In this issue’s lead article, my colleague Richard Stavros laid out the case for investing in agriculture. More people, less arable land and increasingly unpredictable harvests thanks to extreme weather events are boosting the need for higher crop yields.

Growing opposition to genetically modified organisms (GMO) is a salient point in this story. Seeds are increasingly modified to tolerate harsher drought conditions or to have a greater resistance to various sorts of pests.

Many people are fearful of the introduction of GMOs into the human food supply. Not only is there a risk that the consumption of GMOs might have unintended consequences in terms of human health, there’s the ever present danger that cross-pollination as the crops grow might have an adverse impact on other plants, just to name a couple of relative unknowns.

But aside from clean water, access to enough food to sustain life is one of the greatest concerns for people the world over. That makes it critically important that crop yields continue growing and, in the absence of GMOs or other technologies, that mainly leaves fertilizer.

According to data from the United Nations Food and Agriculture Organization, global fertilizer consumption has jumped from about 162 million tons in 2008 to about 180 million tons last year. By 2016, demand is expected to reach nearly 200 million tons, all to support a growing and hungry global population.

Consistent access to quality fertilizer is particularly important in the US, given the country’s role in meeting global food demand. US exports of corn and soybeans make up more than half of the total global exports of those commodities and US wheat exports make up 18 percent total global supply.

Considering that there is very little additional arable land available which isn’t already in use and irrigation is common practice, the only real way to increase yields is through the use of fertilizers and, to some extent, herbicides. Otherwise, it would be tough to meet growing global grain demand which, on average, increases by about 40 million tons per year even as yields increase by just 0.5 percent.

Agrium (NYSE: AGU), a producer of all major crop nutrients, is our favorite North American fertilizer play. With more than 750 farm stores across the country, the company controls the entire value chain from production to retail. It also has a growing presence in both South America and Australia.

In addition to being the third-largest producer of potash in North America, the company also is the third-largest producer of nitrogen in the world, with four production facilities in Canada and one in the US together capable of supplying over 5 million tons of nitrogen per year. Thanks to extremely favorable North American natural gas prices, Agrium is able to undercut the prices of many competitors, particularly in the Ukraine where some of the largest producers are located.

Agrium shares are currently trading well off their 52-week high of more than $115 following the breakup of the Central European potash cartel, one of two global price setters. In July, Ukrainian potash producer Uralkli decided to exit its cartel in a bid to spur potash demand by cutting prices, sparking a sharp sell-off in shares of fertilizer producers amid fears of falling prices.

Agrium has a distinct advantage in the current market place. For one, it has total control of its value chain, enabling it to cut costs where it can and adjust production to more profitable levels. Potash is also a relatively small market for the company, contributing just $380 million of $2.7 billion in earnings before interest, taxes, depreciation and amortization (EBITA) last year. Nitrogen, on the other hand, contributed $1.19 billion in EBITA, with the company’s retail operations contributing almost $1 billion on their own.

In addition to fertilizers, the company’s retail operations also market crop protection equipment and other products and services, giving Agrium a diversified income stream.

Thanks to the revolutionizing effect of hydraulic fracturing on natural gas production in North America, there’s not much chance of a spike in natural gas prices denting Agrium’s impressive margins in its nitrogen business.

The company generated $5.37 in free cash flow per share in 2012 on earnings per share (EPS) of $9.56. In the second quarter of this year alone, EPS came in at $5.02 as farmers prepared for next year’s growing season. That helped fund a recent bump up in Agrium’s dividend, from a quarterly 6 cents in 2011 to 50 cents in 2012 to 75 cents today.

The company’s valuation is also extremely favorable, trading at just 9.6 times trailing one-year earnings versus an industry average of 12.5. It is also at a discount on a trailing sales basis with a ratio of just 0.8.

Thanks to the heavy market discount in the wake of the potash shake up, the company’s price-to-earnings growth ratio is just 0.3, which basically boils down to paying 30 cents today for $1 in future earnings. That undervalued state makes the company an extremely attractive buy, even as its growing dividend and role in meeting food demand makes it a solid inflation hedge.

Given Agrium’s strong competitive advantages, its attractive valuation and the long-term need for more and more fertilizer, it’s the newest addition to our Survive Portfolio as a buy up to 100.