Editorial The Saskatchewan-China connection

The story of an overnight success that took years of effort is one that’s well known in the mining industry. A discovery, for example, must appear to many outside the industry as something that happens quite suddenly. One day the stock price is down, the next day it’s up and climbing higher. The groundwork necessary to make the discovery is rarely appreciated.

Although potash isn’t an industry in which developments make the stock market move, the tse would have been sitting up and taking notice if it were. Two major developments have turned around an industry cursed with extreme overcapacity and weak demand less than a year ago into an industry with a very bright future. An agreement between the U.S. and Canada regarding exports of Canadian potash to the U.S. settled a nasty dispute over charges of Canadians dumping potash onto U.S. markets. That in itself was enough to bolster the Canadian potash industry. Canada is the largest producer of the material and the U.S. is our largest market.

But a second development — and possibly a much more significant one in the long term — is the contract between Saskatchewan’s potash producers and China.

In the biggest single sale by Canpotex, the marketing agency for the Saskatchewn producers who produce the bulk of Canada’s potash, China will buy over the next six months 550,000 tonnes of potash worth $60 million, a price significantly higher than that received during 1987.

It took three years for this particular overnight success. While Canpotex has been selling to China for 15 years, it was only in the past three that it set up a development program and spent $1 million annually trying to increase the market in China. After the first year of the program, China’s buying dropped to almost nothing, but the organization kept plugging away.

Now, says Canpotex President Erik Ekedahl, the potential for future sales in China is “staggering.” And Canada is the only producer that has made the marketing effort and that has the capacity to fill that potential. Canada is in a unique position to fill the needs of a unique market.

It’s not a sure thing, of course. For one thing, political stability in China is not the most certain.

But to hear Ekedahl tell it, the Chinese are clamoring for more potash. Used as a fertilizer additive, Canpotex has demonstrated to the Chinese that it can increase yields 25-80% and that an investment of $1 in potash can result in a $5 return through increased productivity.

“They may be illiterate, but they’re not stupid,” says Ekedahl of the Chinese farmers. “They know how to count.”

In fact, says Ekedahl, Chinese officials jokingly admonish Canpotex for creating a demand that the country cannot logistically keep up with. Port, bagging and transportation facilities just can’t deliver all the potash the Chinese farmers would like to have.

Canpotex’s success should be an example to all Canadian traders. It takes a certain amount of aggressiveness and a lot of patience to develop a market. For too long Canadians have relied on the “easy” U.S. market. That will always be our bread and butter — an economic base even more certain through the free trade agreement — but Canadians have to strive to compete elsewhere, too.

For the potash industry, the darkest days may have passed. To its credit, it persisted in efforts to sell to markets other than the U.S. The result is that this sale to China will be just the beginning for what appears to be a rejuvenated industry.