NEWS
THE WESTERN PRODUCER | WWW.PRODUCER.COM | JANUARY 5, 2012
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WHEAT BOARD | FUTURE
Voluntary CWB to bring competitiveness: business leaders NFU predicts struggles | Rapid consolidation isn’t in the cards, according to Louis Dreyfus Canada president BY BRIAN CROSS SASKATOON NEWSROOM
What does the future hold for Canadian grain marketers after the Canadian Wheat Board loses its single desk authority? The answer is difficult, but grain industry executives say one thing seems certain: the new CWB will vie for farmers’ grain in a competitive and rapidly changing environment. Last month, wheat board president Ian White issued a statement reassuring prairie farmers that the CWB will be ready to compete for producers’ grain in the new marketing environment. White said the CWB would be unveiling details of its 2012-13 programs in the near future. He said the new board, comprising five appointed directors, will strive to provide ongoing value to farmers while retaining its reputation. “The CWB has been preparing for this change for many months, developing both pool and cash programs for farmers for the upcoming crop year,” said White. Allan Oberg, former chair of the farmer-controlled CWB, has said the new wheat board will have a difficult time competing with private sector companies. Without terminal or port infrastructure, it is likely that the board will rely on competing grain companies to handle grain. Terry Boehm, a long-time singledesk supporter and president of the National Farmers Union, agreed, saying it is unlikely that a voluntary CWB will continue as a viable commercial entity. “The legislation (Bill C-18) does mention government guarantees for the initial prices, but at the same time, it doesn’t give the new entity any (assurance of) … access to grain handling or terminal facilities, so it becomes completely dependent on what would be its direct competitors,” said Boehm. “I think (its survival) would be highly unlikely.” Jean Marc Ruest, vice-president of Richardson International, said private grain companies such as Richardson look forward to competing with the CWB in the new marketing environment. While some observers believe the board will face an uphill battle, Ruest
Canada’s grain handling and transportation systems may change considerably during the next few years, if planned Canadian Wheat Board changes go ahead. | FILE PHOTO said the new board will also have advantages over its competitors. “From the start, we’ve been constant in our view that a voluntary board does have a very strong chance of creating a position for itself (and becoming) a viable entity,” Ruest said. “It (the wheat board) has a very loyal customer base of farmer and end-use customers. (Those are) elements that are fundamental to a viable organization and that many (private sector) companies would very much like to have.” Federal agriculture minister Gerry Ritz also believes the voluntary CWB has a good chance of becoming a viable commercial entity. Speaking at a recent meeting of the Inland Terminals Association of Canada, Ritz said a voluntary CWB could evolve into a farmer-owned co-operative or a shareholder controlled entity. “I think it has a tremendous opportunity to move forward,” Ritz said. “Our legislation (mentions) a transition period of up to five years, but if farmers react as they possibly could … they may try to restructure it as a co-operative or a share-structured offering in Year 2 or Year 3, and we’re open to that.” Appointed CWB directors have until the summer of 2016 to come up with a plan to commercialize the new CWB. That commercialization plan — which is subject to ministerial
approval — could involve any number of scenarios, including selling the CWB to private sector interests or transforming it into a farmer-controlled business. However, first the new board must prove that it can compete with private sector players in a radically changed environment. Brant Randles, president of Louis Dreyfus Canada, offered an interesting view of marketing in the postmonopoly world. Contrary to what many single-desk advocates fear, Randles said, the new grain marketing environment will not be dominated by one or two large multinationals but will emerge as a highly competitive industry with several Canadian companies vying for a share of farmers’ grain. “We have very strong and robust national players,” Randles said. Canadian Grain Commission documents show that elevator capacity on the Prairies is divided between several companies, including Viterra with 35.5 percent market share, Richardson International with 16.5 percent, Cargill with 12.5 percent and Louis Dreyfus with 6.1 percent. Two other Canadian companies, Paterson and Parrish & Heimbecker, control another 14 percent. The remaining 15 percent of capacity is split between a handful of other companies. Randles said the industry will
evolve as Canada’s private companies compete with grain exporters from the United States, Australia, Russia and Ukraine. He said Canadian grain quality and sanitary standards are likely to be revised to ensure that Canada’s standards are more in line with those of other countries. According to Randles, quality and sanitary standards for Canadian wheat and barley have been maintained at excessively high levels relative to other exporting nations. At times, those standards allowed the CWB to sell into premium wheat markets, but at other times, when the global demand for top quality wheat was limited, quality Canadian grain was sold into lower quality markets. Randles contends that Canada sells six to nine million tonnes of high quality wheat a year into mid-quality markets. In other words, the extra costs associated with producing high quality wheat are never recovered. “We need to change that,” he said. “We need a different portfolio of wheats to sell … and I believe the market will eventually signal a shift in production to higher yielding, midquality wheats.” Randles also predicted: • an improvement in export basis levels for Canadian cereal grains, which would contribute to higher farmgate returns
• lower volumes of prairie wheat moving east through Thunder Bay as Russia and Ukraine become more consistent suppliers to wheat markets in Europe, the Middle East and Africa • increased exports of Canadian wheat to the United States as production of row crops continues to expand in the U.S. Northern Plains, displacing American wheat acreage • market pressure to reduce sanitary standards on exports of Canadian feed barley Regardless of how the market evolves, it appears that Western Canada’s largest grain companies are eager to throw their hats in the ring. Viterra, which is easily Western Canada’s largest grain handling company, wasted no time rolling out contracting opportunities. In mid-December, the same day that Bill C-18 received royal assent, the company issued a news release saying it was ready to offer contracts for execution after Aug. 1. “Starting today, Viterra is pleased to offer bids to western Canadian wheat, durum and barley producers,” said Viterra president Mayo Schmidt. He said the elimination of single desk selling would allow the company to move grain more efficiently and maximize throughput, which would, in theory, lead to lower handling costs and better producer returns.