The Canadian government should give the grain industry at least six months to adjust before ending the Canadian Wheat Board’s grain monopoly, the chief executive of Cargill’s Canadian subsidiary said May 11.
A good time for the change, which would allow Western Canada’s farmers to sell their wheat and barley to anyone they choose instead of just the wheat board, would be Aug. 1, 2012, which starts the 2012- 13 marketing year, Len Penner said in an interview.
“The fear isn’t the unknown – people will figure it out,” Penner said at Cargill’s Canadian head office in Winnipeg. “It’s the transition that’s critical to watch.”
Overhauling Canada’s grain industry, which has operated under a monopoly since the Second World War, could lead to contracts not being honoured if it happens too quickly, Penner said.
“There’s a lot of money that could be at stake.”
Penner would not say whether the marketing change is the right decision, noting that Cargill operates in a variety of systems around the world.
The U.S.-based Cargill has just completed the acquisition of the commodity management arm of the Australian Wheat Board, which was privatized in 2009, from Agrium Inc. for $677 million in cash. However, unlike the CWB, the AWB owned grain-handling and storage facilities.
The company has said it intends to continue operating AWB wheat and barley pools over the coming years while there is demand for pool products. It will also use the AWB brand name in grain buying and grower activities.
The newly elected majority Conservative government plans to end the board’s monopoly, but has not yet offered detailed plans.
Cargill, the third-largest grain handler in Western Canada after Viterra Inc. and Richardson International, also runs North America’s biggest canola-crushing plant, beef-processing plants and a maltster, among other facilities.
The wheat board could survive the loss of its monopoly as a voluntary pool, but will need to make deals to use grain-handling capacity of private companies, Penner said, adding that the CWB already works with them.
“It’s not way out to think that could continue to happen.”
Opening grain marketing is unlikely to spark much merger and acquisition activity among Canada’s grain handlers, which saw major consolidation in the 2000s, Penner said.
Nor is scrapping the monopoly seen likely to entice construction of more plants in Western Canada to mill wheat or turn barley into malt, although some open-market supporters have suggested as much.
North America is not short of milling capacity and any decision on adding to malting operations would have to consider global supply-and-demand factors foremost, said Penner. Cargill’s Canadian holdings include Prairie Malt
in Saskatchewan (owned jointly with Viterra) and milling plants in three provinces through the joint venture Horizon Milling.
Penner’s comments differed from those offered by two former CWB CEOs interviewed earlier in the week.
Both Greg Arason and Adrian Measner said the board faces a tough battle to survive as a voluntary pool competing against grain-handling heavyweights.
“It’s a hard proposition because you no longer have security of supply and you don’t have any facilities,” said Greg Arason, who headed the Winnipeg-based wheat board from 1999-2002 and 2006-08.
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.
Other than the three dominant handlers, the only two major port grain facilities are owned by privately held Soumat at Thunder Bay, Ontario and by a handful of small players at Vancouver, said Measner, who is now chief executive of Soumat.
Still it’s possible that the wheat board 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 wheat board 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.
“There’salotof moneythatcould beatstake.”