If you are one of those grain farmers who takes great pride in being a free enterpriser, the next sentence may upset you.
You are a member of a collective.
Perhaps you don’t have a certificate certifying your involvement in such a pinko outfit, but unless you sell all your grain to one customer who doesn’t buy from anyone else, that’s the reality of your business. If you haul 10 tonnes of wheat to the elevator, it is mixed with wheat from neighbouring farms and eventually with wheat from across the Prairies and becomes part of a huge vessel, perhaps a 70,000-tonne Panamax sailing from Vancouver for Indonesia.
That’s a journey of 19,900 nautical miles. So why would the Indonesian miller buy your wheat from that far way when he could get it from Kurmana, Australia (1,775 nautical miles); Vladivostok, Russia (3,306), Odessa, Ukraine (6,402) or Chennai, India (2,100)?
Yes, India, in case that last one surprised anyone brought up with tales about the “starving millions” in that country. India is now a major wheat exporter — it has 9.5 million tonnes on the books so far this year. (By the way, India was the world’s largest exporter of beef and rice last year.)
Back to that question — why would the world’s major wheat importers such as those in Egypt or Southeast Asia buy Canadian wheat when there are other suppliers more close by?
One reason is that they don’t pay the extra freight — you do. Most buyers are paying a landed price. If you’re selling the same product, you have to deduct your price f.o.b. port by the amount of the extra freight to get the business.
That’s not the whole story. Many of your competitors in countries mentioned earlier, plus those in the U.S. and Europe, are located much closer to port. Nor do they have the Rocky Mountains to cross in one direction, or a double handle through the St. Lawrence Seaway in the other.
Moreover, any of your competitors have at least one of these advantages: more rainfall, a longer growing season, more government support, cheaper land and cheaper labour.
This has always been the case. But there’s a new factor at play. With a couple of exceptions, most Canadian wheat is now being sold by the same companies that sell everyone else’s — Glencore, ADM/Toepfer, Cargill, Dreyfus, Marubeni etc. So you’re not just competing to sell to the customer — you’re competing to be the one chosen by one of these companies to sell to the customer.
How can Canadian wheat producers survive in this competitive environment? Some are suggesting it is by growing the same product as the competition, even though they have lower costs, higher yields and are closer to market.
That’s exactly the subtext of the message that Agriculture Minister Gerry Ritz delivered to the Prairie Recommending Committee for Wheat, Rye and Triticale when it met last month. He referred to the committee’s work in recommending grain varieties as an “unnecessary regulatory burden.”
That’s code for “lowering the standards of Canadian wheat classes so that private breeders can concentrate on yield, not quality.”
We can hear the response. “Oh, no. This is to allow more flexibility for those breeding for buyers looking for specific end-use qualities they can’t get in the current grading system.”
Nonsense. Other than some minor exceptions, there are no end-use wheat qualities that millers want and can’t find on one of Canada’s eight existing wheat classes.
Which takes us back to that 70,000-tonne cargo. If it does what buyers want — and so do the next and the next — then they will choose Canadian. It’s not just about quality, it’s about consistency of quality. That’s the Canadian advantage, but it depends on a common standard — not a regulation, a standard — for the varieties grown by the thousands of farmers whose wheat makes up that cargo.
Some grain merchants will not give you this message. We heard a hint of that when a U.S. trader told the Grainworld conference that Canada and the U.S. need to work together to streamline grades to help reduce confusion for international buyers.
Confusing for whom? Much of the world’s wheat trade is basis “optional origin” — the buyer sets the specifications and asks for offers. The multinational companies then shop around for the cheapest source. They’re the ones who get confused if the buyer specifies Canadian instead of optional origin.
The choice is clear. If farmers want customers to be able to specify Canadian wheat, then they need to stick together and keep the Canadian quality system, especially on CWRS.
If not, then they can choose to compete on the basis of cost and yield.
We hear there’s some really nice spring wheat coming out of Kazakhstan these days.