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Mayo Schmidt converted the Saskatchewan Wheat Pool, a flagging co -op, into a public company that has breached the top tier of global agribusiness

Nayan Sthankiya

The narrative of Saskatchewan is so deeply etched and so familiar that talking to Larry Sommerfeld is a shock. He is that rarest of creatures-a happy farmer who is looking to the future with confidence.

Sommerfeld stretches out in his chair and smiles: "It's a nice place to be right now, Saskatchewan. Everybody's pretty optimistic."

Apart from being the proprietor of a 3,000-acre farm, Sommerfeld is mayor of the town of Allan, a half-hour's drive southeast of Saskatoon. He sees change everywhere. The PotashCorp mine on the edge of town is in the middle of a half-billion-dollar expansion, which is a lot of money for a town of 700. The trailer court and the hotels are jammed. Sommerfeld talks of Saskatchewan people returning home from Alberta, where the living these days is no longer quite so easy. Local trucking operators-a business Sommerfeld knows from his own seasonal work driving rigs-are bringing in trainees from as far away as the Philippines. And everywhere, wages are going up because the mines and the oil and gas operators are competing for employees.

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When we first met seven years ago, Larry Sommerfeld was not a happy man. He had just bought a tractor and he was not looking forward to his next meeting with the bank manager. His three sons were not much inclined to take over the farm after he retires and he was not in much of a mood to tell them they should. He was pretty pessimistic about farming, period.

These days, Sommerfeld's wife, Bev, still works at the local Walmart to help out with the bills. His canola and pea crops were not as great as they might have been this year. But he had one of his best years ever for wheat and barley. More important, he has even made a big bet on the future. He shakes his head and laughs at it, but he confesses he has just bought himself a combine for $400,000. "I guess I look at it this way: If I go broke, at least I'll have something good on my auction sale."

Not so long ago, most Canadians felt a bit sorry for Saskatchewan, that poor cousin on the bald prairie. The people of Saskatchewan called their province "next-year country," but the wise guys said that was because this year was always so unfailingly wretched. Think about it. If it was not the cracking cold of winter, it was the baking heat of summer, probably with hailstorms and locusts thrown in for good measure. True, the province had always relished its reputation as the breadbasket of Canada, if not the world. But when the numbers were added up at the end of the year, Saskatchewan was always in the bottom half of the Canadian ledger. Saskatchewan was a perennial have-not, reliant on handouts from Ottawa.

But lately, Saskatchewan has been watching the world's commodity prices rise-wheat, barley, lentils, chickpeas, potash, oil, gas, uranium. Saskatchewan is rich in them all, and suddenly, as of last year, the province is in the top half of that Canadian ledger, looking down on even stumbling Ontario.

At the same time, something here is changing besides the numbers. Saskatchewan's personality is changing too. The place that had to stick together, the place that was proud of its Crown corporations, its institutions designed to protect farmers from capitalists, and the pragmatic strain of social democracy that produced medicare, is now in love with the markets.

Is Tommy Douglas rolling in his grave? Perhaps. To hear one of his ideological descendants tell it, there is a danger in forgetting how cruel commodities markets can be. It was dust bowl hardship that made Saskatchewan, according to Nettie Wiebe. "I think it evoked in people-and with wise leadership got articulated as-a need for a recognized interdependence," she says. "That is less and less the case now. Not just because it has become that much easier here, but also because of larger influences that have tossed us all into a kind of globalization that inhibits us from recognizing our interdependence."

Nettie Wiebe represents the old Saskatchewan-she has led the radical-roots National Farmers Union, and was a left-wing candidate for the provincial NDP leadership. If you want a symbol of the new Saskatchewan-or what is assumed to be the new Saskatchewan-you could do worse than to consider Mayo Schmidt, an American agribusiness veteran who arrived at the Saskatchewan Wheat Pool in 2000. The Pool is one of those prairie institutions that sprang out of hardship and common cause; it was formed by farmers in 1923 to get them a better deal after decades of rude treatment by grain traders.

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What Schmidt found 77 years later was a farmers' co-op that had become seriously dysfunctional, with a debt of close to half a billion dollars. "For me it was time for the company to stop talking about what it had done, many years past, and start talking about what it was going to do to get in control of a situation that was beginning to be out of control," he says.

Schmidt slashed hundreds of jobs and cut into the array of 30 companies that came under the Pool's umbrella, ranging from grain terminals in Mexico and Poland to a doughnut chain, a meat company, a fish farm, a livestock business and the Western Producer, the newspaper for western farmers.

But the most important change-which didn't come without a struggle-was to convert the Pool from a co-op owned by farmers into a public company owned by shareholders. That transition, says Schmidt, has given the company a new life and the ability to become a global player in the food business: "The difficulty for the organization was that access to capital was not available. People in the capital markets don't put money into businesses when they don't have a vote.

"So it created a conflict. It created an untenable situation. I didn't change the intent and the mind and heart of the company. What I did was change its financial condition to allow it to have access."

Schmidt's protest aside, he did change the heart and mind of the company. After its financial crisis was resolved in 2003, the Wheat Pool set out to expand its horizons. A shakedown in the grain handling industry in the Prairie provinces appeared to put Agricore United-itself the union of the pools in Alberta and Manitoba-in a commanding position. A lot of smart money had predicted the Pool would be swallowed. But at the end of a six-month bidding war, Mayo Schmidt and the Saskatchewan Wheat Pool had emerged on top, controlling an estimated 45% of the Western Canadian grain-handling business.

From the moment he came to the Pool, there had been speculation that Schmidt was a Trojan Horse for one of the American agribusiness giants, either Cargill or his alma mater, ConAgra. He was just grooming Viterra, as the Pool was renamed, for a takeover, it was said. To that, Schmidt replies, "There aren't companies today of any scale that are immune to the interest or affection of another company. That's the world today. Companies in all sectors, in all businesses, are constantly and continually assessing their opportunities to combine, to acquire and to grow. …You can't afford to stand on the sidelines."

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Just a few days after this interview, the shareholders of ABB Grain, Australia's largest agribusiness-itself the product of the same sort of consolidation and co-op-to-corporation evolution-voted to merge with Viterra. The takeover cost the Canadian company $1.4 billion and elevated it into the top tier of global grain handlers. The onetime farmer co-op is now in the Cargill league.

A base in Australia gives Viterra a year-round cash flow, with harvests twice a year-twice the opportunity to collect grain and twice the opportunity to sell fertilizer and seed.

Schmidt sketches for Viterra a Google Earth road to prosperity, with minerals and agricultural products becoming continually more precious, with 75 million new mouths to feed every year, and a world population that will swell from 6.6 to nine billion by 2050. "So you take the market signals today and the resource constraints and diminishing arable land and water resources in the world, and Saskatchewan becomes a very, very desirable place to do business-a centre that provides ingredients for food supplies, critical nutrients and also many other mineral sources, including potash and others for growing food.

"When you look at that, it really is Saskatchewan's time. It's its opportunity to take advantage of the market conditions and the trends, and to build its economy and build its resources and its strength and attract new opportunities to the province."

*

Wheat is very old Saskatchewan. It's also new Saskatchewan, as Viterra's success shows, but only one part. Premier Brad Wall tells the whole story well: "I think every now and then, Saskatchewan people have thought to themselves or maybe had a coffee conversation that went something like: 'How is it that the place that has half of the arable acres in all of Canada, that boasts a quarter of the world's uranium production, that has a third of the world's potash production, that is Canada's second-largest producer of oil and third-largest producer of natural gas, that is responsible for 25% of the world's mustard production and a third of most of the pulse crops-how is that province a have-not province?'"

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Now that Saskatchewan has earned its spot in the "have" column, however, nobody is boasting. "There's been no spiking the ball in the end zone by Saskatchewan's people," Wall says. "Maybe it's because we know how long we were a have-not, and I think we just want to keep our head down and be modestly, humbly self-assured about this new status."

The Premier knows that Saskatchewan has been powerfully lucky. Beneficent geology has endowed the place with oil, gas, uranium and potash in abundance. There may even be diamonds.

The province produced 160 million barrels of crude oil last year, second in Canada only to Alberta's total output and about equal to that province's production of conventional oil (in other words, once the oil sands are put aside). Saskatchewan is the world's top producer of uranium, accounting for about a quarter of total production. And then there is potash, which modern agriculture relies on for a basic nutrient (potassium), and which Saskatchewan calls "pink gold." The last provincial budget forecast that potash revenue would account for 18% of government revenue.

On the farm front, the surprise is that much of the new prosperity comes from pulses, crops that were hardly known in the Prairies two or three generations ago-peas, beans, chickpeas, lentils. In 1981, 85,000 acres of lentils were planted; this year, there were 2.3 million acres. In 1976, 15,000 acres of peas were planted; this year, 2.8 million acres. Canada is now the leading exporter in the world of both foods, almost all of it from Saskatchewan.

As Wall acknowledges, Saskatchewan is still dependent on the vagaries of commodity price cycles. But-and it's a big but-"when it comes to resource profile, we've got more than one horse to ride."

The lucky horse at the moment is oil. In his office in the legislature in Regina, Wall points to a large television that is set to a business channel. The 2009 budget forecast for oil was $48 (U.S.) a barrel, but the price was $77 (U.S.) as of early December. Every dollar increase in the price of oil means $18 million in revenue for the province.

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A moment later, Alberta's Finance Minister, Iris Evans, appears on the screen, admitting that the plunge in natural gas prices and the prospect of a budget deficit are "a real kick in the head." A sympathetic Wall grimaces. If an economic powerhouse like Alberta can tumble into a deficit, a Johnny-come-lately like Saskatchewan cannot afford to gloat.

Wall, after all, has his own problem. Since Saskatchewan's March budget, potash revenue has been tumbling out of control. By November, a mid-year budget report revised an expected $1.93 billion in potash revenue to just $109 million. Thank heaven Wall has those other horses, specifically oil, to ride: The November numbers showed that oil revenue would be $952 million instead of the $573 million forecast in March. That, says the Premier, is what will save Saskatchewan this year.

Still, there's a shortfall. The government promised to maintain a balanced budget, but that will be painful. Some spending will be cut or deferred. And Saskatchewan's rainy-day Growth and Financial Security Fund will be almost chopped in half, to $650.8 million.

The plunge in potash revenue was a case of too much of a good thing. For PotashCorp, the largest potash producer in the world, the company that is sitting on so much of the stuff that it can control the supply in the same fashion as OPEC does oil, the year has been a horrendous embarrassment. Skyrocketing prices last year, which briefly made PotashCorp the biggest company in Canada by market capitalization, produced plummeting sales this year. When potash went above $1,000 (U.S.) a tonne last year, the world's farmers decided they could not afford that kind of hit.

As sales dropped, chief executive officer Bill Doyle began whistling past the graveyard. Fertilizer customers cannot defer purchases indefinitely, he said. Major markets would have to rebuild their supplies. Farmers are playing a dangerous game that will have consequences, he said. The current slowdown will pass, and a strong demand surge is likely to follow.

That was Doyle in April and May. By October, he was whistling a different tune. After acknowledging a third-quarter drop in earnings of almost $1 billion (U.S.) from a year earlier, Doyle said, "I've personally done a horrible job of forecasting this year. …I've looked like a jerk all year long. …I fell on my face."

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But Doyle is still betting on the long term. The gamble is that although the global recession hurt the fertilizer industry, the science of food production has not changed-meaning that the potassium that has been mined from the soil for crop production must be replaced. And Doyle knows as well as anybody that PotashCorp controls about a fifth of the world's potash production capacity. (Doyle was unavailable for an interview for this story.)



Another hugely successful Saskatchewan company has suffered in recent months from an uncomfortable drop in prices and sales volumes. But like PotashCorp, Cameco Corp., the world's biggest uranium producer, has the comfort of knowing that it has vast reserves that will not go bad if they stay in the ground for a few more years, and of knowing also that the world will soon be desperate for its product. Nuclear power, after a 20-year construction hiatus courtesy of Three Mile Island and Chernobyl, is enjoying a global renaissance as governments desperate for low-emissions energy suddenly see nukes as green. Cameco even has a direct and profitable slice of that business, through its one-third share of Bruce Power, Ontario's biggest nuclear generator. And Premier Wall is a backer of the nuclear industry, having expressed interest in building a nuclear plant in Saskatchewan.

So there was a ring of familiarity when Cameco chief executive Jerry Grandey explained the slip in third-quarter revenue from uranium in the same terms that Bill Doyle might have used about potash. Notwithstanding the short-term events, he said, the long-term fundamentals of the market remain robust.

In fairness, it's hard to argue with their assessments. One company accounts for about 20% of the world's uranium production ("We are the Saudi Arabia of uranium," Wall has boasted), the other for about 20% of the world's potash. Yes, the long-term fundamentals remain robust.

By way of coincidence, Doyle, Schmidt and Grandey all took over as head of their companies in a three-year period at the turn of the millennium. By way of further coincidence, all three are American. And all three companies, having been created by the public-farmers, in the case of Viterra; the provincial government, in the cases of Cameco and PotashCorp-have been turned over to the capitalists.

It is tempting to speculate about a sea change bringing Albertan and American values to Saskatchewan. But Roger Gibbins, CEO of the Canada West Foundation, for one, sees no evidence of a new entrepreneurial class in Saskatchewan. Real wealth has come from big players dealing in global commodities, says Gibbins-"no sort of global mom-and-pop potash mines or mom-and-pop uranium mines, but big-scale things that have very strong provincial government impact."

For Premier Wall, the current economic difficulties are uncomfortable, but there is no sign of a real political threat that might cause him grief. After 16 years in power, the New Democratic Party was in need of a rest, and Wall's conservative Saskatchewan Party gave it one in the November, 2007, election. The NDP, the province's supposed natural governing party, limped through an anemic leadership campaign to replace Lorne Calvert last summer, and its surprising choice was a former NDP cabinet minister who had been out of politics for nine years. Not only had Dwain Lingenfelter been out of politics, but he had gone to Calgary to work for a major oil company, Nexen. (The provincial NDP has at least held on to its urban base. The federal wing, which had a dominating 10 seats in the 1988 election, has elected exactly zero members from Saskatchewan in the last three trips to the polls; it was Nettie Wiebe, incidentally, who came closest to winning a seat.)

Although Lingenfelter comes from the right wing of the NDP, Wall paints him as a radical who wants to interfere in businesses and raise royalties and taxes. But in the 2007 election campaign against Lorne Calvert, Wall was careful not to disturb Saskatchewan icons; in particular, he promised to preserve the province's remaining Crown corporations-indeed, to expand their role.

For Wall, there must have been times when it was awkward to attack the New Democrats. NDP premiers Roy Romanow and Lorne Calvert set up two tax review committees under Jack Vicq, an accounting professor and onetime senior provincial bureaucrat. Both reports recommended wide-ranging corporate tax cuts, which were promptly enacted by the NDP; the cuts were in place when the Wall government came to power. Vicq says the NDP knew that Saskatchewan's tax regime had to be competitive with Alberta's and British Columbia's in oil and gas, and with New Brunswick's in the case of potash-"So it was a competition driven for exploration dollars."

Because the province's economy began to boom, and Saskatchewan ceased being a have-not province after the New Democrats were chased from power, Wall and the Saskatchewan Party get much of the credit for the turnaround. His own government's cuts to the lower end of the income tax rolls notwithstanding, even Wall admits the heavy lifting had already been done. The Premier solemnly assures a visitor that "I work hard to make sure we give credit to the previous government."

Gibbins of the Canada West Foundation believes Saskatchewan's emergence as a "have" province simply stems from the convergence of a lot of resource markets rather than the new tax regime or the overall tenor of government toward business. He points particularly to the huge swings in the resource markets in recent years: "The royalty review in Alberta has come under a lot of attack, but when gas prices are plunging down to a dollar a gigajoule, it really doesn't matter what you do with the resource structure. Nobody's buying it; it doesn't matter.

The face of Saskatchewan's workforce

"At the same time, when resource prices are pretty robust, companies do well even though they may argue that the tax system is not as good as it could be. So I think that in Saskatchewan the tax system works kind of at the margins. Where it did play a role was in sending the signal that Saskatchewan has become more competitive with Alberta, and was trying to lure oil and gas production back from Alberta. And the signal may be more important than the real bottom line."

Juggling royalties and taxes against the Alberta standard is another stage in Saskatchewan's struggle of keeping up with the Joneses. Nothing illustrates that struggle, or at least Saskatchewan's vulnerability, as well as the growth of the population in the West. There was a time when Saskatchewan was the biggest dog on the Prairies, but Manitoba, Alberta and British Columbia kept growing, and Saskatchewan did not, or not as much. In fact, the place became known as an exporter of people. By that measure, the province's revival can be pinned to the start of this decade, when its population began increasing gradually, returning, as of 2006, to the peak it hit around 1985. That said, the head count has stayed stuck in a range around one million ever since the dust bowl 1930s.

The face of Saskatchewan's workforce

If the growth in population doesn't continue, it won't be for lack of effort by Brad Wall, whose infectious boosterism has persuaded some that he might one day become the leader of the federal Conservative Party. Wall got so excited about a Statistics Canada jobs report last winter that he phoned the Toronto Star to invite the people of Ontario to come work in Saskatchewan. "We've been a great place to be from in the past. We're now a great place to be," he told the Toronto reporter. "It's not just a great place to make a living-it's a great place to make a life."

No lament from him for lost interdependence and neighbourly co-operation. But it may be that the new Saskatchewan does contain that old Saskatchewan; it's simply taken for granted, not something that needs to be proclaimed. This would explain why the gulf between the NDP and the Saskatchewan Party is much narrower than between the NDP and the old Conservative Party of Grant Devine.

The face of Saskatchewan's workforce

"For me," says Nettie Wiebe, "as someone who cares very much about equality and social well-being of everybody, not just the privileged few, it's a great comfort to know that those ideas are so deeply ensconced here that you can't win an election, no matter how much money you throw into it, if you're seen to challenge medicare, for example.

"In this place, the deepest sort of socialist momentum is rooted enough that you can't challenge it."

SASKATCHEWAN'S OTHER BOOM: NOT PROSPEROUS

Most of the economic news from Saskatchewan these days is about the "Saskaboom"-the province's unexpected and unaccustomed prosperity. Meanwhile, there are dark clouds on the horizon foretelling another boom-a demographic one-that gets scant news coverage.

But it's something Gary Merasty thinks about all the time. Merasty is former Grand Chief of the Prince Albert Grand Council, which represents, essentially, the northern half of the province. More than three-quarters of the 40,000 inhabitants are, like Merasty, of aboriginal ancestry.

Merasty was elected to the House of Commons and then was hired away from Ottawa by uranium miner Cameco, based in Saskatoon. As vice-president, corporate social responsibility, he is the company's front man for Saskatchewan's native community. The question facing Merasty and everyone else in the province is: Where will native people fit into the new and prosperous Saskatchewan?

Cameco started facing that question long before Merasty joined the company two years ago. After negotiating with government agencies and northern communities, Cameco set an impressive array of commitments in the mid-nineties. The company agreed that 67% of the Cameco employees in the North should be local people by 2013. The level is now 52%, and growing. As well, a preferred-supplier program favours enterprises majority-owned by northern residents. It has already passed its target of obtaining at least 35% of goods and services from northerners.

Merasty says the biggest problem for Cameco's hiring program is finding qualified workers. Entry-level jobs are easy to fill. The problem is finding natives with the required math and science grades for other jobs. Despite the existence of scholarships and other support programs, high-school drop-out rates are persistently high in the North.

That problem, and related ones, have to be tackled by the province and employers, Merasty says. "We have the highest rates of suicide, incarceration and dropouts. There is a huge opportunity to begin to turn that around now, because the cost of doing nothing is going to be astronomical." Demographic trends back Merasty's case: University of Saskatchewan economist Eric Howe predicts that by the year 2050, if not earlier, half the province's population will be aboriginal.

Already, aboriginal unemployment is a serious problem. Statistics Canada reports that non-aboriginal unemployment in the province is 4.4%; aboriginal unemployment is 15.3%.

Not all Saskatchewan companies share Cameco's zeal for native hiring. In a province where natives constitute almost 15% of the population, Howe singles out giant PotashCorp, where only 1.5% of the employees are aboriginal.

"I'm not saying anything remotely bad about the idea of having an aboriginal majority," Howe continues. "I think that is going to be a very interesting thing. I'm saying that, confronted by this demographic reality, aboriginal people must be moved further into the economic mainstream, or Saskatchewan will face turmoil at a level that it has not experienced since the Great Depression."

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