In a post-monopoly world, the Canadian Wheat Board will disappear altogether, or it will become the "eBay" for grain exports by bypassing the grain-handling system with container shipments.
Or it will become something in between.
It all depends on who was talking at the recent two-day conference here organized by the universities of Saskatchewan, Regina, Manitoba, Alberta and Lethbridge.
But beyond the fate of the board, conference speakers considered some of the other changes facing farmers as they enter a new era of grain marketing. And like it or not, there are some big changes in store as the federal government continues with its plan to end the monopoly as of Aug. 1, 2012.
New challenges include the impact on producer car economics and short line railways, the rise of railway market power and pressures to harmonize Canada’s grain grading system with the United States. Then there’s managing basis risk, and of course, the difficulties facing a voluntary wheat board.
One thing is for sure, how things flow won’t necessarily be based on pure economics. Nor will they be driven by loyalty.
At best unimportant
Murray Fulton, an agricultural economist and professor at the University of Saskatchewan’s Johnson-Shoyama Graduate School of Public Policy, said a voluntary board will "at worst disappear and at best be reduced to an unimportant player," he wrote in a recent paper.
Canada’s top four-grain buyers — Viterra, Cargill, James Richardson International and Louis Dreyfus — own 72 per cent of the West’s country elevator capacity.
"Even if the voluntary Canadian Wheat Board was able to get everything else, which I think would be unlikely, you’d be looking at a market share of 25 per cent," Fulton said. "That would be just on the borderline of being viable."
Terminal elevator ownership at Vancouver, Canada’s leading wheat export port is even more concentrated. The top three firms own 90 per cent of the capacity, said Bill Drew, with Nearco Transportation Consulting. The same firms own 100 per cent of terminal space at Prince Rupert and 86 per cent of Thunder Bay’s.
Viterra can source all the grain it needs through its country elevators and Richardson needs even more terminal space, Drew said. Cargill is the only firm that needs to source more grain. However, instead of striking deals with farmer-owned country elevators or the board, Cargill is more likely to buy more elevators, he said.
Mark Hemmes, president of Quorum Corporation, which is the firm hired by the federal government to monitor Canada’s grain handling and transportation system, is less pessimistic. He said he expects country and port terminal owners will handle grain for others.
"Grain handlers are business people and will look to increase their handle any way they can," he said in an interview. "It’s about optimal asset utilization and improved bottom line."
Terminals are also obliged under the Canada Grain Act to receive grain if they have space, he said.
eBay for grain exports
Meanwhile, Barry Prentice, professor of supply chain management at the University of Manitoba’s I. H. Asper School of Business, said the board can be the "eBay" for grain exports using containers to bypass elevators and port terminals.
The end of pooling for eastern shipping costs means more grain will flow west, making Thunder Bay and Great Lakes-St. Lawrence Seaway ports residual outlets, Drew said. The Port of Prince Rupert is one of North America’s most efficient grain exporting terminals with many advantages, including more available railway capacity and being closer to many Asian destinations. But Prentice predicted its owners will maximize use of their individually owned terminals in Vancouver.
Higher freight rates?
The new wheat board will no longer be allocating rail cars and therefore can’t offset railway market power, said James Nolan, an agricultural economist at the University of Saskatchewan.
American transportation consultant Terry Whiteside warned if the statutory cap on railway earnings for hauling grain is removed, farmers will pay 30 to 40 per cent more to ship grain.
Agriculture Minister Gerry Ritz has said if farmers paid more, they’d get better service. However, there no such plans to scrap the cap, said Paul Martin, a director-general with Agriculture and Agri-Food Canada.
Some fear an open market will undermine the quality of Canadian wheat exports.
"I suspect there will be pressures to have greater harmonization (to reduce costs) amongst these countries," said North Dakota State University agricultural economist Bill Wilson.
"I’m guessing you’re going to have more pressure in this country to have more access to our varieties."
In the U.S. the lack of variety registration and specific end-use standards sometimes results in inconsistent results for millers and bakers, Wilson said.
Crop Development Centre barley breeder Brian Rossnagel said Western Canadian farmers should continue to focus on producing high-quality grain. "(Y)ou need to recognize that you cannot compete with many of your competitors in… yield per acre," he said. The growing season is too short and usually too dry.