The Canadian Wheat Board faces a tough battle to survive as a voluntary pool competing against grain-handling heavyweights, two former chief executives of the monopoly seller say.
The big three Canadian grain handlers — Viterra, Richardson International and Cargill — won’t easily welcome a new competitor and the board is hobbled without elevators and port terminals, said Greg Arason, who headed the Winnipeg-based CWB from 1999 to 2002 and 2006 to 2008.
“It’s a hard proposition because you no longer have security of supply and you don’t have any facilities,” said Arason, now partly retired, in an interview with Reuters.
The CWB is the world’s last major agricultural monopoly through its hold on Western Canada’s wheat and barley.
The Conservative government has been in power since 2006, but only this month gained majority control of Parliament that could allow it to scrap the CWB’s monopoly.
The Wheat Board can’t survive as an open-market seller without acquiring its own capital and port assets, said Adrian Measner, in a separate interview. Measner was CEO from 2003 until 2006 when the Conservatives fired him for defending the monopoly.
The board had revenue of $5.2 billion last year, but may not keep its reserves in an open system.
It would also need a willing seller of elevators and port terminals, or a partner in a new supply chain, as there’s little need for more capacity, Arason said.
Other than the three dominant handlers, the only two major port grain facilities are owned by privately held Soumat at Thunder Bay, Ont., and by a handful of small players at Vancouver, said Measner, who is now CEO of Soumat.
Still it’s possible that the CWB could cobble together a supply chain outside of the dominant players, both men said, with Measner adding that his company would be interested.
“It’s not impossible, but it’s going to take a fair amount of time to develop that kind of marketing company,” he said.
A partnership with one of the dominant handlers isn’t out of the question either, according to Arason, but the CWB would need to demonstrate it still has value post-monopoly.
That could happen if it signs up enough farmers to assure adequate supplies and capitalizes on its strong relationships with importers such as Japan and China, he said.
“What they have to offer is pretty loyal supporters who want the board to continue, particularly on wheat,” Arason said. “They (also) have a lot of friends in the offshore market.”
Lifting the monopoly could usher in a new wave of consolidation in Canada’s grain trade.
Small players such as Soumat would be prized for port facilities, while handlers without port terminals are unlikely to survive independently, Measner said.
“I think there will be tremendous rationalization just in the countryside,” he said.
That growth appetite might be reined in by Canada’s competition laws, which four years ago forced Viterra’s predecessor, Saskatchewan Wheat Pool, to shed some assets to take over Agricore United, Arason said.
The biggest Canadian players may themselves see stiffer competition from multinationals such as Archer Daniels Midland, Bunge and Louis Dreyfus, who may want to expand their presence, Measner said.
“They’re going to want to source (grain) from Canada in the same way they source from every other country,” Measner said.
Ottawa should only make such a dramatic marketing change in a gradual, orderly way, both former CEOs said.
“I don’t think it’s in anybody’s interest to shut the (CWB’s) doors, pull the chain and close it down,” Arason said. “There’s too much at stake here for the industry.”