Diversified grain era dawning

The Western Canada grains industry will begin a new era with the end of the current crop year July 31, when the statutory monopoly of the Canadian Wheat Board expires. The farmers who went to jail in the 1980s for trucking grain into the U.S. in defiance of the monopoly have prevailed at last.

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Not everyone is thanking Prime Minister Stephen Harper and his government for ending the monopoly. In last year's plebiscite, 22,764 wheat producers voted to keep the monopoly while 14,059 voted to scrap it. Mr. Harper went ahead anyway, reasoning the Western Canadian grain-growing communities had voted for his anti-monopoly party, giving him all the mandate he needed. He provided his own answer to the question former prime minister Pierre Trudeau once put to Western Canadian grain growers: Why should I sell your wheat?

Mr. Harper's answer is producers can continue to sell to the Canadian Wheat Board. The CWB, however, will have to compete with other grain-trading firms and will continue to rely on grain-handling companies to take physical delivery of wheat, durum and barley. The agency is preparing to compete and is likely to be a strong competitor as the new era begins.

When the CWB was struggling to preserve the monopoly, it warned it could never compete because it had no grain-handling facilities. Faced with the new reality, however, it has negotiated agreements with Cargill, Viterra and other grain handlers. The agency has a relationship with wheat and barley producers and it has long experience writing and administering contracts with them. It has long experience of selling Canadian grains around the world. Its well-developed pool system allows it to pay participating producers on delivery and then pay the balance after it sells the grain.

Viterra, successor to Manitoba Pool Elevators, the Saskatchewan Wheat Pool and the Alberta Wheat Pool, may eventually be a strong competitor. At the moment, it is going through many changes, spinning off some of its farm-supply outlets, learning how to buy and sell grain and merging itself with Swiss-based commodities-trading firm Glencore, which is concurrently merging with Xstrata, a UK-based miner of coal, copper, nickel and zinc operating in 40 countries. Viterra has Western Canada's largest elevator network. This week, it won federal approval for the Glencore takeover.

Viterra, Cargill, Richardson International and other firms will be on their best behaviour in the new crop year as they try to win farmers away from the CWB. Producers who have chafed against the monopoly can't wait to deal with some other grain buyer, but many producers will need to be convinced the new competitors can offer better service and a better price. The most cautious producers are likely to stay with the pool accounts and the familiar contract structure of the CWB. Many are likely to sell part of their crop to the CWB and part to a new competitor so they can compare the results.

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Timely delivery of Canadian grain to overseas customers may be more difficult in the first few post-monopoly years. No longer can the CWB call in grain from producers' granaries, call in railcars and organize a smooth ride from farm to Pacific Coast terminal. The railways, the grain traders and the grain handlers may in time organize a transport consortium to keep the grain moving efficiently.

As years go by, the most adventurous, lowest-cost producers are likely to pull out of the pool accounts and seek higher prices from the new competitors. The CWB's advantages may erode. Small-scale, risk-averse producers may turn to other crops if they find wheat and barley production has become more difficult. In this way, the diversification of Western Canadian agriculture that followed removal of the Crow's Nest freight-rate controls 30 years ago may continue in the post-monopoly era.

Republished from the Winnipeg Free Press print edition July 19, 2012 A10