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The virtues of patient capital

The story of the Prairie grain co-operatives is certainly one for the business books. Starting from nothing in 1923, by 1929 the Pools through the Central Selling Agency had the largest sales of any business in Canada. A year later it collapsed, but the Pools rose again as handling companies, and along with UGG, dominated Prairie grain handling until the 1990s.

By that time, they were “co-operatives” in name, but were anything but co-operative. The Pools and UGG never did get along. In the 1990s, SaskPool started poaching business in the other provinces. In an effort to raise more capital, UGG and then SaskPool tried issuing shares, becoming co-op/public company hybrids. That model failed, and when the dust settled, the Pools and UGG ended up as one public company — Viterra.

Credit goes to Viterra CEO Mayo Schmidt, who pulled SaskPool out of near bankruptcy and later engineered that takeover. Whether he deserves $37.5 million in credit, the reported amount he’ll pocket when he cashes in his shares, is another question. However, that’s no reflection on Mr. Schmidt. It’s just the way public companies work these days. Management gets stock options, and if someone wants to take over the company, they can make an offer. That’s the whole point of a public company — it’s always for sale, and in the end, it’s just about the money.

That point was apparently missed by a Globe and Mail business columnist who last weekend said Viterra was “blown away like a tumbleweed,” and bemoaned the loss of Canadian control of the industry. It’s not clear that most of Viterra’s shareholders were Canadian anyway. In fact, this deal means that the handling and processing industries are even more in Canadian control because of the assets acquired by Richardson International, a company that predates Canada.

In fact, it’s interesting to look around now that the dust has settled after more than a century of drama. The co-ops failed. Public companies failed. Maybe that was poor management, but maybe not. Under both structures, the owners want to cash out sooner or later.

Meanwhile, some companies that were around a century and more ago are still here and thriving — Richardson, Paterson, Parrish & Heimbecker, and though it’s not Canadian, Cargill. They are all private companies, still owned and operated by the families that started them.

That’s a clear endorsement of their business model and their management. They’ve had to pump a lot of money into modernizing their systems, all the while handling the perpetual ups and downs of the grain business. There must have been times when buyers came knocking and it was tempting to take their bucks and run. It must have been particularly stressful during the 1990s when the Pools were on a building spree to see who was going to be the last one standing, as it would have been when the Pools and UGG went on a similar spree in the 1920s.

These family companies stuck it out during those tough times, as well as several in between. You may or may not like some of the recent changes in the grain industry, and there may be uncertainty ahead. But it’s nice to know that as a result of good management and a patient-capital approach by the family companies, much of the handling business is still in Canadian hands.

We lost, of course

On March 14 one of Canada’s longest-running trade disputes came to an end when the European Parliament approved a deal to reduce import duties on U.S. and Canadian beef.

Beef produced without growth hormones, that is. This dispute dates to 1988, when the EU banned hormone-treated beef imports. Since the hormones are not allowed in the EU, it’s hardly surprising that they’d not be allowed in imported product.

That didn’t stop the U.S. government, with the Canadian government in tow like an obedient puppy, launching a World Trade Organization challenge on the basis that the beef was scientifically safe. They “won” the case, but as expected the EU simply refused to lift the ban. Therefore the WTO allowed the U.S. and Canada to impose punitive duties on imported EU items such as Rocquefort cheese and mustard. In 2009 the U.S. and Canada finally gave up and agreed to lift the duties if the EU would lower duties on hormone-free beef.

The deal ratified last week lifts duties on 45,000 tonnes of U.S. beef — and 3,200 tonnes of Canadian. That’s quite the reward for hitching our wagon to the U.S. with its “Don’t worry, it won’t hurt you to eat it” marketing approach.

Meanwhile, Cargill representatives are starting to hint that beef treated with certain growth promotants doesn’t taste as good.

Instead of fighting a battle we could clearly never win, wouldn’t it have made more sense simply to try and sell hormone-free beef in the first place?

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