Canadian renaissance

by Stormy Wylie
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Multinational trading company Louis Dreyfus Corp. and the Canadian grain industry are both experiencing a rebirth on the Prairies

   Canada's grain industry is experiencing a rebirth. Driven by an increasingly global market, changing consumer demand, product diversification and increased competition, the effects of consolidation are reverberating throughout the industry, from the farmer through to the shipper.

   The most outward sign of this renaissance is evident in Canada's grain handling infrastructure. A landscape once dominated by hundreds of country elevators is slowly being transformed. The outdated and inefficient wooden crib structures, with storage capacity of 1,500 to 3,000 tonnes, are being replaced by concrete and steel high- throughput terminals with capacities ranging from 20,000 to 40,000 tonnes. The new terminals move larger amounts of grain in a shorter period of time to export markets.

   In the midst of this change, a global grain trading company with such diverse holdings as crude oil refining, oilseed crushing and orange juice is going through a rebirth of its own on the western plains of Canada. Louis Dreyfus in the past two years has quietly been building a network of new 20,000- to 40,000-tonne steel grain elevators in the prairie provinces of Manitoba, Saskatchewan and Alberta. To date, the company has leased or purchased three existing smaller terminals, built three new terminals and has three more under construction. The goal is to have a dozen such elevators operating in Canada by August 2000.

   The Paris-based Louis Dreyfus Corp., a worldwide organization with 75 offices in 25 countries, has been involved in the export of Canada's grains and oilseeds since the early 1940s, but until two years ago had only a nominal presence in the country's grain merchandising industry.

   In North America, Dreyfus had for many years a larger role in the United States. But in 1993, the company withdrew from domestic grain merchandising in the U.S., turning over operational control of most of its 50 grain elevators to Archer Daniels Midland Co., Decatur, Illinois. The agreement instantly made ADM the largest grain storage and handling company in the United States.

   For its part, Louis Dreyfus said it wanted to focus on its strengths, namely global arbitrage, strong marketing relations with key global customers and the development of infrastructure in South America and other “less obvious” geographical and commodity areas.

   “As the grain industry (in the United States) began to consolidate, we either had to get much larger and be one of the consolidators or get out of the domestic and origination side of the business,” said R. Bruce Radley, administrative vice-president for Louis Dreyfus Corp., Wilton, Connecticut, U.S.

   Industry analysts viewed the decision as a good business move.

   “This is not an idle decision by a company that comes and goes; it was made by a highly respected operator that has devoted decades and vast resources to building a business its management finally determined was not worth the cost of going it alone,” wrote Morton I. Sosland, editor-in-chief of Milling & Baking News, a weekly trade magazine and sister publication to World Grain. “Its decision reflected a judgment that the group's resources could better be utilized in aspects of the business other than the domestic grain trade, where it had been one of the fairly major participants for many years in the past.” So, why exit the grain merchandising business in the largest exporting country in the world only to move a few hundred miles north, into a market dominated by a government agency, the Canadian Wheat Board, and huge pools controlled by farmers?


   “It was the right time,” explained Mr. Radley. At the annual conference of the Grain Elevator and Processing Society in Tampa, Florida, U.S., in March, he and Ian R. Luff, manager of country operations for Louis Dreyfus Canada Ltd., discussed the reasons behind the company's move into Canada.

   “Canada was ready for a change,” Mr. Luff said. “The grain industry was ready to be more competitive.” Grain companies in Canada are in a race for growth and market share in a C$12-billion industry (U.S.$8 billion). The majority of Canada's wheat crop is exported, and the high-quality, high-protein spring wheat grown in the Prairies is eagerly sought in China, Brazil, Great Britain and other nations.

   Barry Senft, chief commissioner of the Canadian Grains Commission, which regulates grain handling in Canada and is charged with maintaining quality standards for Canadian grains, said the quality of Canadian wheat puts Canada in a good export position.

    “But quality isn't the only issue,” Mr. Senft said. “It's also about providing the customer with consistency so they know that what they are milling is going to perform time after time.”

   Canada's wheat isn't the only sought-after commodity. The arrival of the free trade era brought a diversification in products. Canadian farmers who no longer receive government subsidies are planting value-added crops that command premium prices in the marketplace. In fact, wheat production in Canada in recent years has declined, while canola, an oilseed crop, and specialty crops such as peas, lentils and canary seed have increased.

   The dismantling of the Crow's Nest Pass rate, the system of railway subsidies for transporting grains and oilseeds, also is expected to have a major effect on the Canadian grain industry. Transportation in western Canada has always been a high priority, Mr. Senft said, given the large geographic area and harsh climate of the Canadian winter. As recently as a few years ago, those issues “played havoc” with getting grain to port, he said. But competition between Canada's railroads is expected to drive down costs and improve service.

   Indeed, transportation was a “great motivator” in Louis Dreyfus' decision to jump into the grain business in Western Canada, said Mr. Luff and Mr. Radley. That, and the competition.

   “It's a pretty level playing field in Canada,” explained Mr. Radley. “Nobody has a huge lead or advantage as far as merchandising grain.” The five largest grain companies in Canada are Saskatchewan Wheat Pool, Agricore (the merger of Alberta Wheat Pool and Manitoba Pool Elevators), United Grain Growers Ltd., Pioneer Grain Co. and Cargill, Inc. (see box at left). In recent years, all have all invested millions of dollars in new high throughput elevators in western Canada.

   Consolidation of grain facilities actually has been ongoing for many years, said Mr. Senft of the Canadian Grains Commission.

    “In the early 1970s, there were about 5,000 country elevators across the Prairies,” he said. “Those old elevators were developed for different era, when grain was transported by horse and wagon.”

   The current grain marketing system is designed for large commercial carriers — hopper-bottom trucks and trailers that carry 45 tonnes per load and 100-car unit trains that move 10,000 tonnes at a time.

   Today, there are about 1,000 primary elevators still operating in western Canada. Mr. Senft speculated that over the next five years that number will drop to between 300 and 500 as the growing number of high throughput facilities forces the closing of older country elevators. The process has accelerated in the past five years, he said, as the system attempted to reduce the costs of handling and transportation.


   To quickly establish themselves in the Canadian grain handling segment, Louis Dreyfus chose to build steel terminals because they can be erected in about half the time needed for the concrete versions selected by Saskatchewan Wheat Pool, Pioneer Grain and U.G.G.

   Building steel bin elevators cuts construction costs in half, and the elevator is ready for business within five to six months instead of the one year or more it takes to build a concrete elevator, explained Mr. Luff, manager of country operations for Louis Dreyfus Canada.

   All of the new Louis Dreyfus terminals are of the same design, ranging from 20,000 tonnes to 30,000 tonnes capacity (wheat equivalent), and able to load 56 rail cars in 10 hours. Each facility costs about C$6 million (U.S.$4.1 million) to build and equip.

   The Dreyfus terminals in Virden and Rathwell, Manitoba, and Tisdale, Saskatchewan, are virtually identical; all began full receiving and shipping in September 1998. Another smaller terminal (13,000 tonne capacity) is operated at Wilson, Alberta, near Lethbridge. Dreyfus also leased existing 3,700-tonne and 3,500-tonne elevators at Rivers, Manitoba, and Innisfail, Alberta.

   Three additional terminals are under construction at Aberdeen, Wilkie and Glenavon, Saskatchewan, and are slated to be operating by September. The Wilkie terminal will have one-third more capacity like Rathwell (30,000 tonnes, wheat equivalent) and, also like Rathwell, will offer condo storage to local producers.

   Condo storage is an inexpensive way for farmers to store grain off-farm, Mr. Luff said, and allows them to choose a convenient time to deliver their grain without the obligation of selling it at the time of delivery.

   Louis Dreyfus offers farmers steel-construction, aerated, temperature-controlled storage units of 10,000 bus, wheat equivalent. Dreyfus accepts all responsibility for grain on-site, and all the grain is weighed and graded as it is delivered.

   The cost of the condo storage is an investment of C$20,000 for 15 years, which averages out to about 14c per bushel per year.

   Although condo storage is offered by other grain companies, Louis Dreyfus believes it has structured a more flexible agreement for producers, including incentives such as a guarantee that Louis Dreyfus will buy back the space at the end of the 15 years for the same investment that the producers made.

   The response in Rathwell has been good. An initial offering of 35 condo units has been sold and the terminal is planning to add another 9,500 tonnes for condo storage, bringing total storage capacity to nearly 40,000 tonnes.

   Jack Ryrie, the elevator manager at Rathwell, said local farmers like the options and terms, and ultimately see the cost of condo storage as “an investment in marketing flexibility.”

   “Markets move quickly these days, and farmers faced with buying new grain bins for the farm are thinking twice about spending that kind of money,” he said. “They see value in keeping their grain closer to the marketplace and knowing what quality they have on hand.”

   Quality is of utmost importance at Louis Dreyfus. Its new high-throughput terminals all offer cleaning and segregating services. Canada segregates by type of grain, grade and protein content, and has a stringent grading system used to identify discounted grain.

   “The company that can identity preserve specialty grains is going to be paid a premium for that service,” said Dreyfus' Bruce Radley.


   All of the Louis Dreyfus terminals are designed and operate in a similar manner. Using the Tisdale terminal as a guide, the process flow is as follows: Self-unloading hopper bottom trucks delivering grain — principally hard red spring wheat, durum wheat, canola, oats, flax and barley — are weighed on one of two 110-foot platform scales.

   The Tisdale terminal is equipped with 14 receiving bins, each with 100 tonnes capacity. Two of the bins are used for screenings and the other 12 are used for distribution and segregation.

   From the receiving bins, the grain is conveyed to the cleaning plant or, in cases when cleaning is not immediately required, directly into the large storage silos. Westeel of Winnipeg, Manitoba, supplied all of the steel bins, including the receiving bins. The 10 large storage tanks hold 2,000 tonnes (75,000 bus) each, and are 48 feet in diameter and 14 rings (44 inches) high with outside stiffeners. Each bin is equipped with aeration floors and fans.

   All grain is cleaned to Canadian export standards. The cleaning system, supplied by Northland Superior/Daycon Mechanical Systems, Winnipeg, involves three types of cleaners. Grain first moves through a cylinder-type indent machine that makes the initial separations, then over a rotary table machine to remove a certain amount of clean grain. The balance is taken over reclaim system, consisting of a grader combination indent machine, then over a smaller rotary table. In each of those processes, each cleaner has its own aspirator.

   “Our goal is to ship only clean grain,” said Kim Althouse, Tisdale general manager. “And to have enough grain clean to meet shipping requirements.”

   Louis Dreyfus does something unique compared to other nearby grain elevators, he added. “We use grain pump technology instead of bucket elevators and drag conveyors to transfer grain from the truck to the bin and from bin to bin,” Mr. Althouse said.

   The grain pump conveying system, supplied by Hutchison/Mayrath, Clay Center, Kansas, U.S., uses a continuous chain in an enclosed loop around the bin and can be opened at the bottom or top of the bin. The grain moves in a tube rather than on a flat surface.

   Grain pump technology is not new, but this is the first time it has been applied in a commercial application of this size, Mr. Althouse said. “The grain pump is popular with large-scale farmers who need a reliable and fast conveying system,” he said.

   Conventional conveyors are used to load out grain. Louis Dreyfus uses a continuous loading bin system instead of a bulkweigher. Utilizing two loading bins, a full load is weighed in one bin. While the rail car is being filled, the other loading bin is weighing another load.

   The continuous loading system can weigh batches of 90 tonnes at a time and has an out-bound rate of about 820 tonnes per hour. The Tisdale terminal once loaded 53 rail cars in seven and a half hours, Mr. Althouse said.

   This system also allows the elevator the flexibility to determine grade and moisture before the grain is loaded into the car, he said. “If we don't like the quality of the grain, we can bring it back to the elevator before loading,” he said.

   While other grain terminals use a car progression system — an elaborate system of cables and winches — to move rail cars into loading position, Louis Dreyfus has purchased a used 1,200-hp locomotive from the Canadian Pacific Railway for each of its terminals. The use of a locomotive was deemed to be more economical and efficient than the traditional car progression system.

   Because the Tisdale elevator occasionally encounters some severe operating conditions, with the temperature often dropping to 40 below and staying there for long time, the locomotive is stored in a special shed equipped with its own heater system that heats the water and oil and charges the locomotive's battery.

   The severe cold also has its advantages. “We don't have the insect infestation found in warmer climates,” Mr. Althouse said.

   The entire terminal is operated with touch-screen technology supplied by Indus Automation, Winnipeg, through a conventional PLC.

   About 85% of the grain handled through Tisdale is destined for export terminals at Vancouver or Thunder Bay. “We operate in a competitive environment,” Mr. Althouse said. “There are four other grain terminals within 20 miles.

   “What we're competing against is the high capital cost of concrete construction. We operate plants that are significantly lower cost and take less time in the construction phase. We're offering those savings back to the customer in lower handling costs paid as trucking incentives.” Under current legislation, Canadian grain elevators must file tariffs listing what it will charge the farmer to clean their grain and ship it to port.

   “As a way for us to pass our savings on to the customer, we can lower tariffs by offering transportation assistance to the farmer,” Mr. Althouse said.

   The Tisdale manager, like all other Louis Dreyfus Canada personnel, was recruited from the surrounding community for his experience and knowledge of the Canadian grain marketing business. Mr. Althouse was born and raised not more than 100 miles from Tisdale.

   He put together a staff that is well known to the area's producers. “Most people who walk in here see a familiar face,” he said.

   The elevator is run by a staff of eight, including Mr. Althouse, a grain coordinator, a facility manager, grain buyer, two operators for the cleaning plant, an administrative assistant and one part-time administrative assistant.

   There currently is no condo storage at the Tisdale facility, but plans are to make an offering for condo storage to be ready for the year 2000 harvest, according to Mr. Althouse.

   Mr. Luff of Louis Dreyfus Canada said the company hopes to capture 5% to 6% of Canada's grain storage market in the next few years.

   Barry Senft of the Canadian Grains Commission acknowledged the Canadian grain industry is a good place to be right now.

   “The entire Canadian grain storage industry is going through a renaissance,” he said. “All the concrete being poured and steel being erected in the western plains is a sign that Canada's grain industry may be one of the more active areas in world.” The old system served producers well enough in past, he said, “but we have to move on. To what point consolidation will continue, though, that's still the big question.”

Top grain storage companies in Canada
No. ofCapacity% of total
Saskatchewan Wheat Pool3261,611,15025%
United Grain Growers, Ltd.140853,74013%
Pioneer Grain Co., Ltd.113624,79010%
Cargill, Ltd.61532,1108%
Country total1,2096,415,080100%
Source: Canadian Grain Commission