ROAD TO RECOVERY WILL BE DIFFICULT
But one Canadian major company reflects hope amid fear, Kevin Carmichael writes.
One of the ways the Bank of Canada gauges business confidence is by asking a confidential group of executives every quarter whether it plans to increase investment over the next 12 months.
I don’t know if Chuck Magro, chief executive of Saskatoon-based Nutrien Ltd., contributes to the central bank’s Business Outlook Survey, but I thought I’d ask him a version of that question during a telephone interview this month, since it seemed a good way to get at the degree to which the coronavirus crisis is wrecking Canada’s prospects.
Magro, who has been running the world’s biggest miner of potash from his home in Calgary since March 16, acknowledged that confronting COVID-19 has changed the nature of his job. Nutrien, which is also a big retailer of farm supplies, has 25,000 employees, does business in 14 countries and generated sales of some US$20 billion in 2019. You don’t run a company of that size and scope by micromanaging.
Before the pandemic, Magro said he spent most of his time “looking forward,” entrusting his lieutenants with day-to-day operations. For the past couple of months, however, there hasn’t been much time for thinking big thoughts. He’s been confronting more prosaic concerns, such as ensuring Nutrien’s miners are working at safe distances from each other and that farmers can pick up their fertilizer without having to get out of their trucks.
“A lot of our energy right now is going into running our operations as safely as we can,” Magro said. “But we always have one eye on the future.”
That’s reassuring. The
COVID -19 recession will be one of the deepest ever, but it could also be relatively short, depending on how long it takes authorities to slow the spread of the virus. The best-case scenario assumes that companies resume spending money on salaries, research and development, and previous expansion plans without significant delay.
Before the crisis, Nutrien’s focus was on expanding market share, retooling for the digital economy and pivoting to confront climate change. The company became serious about e-commerce a couple of years ago, betting that farmers who had become accustomed to buying household goods online would soon want to order potash and nitrogen on their smartphones. Nutrien also spent about $1 billion during the previous eight years on “sustainable agriculture,” a catch-all for new technology and innovative farming methods that could reduce emissions, minimize soil erosion and lower pollution, among other things.
But the company is only getting started at becoming greener, according to its CEO. After the Second World War, the agriculture industry was guided by the need to boost crop yields in order to feed a growing population. Magro reckons the existential threat posed by climate change will shape farming for the next number of decades, and those companies that fail to adapt will cease to exist.
COVID-19 will slow Nutrien’s march in the short term, if only because social distancing makes it somewhat more difficult to close deals, acquire talent and import goods. But that should only be temporary. Nutrien rushed to get fertilizer supplies in place before lockdowns crippled supply lines, a 24-7 effort of logistics management that is paying off. Magro said his order books are as full as he expected them to be ahead of North America’s 2020 growing season.
Life in the C-suite has changed, but shareholders likely won’t notice if all they care about is the bottom line. “We are going to invest this year,” Magro said on April 3, when he would have been in the final stages of buying Tec Agro Group, a Brazilian seller of soybean seeds and farm supplies, the purchase of which Nutrien announced earlier this week. “Some of our capital program will naturally be restricted because we can’t get the people or the equipment when it comes to the here and now. But from a long-term perspective, if you look at the future of agriculture, there is still going to be a significant push to make agriculture more sustainable and more climate friendly.”
The best-case recovery scenario relies on companies pushing through the fear that comes with a mysterious disease. Bank of Canada governor Stephen Poloz on Thursday told the House finance committee that the hundreds of billions of dollars the federal government and the central bank are pushing into the economy is about maintaining confidence. The strength of the recovery, when it comes, will depend to a great degree on the willingness of households, executives and investors to pick up where they left off before governments locked down much of the global economy.
No one thinks turning the economy on will be as simple as flipping a switch. Still, assuming authorities arrest the spread of the virus, Poloz said it’s reasonable to think that a significant amount of gross domestic product will be quickly recovered, though it might take a year to get the economy back to where it was at the start of 2020.
“It is important for us to bear in mind that this is a temporary thing,” Poloz said. “When we look back at this we’ll say, ‘That was a full-year departure, more or less, from the previous path.’ And that will happen if we’ve done a good job of buttressing confidence and having people ready for that recovery period.”
Nutrien is one company that hasn’t stopped working, because agriculture was deemed an essential service. Still, it’s a positive sign that a company of its size is mostly unmoved by the crisis. The worst-case recovery scenario would see the recession drag on as companies and consumers retreat from the pandemic, even after the danger recedes. Magro won’t be caught in that trap.
“We’re not operating the business in panic mode,” he said. “We’re always looking towards the future. There are going to be a lot of opportunities that come out of this situation.”