The federal government studied the potential effects of BHP Billiton’s bid to take over PotashCorp and concluded it does not provide a “net benefit” to Canada.
Saskatchewan’s government cheered the decision to block the deal, which it fiercely argued against.
The premiers of Alberta, Manitoba, Quebec and New Brunswick sided with premier Brad Wall in his argument that the provinces’ constitutional responsibility for natural resources should give them a strong voice in such matters.
We’ve also heard from unhappy Potash-Corp shareholders who lament the ability to cash in on BHP’s bid and from free traders who say the rejection calls into question Canada’s reputation as a country open for business.
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What we haven’t heard much about is what this means for the people who use potash – farmers.
Nitrogen, phosphate and potassium (potash) are the key plant nutrients in fertilizer blends. Most farmers see fertilizer as an essential tool and one of their largest operating costs.
In recent years, as food stocks tightened and grain prices rose, farmers saw fertilizer prices and fertilizer company profits soar. The price run up reversed briefly during the 2009 recession that also hammered grain prices lower.
Few farmers could have been happy with PotashCorp chief executive Bill Doyle’s comment in a quarterly report at the time, when he chastised other fertilizer companies for producing too much and letting prices fall. Doyle argued that farmers have no choice but to buy fertilizer if they want to maintain yields.
The price drop “did not increase demand for those (fertilizer) products. It only destroyed value for those companies that are producing those products,” Doyle said.
The potash producers club is small, with production concentrated in a few companies – an oligopoly – operating in Canada, Russia and Belarus.
The Conference Board of Canada’s study of the BHP Billiton-PotashCorp bid, commissioned by the Saskatchewan government, said PotashCorp has a long held strategy of using its dominance to match production to market conditions and minimize price volatility.
In contrast, the Saskatchewan government says, BHP Billiton has a reputation of running its mines at full capacity and being a price taker. However, the Conference Board report says BHP is more likely to operate at less than capacity to optimize return on capital.
Nevertheless, the Saskatchewan government is convinced BHP will follow a full capacity strategy that will lower potash prices and the province’s revenue from royalties and other taxes on production. Hence its opposition.
Saskatchewan taxpayers might see value in this argument. Less revenue from potash means more reliance on personal income tax. But farmers don’t see the value in supporting a potash oligopoly that manipulates supply to keep prices high.
Potash may be less important than other nutrients for prairie growers because of its natural levels in the soil.
But it is vital to the global effort to increase food production to meet rising demand.
The Canadian Federation of Agriculture has pointed out the potash issue is about more than national pride and investor profit.
It’s about food and Canadian farmers’ ability to sustainably participate in supplying the growing global demand for food. Allowing BHP’s bid to go ahead might have no net benefit to Canada, but nor is there is a net benefit to championing an oligopoly if it manipulates fertilizer prices.
As governments act to protect revenue and Canada’s hold on a strategic resource, they should also ensure farmers have access to it at a fair market price.
Bruce Dyck, Terry Fries, Barb Glen and D’Arce McMillan collaborate in the writing of Western Producer editorials.
