Erin Weir is a consulting economist with Silo Strategy and former Saskatchewan member of Parliament.
Ever since the war in Ukraine drove up commodity prices, Canadians have been concerned about inflation on grocery shelves. Politicians have channelled this anxiety against grocers. Some have called for a windfall tax on companies such as Loblaw.
The revenue from such a tax would indeed help fight food inflation if distributed properly. But a windfall tax should focus on where the windfall landed: in the coffers of commodity extractors, not in the margins of grocery retailers.
When summoned before a parliamentary committee last month, grocery CEOs contended that their stores simply pass along higher input costs plus modest margins to consumers. Attempts to parse this argument overlook the fact that Canada produces many of the inputs in question: fertilizer, fuel and food.
Loblaw L-T, Canada’s largest grocery company, collected after-tax earnings of just under $2-billion in 2021 and again in 2022. In other words, recent inflation barely changed its bottom line.
The merger of the Potash Corporation of Saskatchewan with Agrium in 2018 created Canada’s largest fertilizer company, Nutrien. Its after-tax earnings more than doubled from US$3.2-billion in 2021 to almost US$7.7-billion in 2022.
Adjusting for the exchange rate, Nutrien NTR-T raked in five times Loblaw’s profit last year.
The latest controversy is that Loblaw CEO Galen Weston’s compensation rose from $11-million in 2021 to $12-million in 2022. Yet there has not been the same media or political interest in Nutrien paying its former CEO the equivalent of $23-million in one year.
Parliamentarians and the Competition Bureau are investigating whether several large grocery chains might comprise an “oligopoly.” No investigation of potash companies is needed: Nutrien and Mosaic jointly operate an overt cartel for offshore exports, Canpotex, with the blessing of our federal Competition Act.
Saskatchewan produces one-third of the world’s potash. Another third comes from Russia and Belarus but is subject to Western sanctions. Most of the remaining third is produced in China and other countries that use it domestically, leaving Saskatchewan with a near monopoly on unsanctioned potash exports.
Nutrien mined fewer tonnes of potash in 2022 than the previous year. Entirely due to price increases, its potash gross margin – sales minus production and transportation costs – more than doubled from US$2.8-billion in 2021 to US$6.5-billion in 2022.
The extra US$3.7-billion should have been a boon to the people of Saskatchewan, but Nutrien’s “provincial mining and other taxes” expense rose by just US$683-million in 2022. In other words, only 18 per cent of this potash windfall went to the citizens who supposedly own the potash.
Saskatchewan’s provincial budget, released last month, paints a similar picture of the whole industry (including Nutrien), which mined the same tonnage of potash in the 2021-22 and 2022-23 fiscal years. But potash prices almost doubled between those years, boosting annual sales from $9.4-billion to $16.7-billion.
This extra $7.3-billion in potash proceeds raised provincial royalty and Potash Production Tax revenues by just $1.1-billion. Since potash sales are also subject to Saskatchewan’s 3 per cent resource surcharge, incremental potash revenues were $1.3-billion – again collecting only 18 per cent of last year’s potash windfall.
Potash is a significant and striking example of windfall profits created by the Ukraine war and sanctions falling into corporate coffers. Canada also produces other fertilizers and fuels whose elevated prices factor into global food production. Almost all of these resources belong to the public through our provincial governments.
Much political bluster has been directed against grocers who pass higher commodity prices on to consumers. We would be far better served by royalty and tax policies to collect the windfall profits these higher prices create on our natural resources.
Additional public revenues could compensate Canadians for high inflation and could be invested to benefit future generations.