Farm groups and politicians are concerned about the potential takeover of a Saskatchewan fertilizer icon by an Australian multinational.
On Aug. 20, BHP Billiton launched a $40 billion US bid to purchase Potash Corporation of Saskatchewan, the world’s largest fertilizer manufacturer.
Ian Wishart, president of Manitoba’s Keystone Agricultural Producers, worries about the ramifications for farmers in his province if the deal goes through.
Growers in Manitoba use more potash than their counterparts in Saskatchewan and Alberta due to the crops they grow and their soil conditions.
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“I like a competitive marketplace where occasionally there are oversupplies at good prices, not one where we never have an oversupply and a good pricing situation,” said Wishart.
BHP Billiton doesn’t produce any potash but is exploring the possibility of building an $8 to $10 billion mine in Jansen, Sask., that would produce eight million tonnes of potash per year, rivaling the output of all of PotashCorp’s mines combined. The
plant would be operational in 2015.
PotashCorp’s chief executive officer Bill Doyle has suggested the project was “floated” by BHP Billiton to drive down PotashCorp’s share price in anticipation of the takeover bid.
But BHP Billiton chief executive officer Marius Kloppers said the Jansen project will proceed regardless of the outcome of the bid.
Wishart’s concern is that in the aftermath of a BHP takeover there would be one major potash producer instead of two, which would limit any chance for competitive pricing.
In addition to being the world’s largest potash producer, PotashCorp is the third largest global producer of phosphates and nitrogen, so the competition concerns go beyond potash.
Bill Boyd, Saskatchewan’s energy minister, is more worried about potash prices falling in the wake of a takeover. BHP officials have told the Saskatchewan Party they intend to run the mines flat-out rather than adopting the more controlled production approach taken by Potash- Corp.
“The initial indication was that they may be looking at increasing production fairly significantly,” said Boyd.
“If production were ramped up, there is every likelihood that we would see lower prices for that potash.”
Lower potash prices means smaller royalties for a province that has collected as much as $1.4 billion per year from PotashCorp.
“That’s an unacceptable option to us,” said Boyd.
The province is considering regulatory or legislative options that would force any buyer of PotashCorp to market the product through the Canpotex marketing agency, which matches production with demand.
Boyd said the benefit farmers would derive from lower potash prices in a province that doesn’t use much of that type of fertilizer pales in comparison to what they could lose through spending cutbacks on health care, education and highways if the royalties shrink.
Greg Marshall, president of the Agricultural Producers Association of Saskatchewan, said the takeover hasn’t been a real hot topic for his members.
“There is not a lot of concern that I’m hearing amongst farmers.”
Marshall hopes the jobs will stay in the province if there is a takeover and that it doesn’t lead to a lack of competition in fertilizer production.
PotashCorp spokesperson Bill Johnson said the company has recently implemented some farmer-friendly policies.
It is spending $7 billion on an expansion project that will more than double the company’s potash production capacity.
The project started in 2005 and did not falter during the economic downturn in 2008 and 2009 that saw global potash demand plummet four times lower than it had ever been.
By the time the expansion is complete, the company will have added 10 million tonnes of annual capacity to the 7.1 million tonnes it started with in 2005.
“For farmers in Western Canada and around the world the best thing that we can do is continue to bring new production on stream and bring it on stream when the marketplace needs it,” Johnson said.
