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The new G3’s cross-Canada future

Understanding Market Bulls and Bears: Brian Wittal sees the new CWB as a strong competitor in the Canadian grain industry

In 2012 the CWB’s monopoly powers were stripped away. Over the next couple of years the new entity purchased or entered into joint ventures with producer-owned grain handling facilities and built a number of new concrete facilities across the Prairies to try to remain a relevant player in the grain handling and marketing business in Western Canada. They purchased Mission Terminal at Thunder Bay and the ETR facilities at Trois Rivières along the St Lawrence waterways to enable them to ship grains to market.

They bought a stevedoring company and purchased two new Equinox class laker vessels for transporting grains and other cargo on the Great Lakes.

Then a 50.1 per cent stake in the CWB was sold to Global Grain Group (G3) Canada Limited — a partnership between Bunge Ltd. and the Saudi Agricultural and Livestock Investment Co. (SALIC). This allowed the new company to move ahead with expansion and growth plans. The CWB is now doing business as G3 Canada Limited.

Most recently, G3 announced plans to build a new lake terminal facility at the Port of Hamilton to help originate grain out of southern Ontario to ship to export markets abroad.

Now, G3 has facilities from Leader, Saskatchewan, all the way to Trois Rivières, Quebec, and soon to the Port of Hamilton.

G3 is conspicuously absent in Alberta and for a very good reason: they do not have access to any west coast port facilities at either Vancouver or Prince Rupert. To ship grain by rail from Alberta east to port facilities is not economically viable, so until they have a west coast port facility they will not likely enter the Alberta grain buying landscape.

Back in June G3 announced that plans for a feasibility study of the possibility of building a new grain terminal at Port Metro Vancouver. It would be the first new facility to be built there since 1968. If this were to happen, G3 would have a true coast-to-coast grain handling enterprise, and you can be assured that G3 would re-enter the Alberta grain market landscape.

When the CWB lost its monopoly marketing powers I was skeptical that it would survive with no handling facilities or capital to build facilities. Much to its credit, CWB made strategic alliances and purchases with producer-owned terminals to start building a country grain sourcing network. Then it secured capital to build new facilities in strategic locations across Saskatchewan and Manitoba.

The entry of G3 brought the missing elements to the table — capital for investment and a link to a major export market into Saudi Arabia and the richest region in the world. What more could an old/new upstart grain handling company in Canada ask for?

You might be thinking that all we get out of this is another foreign-owned multi-national grain-handling company, but that is not quite correct.

There are a few key and distinct differences to how this corporation is modeled compared to the ABCD’s of the Grain handling world (Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus). Now, obviously, Bunge (B) is involved in this venture but G3 is not a completely privately owned corporation.

In the merger deal, 50.1 per cent of CWB was sold to G3, giving G3 controlling interest. What makes this deal different is that CWB, through its Farmer Equity Plan, is offering farmers the option to invest in the new company through grain deliveries. For every tonne of grain delivered against 2013-14, 2014-15 or 2015-16 contracts with CWB or G3, farmers will receive $5 in CWB Farmers Equity Trust units. G3 will hold these units for at least seven years. After that, G3 will have the option to purchase these units at fair market value.

This is the first plan to offer producers the ability to invest and build equity in a new and emerging Canadian grain business. G3 may not be a farmer-owned grain handling company like back in the days of the Prairie Pools, but I do believe this new emerging company will be a force to be reckoned with and a benefit to farmers.

A company building new state-of-the-art facilities both in the country and at port should be cost competitive. This should make the competition tighten their profit margins, which should mean better pricing offers to producers in the country. Add to that the Farmer Equity plan and G3 has another competitive advantage.

From my perspective, the Equity plan is a stroke of competitive genius — it offers producers a stake in G3 based on their patronage. Giving your primary customers a stake in the company all but ensures future success for the company and the producers who support it. G3 does have the ability to buy out the balance of the shares in seven years, but I don’t know why they would want to do that and lose the connection and competitive advantage they have with producers through the equity plan.

About the author

Columnist

Brian Wittal has 30 years of grain industry experience and currently offers market planning and marketing advice to farmers through his company Pro Com Marketing Ltd.

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