but in-market inventories are very low. That's the intelligence we have. We do believe they're going to have to come to the table, and if you go back and just look at the last 10- and 20-year pricing strips, the gap between China, India, and, say, Southeast Asia or Brazil is quite large today.
They're going to need to come up, we fully expect they're going to need to come up in this next cycle. Right now, it's a bit of a watch time, that's still our view, Jacob.
Parkinson from Credit Suisse. You've mentioned a lot of opportunities for nitrogen brownfields. You do have a facility or a share of a facility in Argentina where there's been some, let's say, optimism in terms of longer-term availability. It's also a market where UAN, some other nitrates are growing. It seems like things are at least moving marginally in the right direction. What's your tolerance to ultimately add to your portfolio there? Is this something where Tim and Richard are going to talk to me and say to me like, "That was a waste of time," or is this something that the investment community should at least at a minimum have on its radar screen? Thank you.
Look, it's a very good facility down there in Argentina. We own half of it. Just as background, one of the things that's interesting in Argentina is the amount of non-conventional gas reserves that have been developed. They've gone from a situation within the last four years of importing LNG to exporting LNG. In fact, we're helping YPF now get to a point where they can export some of the peak gas during the summer periods. It's certainly an opportunity that we are looking at with YPF and Profertil. Obviously, the consideration for us is, as Chuck mentioned, we've got a network, we've got North American assets, some of which we can export from. We've got Trinidadian assets, again, which we can export from. Brazil is a growing market. We want to get a network in there to help us market product in there.
The question for us is whether it makes sense to invest in North America or Trinidad or Profertil to feed that growing market. It's an ongoing discussion and under review. There's no decisions pending in the near term. We'll continue to look at it, and if we think there's a good opportunity there, we'll discuss that with our partners. Yeah. Just a couple other comments. That's a little different consideration because you could call it greenfield, even though it would be on a brownfield site. It's really a new plant. We've already expanded and debottlenecked that plant in the last cycle. Now it would be greenfield economics. That's completely different. Everything we're doing in our nitrogen portfolio is brownfield by the purest definition. We think that right now is not the time to build greenfield plants. The market prices don't support it.
Then, of course, the construction risk is alive and well in most of these jurisdictions. Until we get comfortable that the economics make sense for greenfield, and we can minimize and manage construction risk for greenfield, it's a very low priority.
John Roberts, UBS, here in the back. Pedro mentioned that you might go outside your investment-grade criteria for the right opportunity for a short period and then maybe come back down again. Would that primarily be for something large in retail, or do you have a broader scope of opportunistic things that you might look at, like crop protection chemicals or even something else in the wholesale fertilizer market that we might not be thinking about? How broad should we think about what kind of opportunity might take you above your investment-grade target temporarily?
Yeah, I think you should answer the strategic portion of that.
Pedro can talk to you about how much money we think I can spend. Maybe I'll give you my perspective on that. Look, the five-year plan is exactly that. It's what we see here and now. We've talked a lot about should we go outside of our, what we'll call our core portfolio. We wouldn't consider some of what you've described as being outside of our core portfolio. Loveland Products today, there's 12 manufacturing facilities. It's CAD 2 billion in revenue. It is a chemical business. We will always look to add that to our portfolio, and we do that regularly. Agrichem was one of the acquisitions, Actagro was another. We would consider that to be fair game when it comes to strategic opportunities.
Beyond that, entering, we've looked at many different things, irrigation, insurance, all these sort of bolt-on businesses that we could either sell directly to the farmer through retail or some other mechanism. We think that that's a better opportunity for others, not for us. I'd say to you right now, we like this plan because it creates a lot of value, and a lot of the value is in our control in terms of execution. We will continue to sort of bolt on to our portfolio, especially in the Loveland Products, but we wouldn't shy away from a larger acquisition. We'd have to get comfortable that it's better than this plan, it's better than buying back the stock at today's price. Today is our current thinking, but we always look at all those options, and we weigh what's the long-term value creation for shareholders.
What we shared with you today is sort of the current thinking. The other things we talk about a lot, there's just nothing imminent.
Maybe I'll comment very quickly, which is you're talking about the capacity to acquire, which is one of the three criteria, I think. Chuck spoke about strategic fit. Of course, our corp dev department will need to determine just price. There needs to be a willing seller, a willing buyer at the right price and conditions. I think what I was referring to is to make sure that we have a wallet that is stretchable for those acquisitions at any point in time, that we can see through our way to make these acquisitions viable. We think we have a lot of acquisition power should anything be interesting strategic in the future. We're waiting for the right opportunity to surface.
Adam Samuelson, Goldman Sachs. Two questions. First, just on the potash side, thinking about your volume growth potential given the paid-for capacity that you have and discussion about brownfields post 2023, how do we think about that in the context of the Canpotex structure? It seems like there's a disproportionate amount of volume growth happening with the Nutrien relative to Mosaic, and how does Canpotex What's the value to Nutrien as you get bigger as total percentage of the market? Then second, more of a clarification question. How much CapEx over the next 18 months do you have to make final investment decision on of the stuff talked about across mostly the wholesale pieces, just the projects that were scattered about the portfolio? Thanks.
Pedro can answer the CapEx. Look, the growth of potash fits well within how Canpotex is operated. The way Canpotex works, quite simply, is it goes out to its customers, and it brings back a demand plan. That demand plan then comes back to the two shareholders, and each company is asked independently, can you meet your proportion? If one company cannot meet that proportion, the other company can fill it in. We don't think that we're restricted in any way with what we've shared with you up until 2023 and even beyond with the current Canpotex structure. I'll just remind you, and it probably goes without saying is Canpotex is still the best marketing and logistics company for potash. It's the cheapest way to get tons to market, and they've been in these core markets with relationships back for 50 years.
We think that it's a first-class organization. We're solidly behind Canpotex, and there's nothing in the Canpotex structure that would impede our growth.
I'd just add in terms of the first 5 million tons that we have bought and paid for, that's within our Canpotex allocation today. If we were to go and expand and do other things, the way Canpotex allocation works is you get allocated based on your capacity, so that would be additional.
From a CapEx standpoint, I think Susan and her finance department is a tool to determine what's the next cheapest ton. The first thing starts with where the demand is going to come from and how much do we need. By doing that, we'll be able to, through analytics, determine how much does it come from which mine with what workforce and what investment. I think given the fact, and I think that was mentioned before, that we have so much investment already in, that the next dollar of investment is extremely efficient from an input-to-output ratio. I think that's the reason why sometimes answering, especially if you have small increments, where this is going to come from. It may come from many different mines because the steps are relatively small, because they're all brownfields and debottlenecking.
They may come from three or four mines, and depends on time frame and depends on how much demand we're going to need, and the mix of products as well, I should add.
I suspect in the next 18 months, there won't be a lot of what I would call that incremental 5 million tons from 2018 to 2023 in that 18-month window. We're going to take 2020, and like I said, maybe even early 2021 to ensure that we need those tons sometime between 2025 and 2030.
Okay. I know there's some additional questions, we're going to wrap up the official section. For those of you online, thank you for joining us today. For those of you in the room, there will be a reception just out the door here with some drinks, and all of senior management is here to answer any follow-up questions you may have. Thanks for attending today