This summer marks the start of major changes to western Canadian grain marketing. Get ready to make the most of new market conditions
In 50 years will 2012 be remembered as the year that forever changed the grain marketing industry for the better? Or the worse?
Will the Grain Marketing Freedoms Act taking the Monopoly powers away from the Canadian Wheat Board (CWB) on July 31, 2012, and the imminent take over of Viterra by a multinational marketing company, Glencore, be remembered as beneficial to western Canadian farmers or not?
That is for time and historians to determine.
What has changed? What will change? And how will you need to change to adapt?
What has changed
We are forging ahead into an open market environment, which means less government rules, regulations and subsidies. This should allow for the open market to work properly.
Look out dairy, chicken and egg marketing boards, you will be targeted next if the government proceeds with and becomes part of the new Trans Pacific Partnership trade agreement.
Let’s step back in time a little, to when the Crow Rate was still in effect.
This was federal legislation guaranteeing Canadian farmers cheap freight rates to ship grain to export markets for as long as the railroads operated. Ultimately these cheap rates were negotiated away for a meager lump sum payment to farmers. A revenue cap agreement was put into place instead, to allow the railroads to capture more of their true costs of freighting grain to port. How quickly they forgot the value of all of the lands given to them by the federal government in exchange for building the railroad across Canada in the first place.
A smaller yet equally important farmer right was the right to ship grain in producer cars.
Federal legislation allowing this still exists, but over the past 40 years the railways have closed down numerous miles of track and delisted 100s if not 1000s of producer car loading sites across Western Canada. For most farmers, the closest site may be 100s of miles from their farm. Many sites that still exist have a minimum car spot requirement that most individual farmers can’t meet. Does the right to load producer cars really still exist?
What will change?
This is my crystal ball. In an open market, I see rail freight cost escalating as the railways push to have the revenue cap removed on grains. The railways will argue that that open market should be allowed to determine freight costs. Does this really work when there are only two players in the game? They will no doubt promise better service to grain companies as a condition of removing the cap, and the increased freight costs will be passed on to grain producers.
As of August 1, 2012, the CWB will no longer have monopoly marketing rights on all classes of wheats and malting barley in Western Canada.
For the CWB to continue to exist, it will have to buy and sell grain in a competitive environment, competing against all other grain handlers in Western Canada, while not owning any handling facilities or port terminals.
The CWB now has agreements in place with at least six different grain companies including Cargill and Viterra. These companies will handle grain that the CWB buys and sells. This is good for farmers across the Western Prairies as it means the CWB will be one more choice — a choice that provides options such as pool pricing.
The takeover of Viterra by Glencore was no doubt expedited by the looming Grain Marketing Freedoms Act. Glencore is one of the world’s largest commodity marketing companies, and it sees opportunity for business expansion and profitability in Western Canada’s new open market environment. This may be great for the agriculture industry and its profitability, but will it be good for western Canadian grain farmers’ profitability? Let’s hope so.
One of the spin off concerns in the Viterra deal is the sale of the majority of Viterra’s Agro facilities to Agrium. This will give Agrium control of the majority share of Western Canada’s fertilizer and retail business sector. Again this is great for the agriculture industry but what about farmers?
This is a long way from the grain co-ops that still existed in the 1990’s where profits (if any) were shared among all members who did business with the co-op.
Today’s business model is about increasing shareholder profits by reducing costs, improving efficiencies, becoming larger to reduce competition and buying raw products cheaper.
Profits on your farm
The moral of this column is that the success of your farm is totally in your hands. No one else will be looking out for your bottom line.
Are you ready to enter into this new open market environment?
To be successful you need to become more aware of what markets are available, how they work and how you can use them to your advantage.
That is what I’ll discuss in this column over the next few issues. †