BHP's planned phasing out of Canpotex, would have threatened to destabilize the revenue base of an entire province.
Has Brad Wall's stick-handling of the potash controversy assured his party's re-election next fall? With a recent poll showing 57 percent support among decided voters we could easily answer "yes!" But I trust the Saskatchewan electorate is not becoming as sheepish as Albertans who have lived in a "one-party" state for decades. And things can change quickly; extreme weather and a collapse of potash revenues this year, what's coming next? While stories speculating that Wall's newfound populism shows he is eyeing Harper's job, make for good infotainment, they tell nothing fundamentally about this potash controversy. We'll have to go below the headlines into some solid history for that.
Starting with Canpotex
Canpotex is the marketing arm of Saskatchewan-operating potash companies. It's a global force controlling two-thirds of fertilizer sales in the five biggest offshore markets – China, Brazil, India, Malaysia and Indonesia. Most of us have heard of OPEC, a 12 country cartel controlling much of global oil sales. With just three corporate members – Potash Corp, Mosaic and Agrium – Canpotex controls much of the global potash market.
Paul Waldie's October 30th Globe and Mail story helps explain how Canpotex got into this powerful position. It dates back to when Liberal Premier Ross Thatcher met with his fishing buddy, the Governor of New Mexico, and agreed to control potash production to boost its price and enhance royalties. Without this, the lucrative New Mexico potash industry would have been threatened by the huge discoveries of potash in Saskatchewan, which led to the first mine at Esterhazy in 1962, and now includes 10 operating mines. Without this agreement, Saskatchewan and Canada risked a trade war, and the mouse had no chance fighting with the elephant.
They could legally proceed because export associations weren't regulated as cartels. Thatcher's government compelled all potash producers to join Canpotex, which then marketed for them all. In a sense, his government was a pioneer of state capitalism.
From public to private
After conflicts over taxes, royalties and production, in 1975 the Blakeney NDP government nationalized 50 percent of the potash industry, creating the Potash Corporation of Saskatchewan. It kept Canpotex, which now also marketed for the new crown. After the Devine Conservatives were elected the potash crown was privatized, and in 1989 government shares were traded on the Toronto Stock Exchange. Potash Corp has become a majority-US shareholder company with an American CEO and head office in Chicago.
When demand and price fell, Canpotex aggressively marketed potash to emerging economies, and by the late 1980s China was a huge customer, buying ten times what it had bought a decade before. After the Soviet Union collapse, private potash companies emerged. In 1991 Russia formed its own export cartel, Belarussia Potash Corp (BPC) which, being closer to China, challenged Canpotex sales. Canpotex responded by upgrading its infrastructure, buying thousands of rail cars able to move tonnes of potash to shipping ports to quickly meet contracts abroad. It developed varieties of fertilizers for specialty cash crops such as sugar cane, palm oil and rice, which grew to one-half of Canpotex's sales. Saskatchewan ended up controlling one-third of the world sales, leaving Russia with 19 and Belarus with 15 percent. Most vital, Canpotex helped keep fertilizer prices and government royalties up.
Wall's new-found populism
Governments of all stripes were happy with the arrangement, until this last year when potash prices crashed after reaching an all-time high of $1,000 a tonne. In 2009 Potash Corp's sales dropped to $2 billion from $5 billion the year before. Revenues to the province plummeted. Just two years into its first term the Sask Party had to tone down their "we're becoming more Alberta than Alberta" bravado.
Meanwhile BHP Billiton, of Australia which imports 90 percent of its fertilizer from Canpotex, was "stalking" Potash Corp under its secret acquisition strategy Project Porcupine. After its $38.6 billion (US) offer was rejected by Potash Corp, it began a hostile takeover. Premier Wall likely felt broadsided. Not wanting to appear opposed to free enterprise, he said he was awaiting a Conference Board study on the impact of a BHP takeover. Though the Conference Board's October 4th report said the takeover posed "minimal risk" to the province, the Sask Party reacted to the projected loss of $2 billion in revenue over a decade. On October 21st Wall wrapped himself in the Canadian flag and stood up against the world's largest mining company.
In his widely publicized Open Letter, Wall juxtaposed the job of corporations, "to create value for their shareholders" with his government's job, "to protect the interests of our shareholders", the Saskatchewan people "the owners of our rich potash industry". The play on words, turning citizens with rights and freedoms into shareholders, was clever but demeaning to democracy.
Wall then stick-handled his way through his "open for business" ideology and his government's dependence on a price-fixing potash cartel. It's not that Wall "transformed himself into a People's Premier" as Brenda Bouw wrote in the October 30th Globe. It's that he adopted populist rhetoric to obscure the contradictions he was straddling.
Those close to the workings of corporate capitalism saw it for what it was; about power. As one BMO researcher said "the province gets its potash income from price not volume" and the BHP's planned phasing out of Canpotex, would, as the November 6th Report on Business put it, "threaten to destabilize the revenue base of an entire province." Such dependency on one export doesn't suggest much attention to sustainability by our governments.
Things could have gone differently. BHP took a chance by low-balling its bid, at $130 a share, in hope of showing there were no other serious bidders. This backfired, insulting shareholders who believed the potash price was rebounding. A higher offer might have led Potash Corp's big shareholders, more interested in profit than ownership, to tell Wall and Harper to "mind their own business". And they likely would have listened to their corporate backers' lobby.
Wall and Harper's simplistic rhetoric about globalization and free trade gave BHP good reason to believe they had government on-side. Until the November 4th federal government rejection of BHP's takeover, there had only been one, in hundreds of business takeovers, stopped by Harper, the one involving Canada Arm technology. There was no intervention to stop Rio Tinto PLC taking over Alcan. Inco, Falconbridge and Noranda had all been bought by foreign corporations without any serious look at "net benefits".
In retrospect, BHP erred in taking 4 weeks to visit Wall and not analyzing Harper's minority-government predicament. But it's a red-herring when Wall says he couldn't allow the foreign ownership of what, overnight, he re-labelled a strategic Canadian resource, for the majority of Potash Corp's shareholders are American. Even the Saskatchewan Roughrider's upgraded stadium, once called Taylor Field, has been renamed after the Minnesota-based potash company, Mosaic. And with the Globe reporting 70 percent of Saskatchewan-produced potash going to the US, it's become a strategic resource to agribusiness there. A lot of continentalist maneuverings are going on under the radar screen, where political rhetoric and mainstream journalism rarely go.