In a world eager for plant nutrients, Potash Corporation of Saskatchewan Inc. (PCS) offers double strength: by capacity, it is the world's largest potash company and third largest phosphate producer. Export-oriented, it is a global pace-setter.
Potash Corporation of Saskatchewan Inc. is the world's largest producer of potash and the third largest producer of phosphate. Potash and phosphate are mined for their essential nutrients, potassium and phosphorus, which are used in making fertilizer. Potassium is used to increase crop yields, raise the food value of certain plants, and aids in resisting diseases leading to crop failure. Phosphorus, which is instrumental in the process of plant photosynthesis, is necessary for the normal growth of either an animal or plant, and is an essential ingredient for its maintenance and repair. Through an aggressive acquisition policy, the company has been able to make its presence felt throughout the world. Two of the most important acquisitions, Texasgulf and White Springs Agricultural Chemicals, manufacturers of animal feed products, have enabled Potash Corporation of Saskatchewan to dominate the North American phosphate fertilizer market. In addition to its stable sales base in Canada and the United States, the company has sold large amounts of its products to China, Taiwan, South Korea, Japan, and Brazil.
Potash Corporation of Saskatchewan Inc. (PCS) was established on February 4, 1975, by what is called an Order-In-Council of the Canadian Government. Private potash companies had been operating in Saskatchewan since the mid-1950s, but the federal government of Canada had failed to reach any agreement with those companies that would not only guarantee increased production capacity of potash but a greater degree of benefit and ownership for the people living in Saskatchewan province. Created to function as a commercial provincial crown corporation to produce and market potash, the firm actually began its life as a functioning producer during the 1976-77 fiscal year. By the end of that time, the company had acquired two mines, the Duval Mine and the Sylvite Mine, renamed the Cory Division and Rocanville Division, respectively, and had increased its production capacity from zero to the second largest producer in the North American market with over 540,000 tons. The corporation had established a network of 16 distribution warehouses, 15 of which were located in the United States, and had started to market all its foreign sales through Canpotex, a marketing agency set up in Toronto by all the potash firms operating in Saskatchewan for the sole purpose of promoting the sale of potash outside the North American market. Profits of US$890,000 were made on sales of just over US$22 million, and more than 1,100 people were employed by the company.
PCS initially started its operations in five geographically distinct areas within the province of Saskatchewan, which possess approximately 40 percent of the world's known reserves of potash. In addition to the Cory Division and the Rocanville Division, the company purchased the Alwinsal mine, the Allan mine, and the large potash reserves at Esterhazy, which significantly increased its holdings. The raw ore of potash, comprising 50 percent sodium chloride, 45 percent potassium chloride, and 5 percent clay, is found in naturally occurring potash beds about 25 feet thick in Saskatchewan. Discovered during the early 1940s as the Canadian government drilled for oil to fuel the Allied War effort against Germany and Japan, the potash beds are located between 3,000 and 7,000 feet below the earth's surface. Found to be a highly effective ingredient to enhance crop yields, potash was soon used in fertilizer products. By the late 1970s, PCS had grown so large that it controlled 40 percent of Saskatchewan's total production capacity. Most impressively, company sales had skyrocketed from US$22 million in 1977 to over US$312 million by the end of fiscal 1979-80.
The Economic Downturn of the Early and Mid-1980s
Unfortunately, during the early 1980s PCS confronted one of the most difficult periods in its short history. Company sales had plummeted to US$188 million in 1982, due largely to the deteriorated conditions of the North American market. The U.S. Government initiated a comprehensive program to reduce grain inventories across the country by reducing the total amount of planted acreage and, when combined with a lengthy drought, sharply reduced the application of potash products. Fertilizer consumption within the U.S. dropped 23 percent from 1980, while other fertilizer producers managed to capitalize on PCS's lost market share by taking advantage of American freight deregulation and lower levels of oceangoing freight. At the same time, foreign markets such as Brazil and Indonesia were oversupplied with potash products, thus lowering prices and revenues for the company.
Management at PCS responded by implementing a major cost reduction program, which included production reductions, inventory reductions, intermittent shutdowns, and employee layoffs. In addition, management reduced the amount of capital budgeted for lower-priority programs and research and development activities. Yet by the end of fiscal 1985, sales had increased only slightly to US$197 million, and net income for the company was reported at a loss of US$49 million.
The bad news for PCS continued into 1986. The slight increase in sales, initially interpreted as a sign of more promising economic indicators by company management, was misleading. In 1986, sales fell to US$155 million, and losses were reported at US$103 million, the worst financial record in the company's history. In contrast to the period between 1975-81, when planted acres, prices, and agricultural land values were on the rise and potash consumption was growing at an average rate of 6.3 percent in the United States alone, the period between 1982-85 brought with it falling prices, land values, and a reduction in planted acreage, resulting in a drop of potash consumption that totaled 2.5 percent per year. Compounding the company's problems was the United States farm policy which withdrew over 75 million acres out of production. The use of potash-based fertilizers for corn and soybean, the two most essential crops for potash consumption, decreased dramatically across the United States due to its farm policy. Thus, in the U.S. market, potash prices fell to an all-time low.
There was a bright light on the horizon for the company, however. Through its association with Canpotex Ltd., the marketing agency selling potash to overseas customers, offshore sales of 4.2 million tons surpassed the previous record of 2 million tons set in 1980. Markets in Asia and Oceania were growing at a quick pace, and exceptionally strong sales records were being set in China, Japan, Korea, Indonesia, Malaysia, and Australia. In fact, PCS signed a contract with the Chinese government to deliver over 550,000 tons of potash, the largest contract arranged through Canpotex for a single customer.
Growth and Resurgence During the Late 1980s and Early 1990s
A dramatic reversal of PCS's fortunes occurred during the late 1980s. By 1988, revenues increased to US$368 million, while net income was reported at US$106 million. The cost-cutting measures initiated by company management during the early and mid-1980s began to show their rewards. Daily, monthly, and yearly production records were broken at the company's five facilities in Saskatchewan, while production costs were held to a minimum. Record tonnage was sold to China, Korea, Malaysia, Taiwan, Argentina, Chile, and Italy, and prices began to improve over the levels of the mid-1980s. The use of potash began to increase within the United States market, largely due to the fact that more acreage was used for planting than in the previous four years.
In 1989, the decision was made to privatize PCS. The most significant event in the company's history came when the Province of Saskatchewan sold approximately 13 million shares in an initial public offering of company stock on the Toronto exchange. Over 11 million of the shares sold went to residents of Saskatchewan. The capital raised from the public offering helped the company upgrade its mining operations and expand its presence in foreign markets, especially Asia and Oceania.
By 1991, PCS reported an increased net income of 78 percent over the previous year, while revenue from overseas sales jumped 18 percent during the same time. In September 1991, the company purchased Florida Favorite Fertilizer, Inc., an American-based full-range fertilizer company with facilities in Florida, Georgia, and Alabama. Florida Favorite's production of blended, granulated, and solution-mixed fertilizers significantly improved PCS's presence in the United States fertilizer market. In addition, the company acquired Horizon Potash, a potash producer based in Carlsbad, New Mexico, for the purpose of strengthening its market share as the world's leading potash supplier.
During the early 1990s, PCS was affected by the march of international events. The Gulf War, and the subsequent elimination of Iraq as a threat to peace in the Middle East, led to an increased demand for potash in the region. Jordan and Israel, two of the world's leading suppliers of potash, increased their production. Yet PCS was able to make significant inroads into the regional market as the demand for its fertilizer products increased.
More importantly, however, to the worldwide demand for potash was the fall and dissolution of the USSR in the latter part of 1991. As the various republics within the former Soviet Union became politically independent, a new Commonwealth of Independent States was established. Two of these newly independent republics, Russia and Belarus, included the most important potash-producing regions in the world. As the Russian economy made the transition from state-owned companies to private businesses, which involved a major decrease in the production of potash, the difficulties that ensued included a dramatic drop in potash consumption throughout Eastern Europe, especially those countries formerly associated with the Soviet bloc. Russia and Belarus, traditional suppliers to all of Eastern Europe, attempted to shift more of their sales to markets located in Latin America and Asia, which were normally supplied by other producers, such as PCS. But the loss of captive markets, the difficulties involved in the change to a market economy, and the lack of an efficient infrastructure (such as useable railroad lines), hampered companies in Russia and Belarus from effectively competing with PCS at the time. Consequently, PCS's global market share remained stable, but management recognized the need for expanding its product line.
The Mid-1990s and Beyond
By 1993, under the direction of C. E. Childers, who had been hired by the Saskatchewan provincial government in 1987 to help improve the fortunes of PCS, the company began to reap rewards from a carefully conceived strategic plan. Childers was the driving force behind an aggressive acquisitions policy that expanded PCS's market share. One of the most important of these purchases was the Potash Company of America, which gave PCS the ability to ship its products from both the West and East Coasts of Canada. In addition, the company began to develop and market more intensely its industrial applications for potash, including the manufacture of detergents, soaps, glass and ceramics, textiles and dyes, chemicals and drugs, and recycling materials. Some of the more innovative industrial potash products were an ice melt, lawn and garden products, and a water softener named 1 Softtouch which, rather than using a sodium-based mix, were made with potassium. Sales for 1993 were reported at US$374.3 million.
In 1994, PCS's sales jumped an amazing 59 percent, to a record of US$597 million. For the first time since 1988, the worldwide consumption of potash had increased over the previous year. Part of this increased demand resulted from the consolidation and closure of numerous inefficient mines in Eastern Europe, Belarus, and Russia, and the growing disruption of supply and consumption patterns in those countries caused by the continuing social, political, and economic upheaval. At the same time, as income levels began to rise in Asia and Latin America, the demand for more and better food, and more fertilizer, also increased. As the world's largest potash producer, PCS increased its production facilities to send record amounts of tonnage to Malaysia, Thailand, New Zealand, Argentina, Russia, and India. Stronger markets and more stable prices in both Europe and Brazil helped add to the company's increased sales volume.
With the acquisition of Texasgulf, Inc. in early 1995, PCS engaged in a major product shift. Texasgulf, a leader in the production of phosphate rock and phosphate chemicals, conducted its operations in Aurora, North Carolina, and owned the largest vertically integrated phosphate mine and chemical processing facility in the world. While most of its sales came from phosphate fertilizer, the company also produced a large line of phosphate-based products such as animal feed supplements and purified phosphate acid for industrial use. Attracted by Texasgulf's stability during downturns in the fertilizer market, management at PCS saw the acquisition as an important step in mitigating the harmful effects on the company due to the volatility of the worldwide potash market. The purchase of Texasgulf doubled PCS's assets, and its number of employees. White Springs Agricultural Chemicals was also purchased at approximately the same time, thus making PCS the third largest producer of phosphate fertilizer in the world. By the end of fiscal 1995, sales at PCS dramatically increased to US$906.9 million.
As the economies of Russia and Eastern European nations began to stabilize, and the political and social tumult subsided, the republics of Russia and Belarus improved their infrastructures and increased potash production and sales to the worldwide markets. In order to protect itself from future reductions in demand and prices due to Russian competition, PCS decided to purchase Canadian-based Arcadian Corporation, the largest producer of nitrogen fertilizer products in the world. The acquisition increased the importance of PCS as a world fertilizer supplier, since the company completed its consolidation of the three primary fertilizer nutrients, potash, phosphate, and nitrogen.
Potash Corporation of Saskatchewan has grown into one of the world's most important suppliers of fertilizers. With talented management, headed by C. E. Childers, and ever-increasing demands for its products from developing countries around the globe, the company is in the position that most other firms within the fertilizer industry envy.
Principal Divisions: PCS Sales; PCS Phosphate-Raleigh; PCS Phosphate-Aurora; PCS Phosphate-White Springs; Florida Favorite Fertilizer; PCS Potash-Allan; PCS Potash-Cory; PCS Potash-Esterhazy; PCS Potash-Lanigan; PCS Potash-Moab; PCS Potash-New Brunswick; PCS Potash-Patience Lake; PCS Potash-Rocanville; Davenport Feed Plant; Kinston Feed Plant; Marseilles Feed Plant; Saltville Feed Plant; Weeping Water Feed Plant.