Yahoo Finance David Rosenberg: The investor's case for Saskatchewan: It has what the world needs
By David Rosenberg and Julia Wendling
Why are we talking about the province of Saskatchewan, which accounts for less than five per cent of Canadian gross domestic product and roughly three per cent of the population? Because it just so happens to produce what the world needs now and what the world will need in the future: food and energy products.
Indeed, the global community is facing some critical constraints in these areas due to a combination of rising geopolitical tensions, worsening climate disasters and a rapidly expanding population that have prompted a new era of food insecurity and energy instability.
As a result, economies that have abundant natural resources and favourable incentives to produce them — such as Saskatchewan — are poised to benefit both in the immediate future and over the long-term. The province may only represent a small slice of the Canadian economy, but the growth potential is tremendous, something that is further bolstered by its exceptionally strong fiscal position and business-friendly government policies.
Food
Food insecurity, which was already elevated before the COVID-19 pandemic and Russia’s invasion of Ukraine, has reached new heights. It’s becoming more challenging to meet the nutritional needs of a rapidly growing world population in the face of mounting climate disasters and rising geopolitical tensions that have pushed prices up exponentially.
Economies that have an abundant supply of foodstuffs in geopolitically stable countries are poised to receive a boost as the problem escalates. Saskatchewan fits the bill on this score.
In 2021, the province played a crucial role in meeting world demand for key grain and legume markets, which just so happen to be food groups that will continue to benefit from the tailwind for plant-based goods.
Meanwhile, the combination of canola products (19 per cent), wheat (11 per cent), dried peas (eight per cent), soya beans (two per cent) and barley (two per cent) make up nearly half the province’s export revenue. Also, its potash industry (18 per cent), which is a key ingredient in fertilizers, will benefit from booming global food demand as well.
In addition, with favourable government incentives in place, the agriculture sector here is expected to continue to flourish, adding further upside to the local economy. Notably, the Saskatchewan Value-Added Agriculture Incentive has helped foster one of the world’s best agricultural investment environments.
With the agriculture and forestry sectors accounting for an incredible 12 per cent of the province’s real GDP in 2020, the robust demand for foodstuffs on a global scale that lies ahead paired with favourable incentives for capital expansion are expected to provide a material boost to Saskatchewan’s economy in coming years.
Energy
Energy resources are, of course, also key to meeting the needs of the world’s population. And with rising geopolitical tensions in key energy-producing regions (Russia/Ukraine, the Middle East, Latin America), Western countries that have abundant energy resources will be crucial players in this space moving forward.
Saskatchewan’s crude oil industry, which accounted for 30 per cent of the province’s real GDP and 24 per cent of export revenues in 2021, is obviously set to grow under these conditions. At the same time, the province has a budding renewable energy sector that will receive a tailwind. Saskatchewan is right at the technological frontier when it comes to green energy innovation, and it’s making significant headway in solar and wind production. In 2022, SaskPower, the principal electric utility company in the region, announced plans to add 475 megawatts of wind and solar power capacity, which is expected to generate enough power for roughly 187,000 homes.
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In addition, Saskatchewan holds the world’s largest reserve of high-grade uranium — a vital ingredient in the production of nuclear power — and it’s currently the second-highest contributor to global uranium markets (behind Kazakhstan). It also has abundant stocks of several minerals that are essential for a greener future, including cobalt, lithium, copper, nickel, zinc and rare earth elements.
Investing implications
All in, Saskatchewan, though its economy is small in level terms, is set to receive a tailwind from the booming global demand for agricultural products, fertilizer, and both traditional and renewable energy. As a result, it’s worthwhile for equity investors to consider the key players in these spaces, especially those at the forefront of the technological frontier when it comes to resource extraction, crop science and green energy (see accompanying table).
With Saskatchewan’s attractive profitability potential in mind, provincial bonds are also a solid option, especially given that it has the second-highest provincial credit rating and some of the lowest debt levels — net debt is at 19 per cent of GDP versus the provincial average of 31 per cent. Further to this point, the centre-right government in power has committed to establishing a balanced budget within the next four years.
Real estate is another area where investors can gain favourable exposure. Farmland and commercial/industrial real estate are obvious winners, but the residential sphere also presents an enticing opportunity as the booming economy continues to attract workers, pushing up housing demand.
David Rosenberg is founder of independent research firm Rosenberg Research & Associates Inc. Julia Wendling is and economist there. You can sign up for a free, one-month trial on Rosenberg’s website.
