Farmers could be forgiven for tuning out the twists and turns in the ongoing battle over the future of Canada’s PotashCorp to focus on more top-of-mind issues such as finishing off this year’s field work.
But whether you’re tuned in or not, how this deal shakes down could have an impact on your bottom line.
Here’s a condensed update for those who haven’t been keeping up with the various twists and turns of this unfolding saga: Mining giant BHP Billiton launched a $38.9-billion hostile takeover bid of PotashCorp in August.
PotashCorp executives claim the company is worth more than that and, in addition to lawsuits claiming BHP deliberately tried to force its share values lower, is scanning the global horizon for a more suitable suitor.
Just last week, reports emerged that China’s Sinochem, the Chinese state-owned chemicals group, which was considered a front-runner, would not be entering the bidding war.
While it’s ironic that a company the Saskatchewan government sold off for a paltry $630 million in 1989 is now valued at $38.9 billion give or take, that pales in comparison to the double standards applied to front-line farming and agribusiness when it comes to prices and ability to extract value from the market.
Much of the consternation surrounding this particular corporate play has centred around the impact this sale might have on Canpotex, a potash-export cartel consisting of PotashCorp, Cargill’s Mosaic and Agrium.
BHP has indicated if it is successful, it would pull out of the cartel in favour of direct sales to customers. It would also operate PotashCorp’s mines at full capacity, which would have the effect of forcing prices down over the short term due to higher supply.
But before you start cheerleading for BHP in this corporate game of chess, note the long-term goal of this strategy would be to corner a larger world market share of the potash trade, which would position the company to reach deeper into your pockets to extract higher returns.
The chief concern over a possible bid from Sinochem was that it would use its control of the company to drive down the price of potash, of which China is a major importer.
And there’s more. Besides the play on PotashCorp, a similar drama is playing out in Russia as a Russian billionaire attempts to merge Uralaki and Silvinit, two Russian potash companies, and Belaruskali, a Belarusian company, to reduce competition.
In the world of fertilizer, it seems selling cartels and rising prices are a good thing.
But when it comes to farmers using orderly marketing – cartels if you like – through the Canadian Wheat Board or supply management, some of these same business commentators are behind indignant calls for so-called marketing freedom – and lower prices for milk and eggs.
In the business press, rising grain prices are a bad thing – that could spark a food crisis. There is no perceived connection between fertilizer and food costs, perhaps because it is well known that farmers will simply suck it up and pay with no ability to pass on the costs.
There’s another angle on this that is worth considering.
In a recent online article, C. Robert Taylor, an Alfa Eminent Scholar professor of agricultural economics at Auburn University, points out that although 60 per cent of the world’s biggest supplies of phosphate are in Morocco and China, China has imposed tariffs to prevent its exports. That means the bulk of the export trade in phosphorus originates from Morocco, and the U. S., which analysts estimate will see its stores depleted within 15 years.
Interestingly, world trade in phosphorus is dominated by three corporations: Mosaic (Cargill), OCP, the Moroccan-owned OCP and none other than PotashCorp.
While PotashCorp doesn’t own phosphate mines per se, it has substantial stock holdings in fertilizer companies that do. According to Taylor, Cargill owns or controls over 30 per cent of the U. S. reserves of phosphate rock, while PotashCorp has 50 per cent of domestic reserves.
Cargill and PotashCorp operate an export cartel, PhosChem, fully sanctioned under the U. S. Webb-Pomerene Act of 1918, which helps small U. S. businesses engage in collective export sales – even though neither of these companies is exactly small and PotashCorp, isn’t U. S. based.
“Bottom line: World trade in potash fertilizer may be dominated by two entities, Canpotex, a Canadian cartel, and the conglomeration in the former USSR. World phosphorus trade is already dominated by PhosChem, a U. S.-sanctioned cartel, and OCP, a Moroccansanctioned monopoly,” says Taylor. “Troubling, ain’t it!”
Well, maybe for farmers and the people who need to buy food. But not for shareholders.
So is BHP going after PotashCorp for its potash or its position in the world phosphate market, which by the way has been soaring of late?
Good or bad? It all depends on your perspective. [email protected]