Canada's refusal to allow the foreign takeover of its main potash group looks likely to set a trend, with "resource nationalism" to prove a theme next year too, to the detriment of farmers' fertilizer bills, UBS said.

The world is to see a further rise in the "potash-type" protectionism which saw Canada last month block a $39bn bid for PotashCorp by BHP Billiton, the Anglo-Australian mining group whose commitment to the Canpotex potash sales consortium had appeared in doubt.

Indeed, it is to spread to markets for other fertilizer types, as well as crop protection chemicals, as countries seek to maintain a national grip on industries deemed strategic.

UBS singled out China as set to restrict exports of urea and phosphate, while "Canada prevents threats to the potash cartel structure".

The note came as China revealed it would, from today, hike export taxes from 7% to 100% on some fertilizers, including diammonium phosphate, a key phosphate product.

Farmers' bills 

The hurdles to free trade were likely to result in higher bills for farmers, who faced "sustained cost input inflation".

"Resource nationalism will likely increase fertilizer price upside," the bank added.

However, agrichemical costs were unlikely to see the same inflation, becoming the focus of farmers' efforts to cut bills, at a time when huge Chinese entry into the glyphosate market has already sent prices of the generalist weedkiller tumbling.

"China's strong acquisition activity in crop protection chemicals will likely make this market increasingly competitive as farmers look for some cost relief, and we see margins at risk," UBS said.

Top pick 

Indeed, the bank said it was "cautious" on prospects for shares in crop protection firms, but "positive" on shares in fertilizer groups, as well as those in seed companies, which would benefit as growers attempt to keep the need for other inputs in check by buying better quality seed.

The bank named Agrium, the Canadian fertilizer group and farm retailer, as a one of its top equity picks in the chemicals sector for 2011, thanks to its "leverage to nitrogen and potash fertilisers which both have rising price thematics".

UBS has a "buy" rating on Agrium shares, with a price target of $96 for the New York-listed stock.

The shares closed on Tuesday down 0.6% at $80.23.