Conservatives and Potash: Oh What to Do?
This is the week that we may find out if the federal government allows a hostile takeover of Potash Corp. by BHP Billiton, an Australian company. For those of you yawning at the notion that this is news keep in mind that Saskatchewan has 53% of the world’s potash reserves and potash is an essential nutrient for plant growth. With the world’s increasing population and their insatiable appetite for food, potash is looked at as the new gold in many parts of this world.
Your loyal scribe actually knows what potash is. At this time of year I find myself purchasing potash to spread on many of my fields in the Dresden area. For the sandy soils on my farm potash is very important, it takes six months to break down so if I apply it now by next June when my corn needs the nutrition, it will be there. The price of potash is about one third what it was two years ago. That’s good for me but I’m not sure it’s good for the people at Potash Corp.
At one time the Potash Corporation of Canada was a Crown Corporation owned by the people of Saskatchewan. That was changed as it was privatized. The royalty schedule that the Saskatchewan government negotiated was very lucrative. Not only did the Saskatchewan government get healthy royalties but also there were also many jobs created and Potash Corp. actually started to make money. So now that the Australian company BHP Billiton has come along with a hostile takeover bid, Saskatchewan can see those royalties disappearing and maybe some of that potash too.
The delicious part of this politically is that you have two Conservatives at opposite ends. You have Premier Wall, a staunch defender of all things free enterprise looking for a helping hand from his conservative friends to stop the takeover. The only problem is these are conservatives who usually believe in these things. At the same time the Premier has lined up NDP and Liberal friends and Premiers to come out against allowing BHP to take over Potash Corp.
In my mind, it looks to me when it’s convenient to be a conservative it’s a great thing. However, when there is about $3-$6 billion in royalties on the line, even Premier Wall can figure out falling on the sword for the Conservatives over Saskatchewan’s resources doesn’t make any sense. So he is acting like a protectionist liberal and trying to make the Prime Minister see the folly of BHP’s takeover bid. Canada’s opposition parties are lining up, licking their lips to rub in the decision whichever way it goes.
I am not so sure how I feel about this. When commodity prices spiked two years ago and fertilizer became a very scarce commodity, prices soared. In effect potash prices were triple what they are today and local farmers were faced with paying the bill with little recourse. Many did not pay the bill which eventually led to a decline in the demand for potash and that is certainly one reason that we arrived here in 2010 with a hostile takeover bid by BHP. I don’t have a lot of sympathy for them because when prices tripled two years ago, they cut back production to squeeze us even more. It was greed run a mock and now they are hiding behind politicians hoping they will not taken over by some Aussie mining company.
Of course the issues here are much bigger than me spreading some expensive fertilizer on the ground. Premier Brad wall is just being a pragmatist for Saskatchewan. It is to Saskatchewan’s benefit to keep the status quo because the royalty structure is such that Saskatchewan may lose $3-$6 billion based on that alone. It is quite rare though in these times with a Conservative Prime Minister to get a turnover bid on the open market turned down. There is much more to this than simply that but thumbs down from the federal government would surely send signals into the international community that Canada isn’t necessarily open to any type of business.
Of course when we think about hostile takeover bids by foreign companies it is usually those pious Republicans to our south! It is not those Crocodile Dundee wannabes way down under. So we will see what happens. In 2010 our world is hungry for Canada’s commodities. This week it is potash, what will it be next week, oil and iron ore? The challenge for the Prime Minister is to get this one right. He is being presented with the politically unpalatable choice. With an election coming probably next year this decision may put 11 Saskatchewan seats on the line. He knows that might be enough to send him packing. Who knew it might come down to fertilizer.