If you’re younger, you may find it hard to believe that farmers used to own most of the Prairie grain and grain-processing industry and that they received part of the profits every year.
If you’re older, you may know that, but wonder how that changed so quickly. And did it have to change?
That’s the question raised in Paul Earl’s new book The Rise and Fall of United Grain Growers — Co-operatives, Market Regulation and Free Enterprise. Earl has had a long career in the grain business, including stints with the former federal government Grains Group, the Grain Transportation Authority, the Western Canadian Wheat Growers and most recently at the University of Manitoba’s Asper School of Business. But it’s clear that his favourite employer was UGG, and this book is the second on the company — the first was on longtime president Mac Runciman.
The first part of the book covers not only the history of UGG but of the early development of the industry as well as development of the Prairie Pools. While they and UGG were both co-operatives, their structures were different. The Pools distributed earnings only through patronage dividends, but UGG also had farmer-owned shares. But a bigger difference was in their views on the role of government and regulation in the marketing system. The Pools supported the Canadian Wheat Board and the Crowsnest freight rates while UGG was historically less comfortable and later outright opposed to both. Earl characterizes UGG’s position as an advocate for “the middle ground” on these issues.
For those not familiar or needing a refresher, early in the last century UGG’s founders led the charge for a farmer-owned grain company through forming the Territorial Grain Growers Association and the Grain Growers’ Grain Company, which later became UGG. The three provincial Pools followed a few years later, initially by forming a voluntary pool and a central selling agency, then by building elevators.
Measured in sales value, the central selling agency soon became Canada’s largest company, but went bankrupt after grain markets crashed in 1929-30. However, the elevator portion of Pool’s business survived and they collectively became the dominant players on the Prairies, with UGG in a strong second place.
The grain industry was reasonably stable until the 1980s when new pressures emerged. Wooden elevators built decades earlier needed replacement. Closure of branch lines and the end of the Crow Rate allowed railways to offer discounts for loading multiple cars. The co-ops were concerned that too many retiring farmers would cash out their equity, leaving the companies short of capital to replace aging elevators.
UGG addressed the problem in 1993 by taking part of the company public and offering shares. Saskatchewan Pool followed and began an aggressive program not only to diversify into processing but to grab market share, including by building elevators in other provinces and taking on its former sister Pools. Manitoba and Alberta Pools responded with a takeover attempt of UGG. That failed, so in 1998 they merged as Agricore. By 2001 it was in trouble and was taken over by UGG to become Agricore United.
Meanwhile, Saskatchewan Wheat Pool descended into a financial crisis verging on collapse. But in a remarkable turnaround, it launched a hostile takeover of Agricore United in 2006. The remnants of the four former co-ops became Viterra, a public company which was soon taken over by multinational giant Glencore, which in turn sold a portion to the Canada Pension Plan.
Earl spends much of the last part of his book reflecting on whether Sask Pool’s takeover could have been avoided.
Conventional wisdom is that once a company goes public, it in effect puts up a for sale sign and that its main if not only duty is to shareholders. If someone comes along and offers a better price, the company’s directors are obliged only to let the shareholders take their buck and run.
On one hand, Earl takes pains not to criticize the Agricore United directors for making that decision, but on the other reflects at length on whether it could have been avoided. He regrets the loss of an at least partly farmer-owned company offering what he considers a “middle ground” on industry issues, though some would disagree with that description and suggest UGG was a victim of getting what it asked for.
The disappearance of the Pools and UGG raises a question which Earl doesn’t address — whether public ownership of a grain company is ultimately doomed to fail.
Grain handling is not an investment for anyone looking for good returns every year, let alone every quarter. The only survivors in the Prairie grain industry have been private companies with owners who understand the need for patient capital.
The book is written in somewhat academic style and the first part goes into considerable detail on early history, with statistics that may be tough going for some. But the latter part has new information from extensive interviews with some of the key players during the company’s last days, including on disagreements among board members and senior staff.
If you’re interested in details of the remarkably quick collapse of the farmer-owned grain companies, it’s a worthwhile read.
John Morriss is the former editorial director of Glacier FarmMedia.