Focus on Canada

by Chris Lyddon
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Canada remains one of the world’s largest grain exporters, and this year’s tight markets and the lack of supplies from Black Sea origins have underlined its importance. Its grain processing industry is increasingly integrated with that of the United States.

According to the International Grains Council (IGC), Canada will produce a total of 44.2 million tonnes of grain in 2010-11, compared with 49.3 million the year before. That includes 22.2 million tonnes of wheat (26.8 million), 11 million tonnes of maize (9.6 million) and 8.3 million tonnes of barley (9.5 million). Production of oats is estimated at 2.3 million tonnes (2.9 million).

Canada is one of the world’s biggest grain exporters, with shipments for 2010-11 put at 20.5 million tonnes, compared with 21.6 million the year before. Its total grain imports are estimated at 2.5 million tonnes, unchanged compared with the year before.

Wheat exports are put at 17.2 million tonnes, compared with 18.4 in the previous year. Canada’s maize exports are estimated at only 200,000 tonnes, up from 100,000, while imports are an unchanged 2.2 million tonnes. Canada’s barley exports are put at 1.4 million tonnes, up from 1.3 million. Canada is also expected to export 1.6 million tonnes of oats, unchanged from the previous year, making it by far the world’s largest exporter of that particular grain.

The IGC puts Canada’s 2010-11 wheat flour exports at 150,000 tonnes, up from 120,000 in 2009-10. Canada will import 260,000 tonnes of wheat flour, the IGC predicted at the end of November, unchanged from 2009-10.

According to the Canadian Renewable Fuels Association, on Dec. 15 the federal government’s Renewable Fuels Standard officially came into force.

“This will add some 2 billion liters of renewable fuels, such as ethanol and biodiesel, into the Canadian gasoline pool each and every year and change the way Canadians drive going forward,” it said.

“Starting on Dec. 15, Canadians will be fueling change every time they drive. Five percent of the gasoline that Canadians pump into their vehicles will come from renewable green sources harvested and produced across Canada,” said Gordon Quaiattini, president of the Canadian Renewable Fuels Association. “Ethanol and biodiesel help diversify our fuel supply, add new income for farmers, and reduce harmful greenhouse gases.”

In an annual report on the Canadian grains sector, the attaché forecast that 1.15 million tonnes of wheat will be directed toward ethanol production, a 50% increase from 2009 levels.

“The need for high-yielding, low-protein wheat by the livestock industry and the ethanol plants are in direct conflict with the needs of the flour industry,” the report said. “Increases in ethanol-efficient wheat is expected to affect production patterns and result in more Canadian wheat farmers seeding area to lower protein/high starch wheat such as winter wheat and Canadian Prairie Spring Wheat rather than higher protein/lower starch wheat varieties used by the milling industry. The livestock sector, especially the hog sector, competes for the same wheat varieties as the ethanol producers
“The Canadian Wheat Board (CWB) controls the sales of wheat for human consumption and export, and therefore as long as the ethanol is going to be used as fuel and the dried distillers’ grain is going to be fed to livestock, the CWB has no involvement,” it said.

The CWB has been under farmer control since the beginning of 1999. Based in Winnipeg, it’s the largest wheat and barley marketing organization in the world and is a monopoly seller of those grains in Western Canada.

The Canadian government has made it clear in recent years that it would like to see the CWB lose its single desk powers, but in the most recent board vote in December, Western Canadian farmers opted for the status quo, with four of the five new CWB board members considered by observers of the election as supporters of the single desk.

According to the Canadian National Millers Association, Canada has approximately 55 commercial wheat and oat mills.

“We’ve had some consolidation, but there are still four major players,” the association’s president, Gordon Harrison, told World Grain. “We have Cargill owning Horizon Milling, and P & H Milling Group, which is part of Parrish & Heimbecker. They’re a privately owned company.”

Two further big players are ADM and Kraft. “The fifth is Rogers (Foods Ltd.), the Japanese-owned interest,” he said. “Beyond our membership there’s probably another 20 or so independent mills with various specializations across the country.”
He described the Canadian milling industry as stable.

“We have lots of demand for grain-based staple foods, and I think the highlight of 2011 will be an uptick in demand with economic recovery and, happily, that will restore come capacity utilization,” he said. “Our capacity utilization is helped by the proximity of the U.S. market.”

Harrison said the industry is dealing with the vagaries of weather and North American market volatility, but it does have a fairly steady total national demand.

“Demand was clearly hit by the North American economy for a couple of years, although that seems to have recovered,” he said. “A lot of the North American softening of the market was due to declining food service expenditure, because food service, fast food and other restaurant chain business accounts for a large portion of bakery products and frozen dough,” he said.

Trade between the U.S. and Canada is growing steadily.

“That’s something we’ve had for the long term, since the early 1990s,” he said. “One could say that our industry is in more of a North American environment rather than a Canadian environment.”

Harrison said the industry has undergone significant modernization in the past 15 years. “There’s been a lot of capital investment, refurbishing, adding new units to existing bricks and mortar.”

There are also a number of green-field projects where very big milling facilities have been built. “We still have productive facilities that are operating on sites that were established up to a hundred years ago, and they’ve been extensively modernized and we have, I would say, a well-modernized industry,” he said.

The industry is helped by the growth in population. He put the rate of growth at between 1% and 1.5%. “It’s not regionally dispersed evenly, so we have lots of growth in eastern and central Canada, British Columbia, Canada’s west coast,” he said. “Of course, those milling establishments are directly north of very large U.S. markets. The United States is Canada’s most important export market for the milling industry and probably accounts for 10 percent of production.”

The vast majority of the milling industry’s output is in bulk shipments to further processors. A relatively small percentage of total shipments are in the form of bagged products.

“The background noise for all of this, for North America in total, is food safety,” Harrison said. The Canadian Food Inspection Agency started a five-year Food Safety Action Plan in 2008.

“The industry in general in North America is responding to a whole new wave of food safety imperatives,” he said. “We are preoccupied with a bunch of regulatory issues. Canada is struggling to catch up to the mycotoxin regulations that the E.U. adopted in 2006, so it’s a major issue for the Canadian industry today and the whole grain supply chain. We have proposals that are very similar to the E.U. regulation.”

He also highlighted growing demand for whole grain wheat flour. “We’ve seen a tremendous move on the part of the baking industry and other food processors to do multi-grain formulas and whole grain formulas,” he said. “It shows up as a significant increase in demand for whole grain wheat flour.”

According to the Canola Council of Canada, exports of canola seed, oil and meal are valued at over $3 billion. There are 13 processing plants in five provinces with more than 2,800 people directly employed in highly skilled and professional jobs. The canola industry contributes more than $13 billion annually to the Canadian economy.

The U.S. Department of Agriculture (USDA), in its most recent annual report on the oilseeds sector in Canada, put canola area in 2010-11 to 6.7 million hectares, producing 11.9 million tonnes. It also said that the soybean crop would hit about 3.75 million tonnes in 2010-11, up from 3.5 million tonnes in 2009-2010. “Canada’s oilseed crop area is being pushed upward by the relatively higher returns to oilseeds compared to wheat,” it said. “The shutdown of flax exports to Europe due to the finding of trace amounts of genetically modified seeds is pulling flax area down, but the overall amount is not too large. However, farmers may look to planting canola as an alternative.”