Grain Industry Structure in Western Canada
Viterra and JRI are domestic firms operating only in Western Canada while Cargill is a multinational agribusiness with business lines in 66 countries. Cargill's structure is important because it allows that company to have access to multiple sources and types of grain throughout the year and from around the world; any grain firm that hopes to compete with Cargill (or any of the other multinationals) in international markets will have to offer the same diversity of products. Indeed, both Viterra and JRI use a variety of international trading firms (e.g., Toepfer, Marubeni) to export both non-board and board grains (while the Canadian Wheat Board (CWB) is the sole source of wheat from Canada, the CWB does use the extensive sales networks and markets of 15 accredited exporters to sell grain on its behalf around the world).
If we look at grain handling in the United States, we see that the system there is highly concentrated and has strong vertical linkages. When grain-handling facilities are locally owned (sometimes by farmers and sometimes by local investors), they are usually aligned with one of the multinational grain companies that have international access. As an example, the large co-operative, CHS, is able to compete effectively in the U.S. market but has been unable to make many inroads internationally on its own because of its inability to provide the range of products offered by the multinationals. It is interesting to note that CHS is a member of InTrade, a holding company for a number of large agricultural co-operatives in the United States and the EU; InTrade is a minority owner of Toepfer, with Archer Daniels Midland (ADM) as the majority owner.
What inferences can we draw from a comparison of the grain handling structure that exists in Canada and in the United States? Is it reasonable to conclude that Canada's grain handling system will evolve in such a way that it will more closely resemble the one in the United States? Will Viterra and JRI look for an alignment (e.g., joint ventures or other business arrangements) with multinationals such as Toepfer, ADM or Bunge to remain competitive with Cargill? Given the uncertainty over the future of the CWB, these questions are increasingly apropos. Historically, approximately 60 percent of the grain handled by the SWP was marketed by the CWB (a majority of which was sold by the CWB itself, with the rest sold by accredited exporters). A reasonable inference to draw is that if the CWB were to lose its single-desk selling power, Viterra and JRI will need to find a way to be become more closely linked with international grain trade players if they wish to remain viable. A similar inference could be made about what a restructured CWB would need to do in order for it to remain viable.
The only way to describe the grain industry in Western Canada is rapid change and uncertainty. The causes are the federal (and provincial to some extent) government policies over the last two or more decades. The introduction of variable rates and the loss of the Crow Benefit, for example, were some of the major reasons for elevator consolidation, branch line abandonment, construction of 100-car loading facilities, and the formation of larger companies like Viterra. You might even argue that the divisive nature of the debate around these issues was a major contributor to the demise of the Prairie Pools as well as UGG. Unlike in the 1960s and 1970s, farmers have been much less united on the policy issues. As well, farmers involved with the Pools no longer agreed on the value of policy. Management in the organizations questioned the "cost" of policy involvement and inevitably the group that saw value in the policy side of the organization was outnumbered.
With that as background the next 10 years could see just as much change because governments could decide on the structure and regulations governing both the CWB and railroads in the next number of years. There are many questions to be answered. Will the monopoly of the CWB continue? Farmers are split on this issue; therefore it is highly likely that the federal government will make this decision. Will regulations around railroad operations be changed? For example, what will be the role of tendering, particularly if the CWB's policy role were to change or disappear? How will access to railcars be regulated so as to ensure the smaller players, like the pulse industry, will continue to be able to move their product? These issues could be decided with very little farmer input if provincial and federal farm organizations continue to struggle because of lack of support and financing. These two issues - the role of the CWB and rail transportation - in my opinion will dictate what the future of the grain industry will look like in 20 years. That does not mean that future markets, CGC regulations and other farm policies will not have a huge influence. However, these two major issues are likely to drive where farmers and the industry are forced to go.