A new player in Canada

by Leo Quigley
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The purchase of controlling interest in the Canadian Wheat Board (CWB) by G3 Holdings Corporation should bring closure to the debate as to the impact of the monopoly that controlled wheat and barley sales in Canada for 80 years.

“The board” that controlled the marketing of wheat and barley (and at one time oats) from the Manitoba/Ontario border to the Peace River region of North East Alberta was originally created after WWI when grain markets were first stabilized by a federal agency. Prairie farmers could see the value of a powerful, single desk marketing agency in the face of powerful corporate and privately-owned grain agencies worldwide together with their concerns about unfair pricing practices in Canada.

These were the same concerns that led to the establishment of farmer-owned line elevators on the Prairies that eventually became cooperatives, most of which have since disappeared.

Together, the wheat board and farmer owned co-ops formed a unique marketing environment that not only influenced the sales of Canadian wheat and barley worldwide, but political attitudes on the Prairies. The Saskatchewan Wheat Pool was the largest farmer-owned co-op and the most politically influential in Saskatchewan – a province that was the first in North America to elect a socialist government.

Saskatchewan Wheat Pool and its counterparts in Manitoba and Alberta were instrumental in promoting socialism on the Prairies and supporting socialist thought and cooperativism in both provincial and federal politics. It was Tommy Douglas of the New Democratic Party (previously the Cooperative Commonwealth Federation) who is credited with having brought Medicare to Saskatchewan, a healthcare system that was eventually adopted nationwide.

But, the socialist/cooperative school of thought did not sit well with many farmers on the Prairies and many, such as the Palliser Wheat Growers (now the Western Canadian Wheat Growers), pushed for change, in particular an end to the wheat board. In fact, at one time the Province of Alberta threatened to separate from Canada if the federal government didn’t get rid of the board.

Farmers watched as canola (an abbreviation meaning “Canadian Oil”), which was not under the Canadian Wheat Board, was rapidly adopted as a cash crop by farmers and proved to be extremely successful in attracting international buyers. The crop now challenges wheat in acreage on the Prairies.

Beginning of the end

What angered a large group of farmers mostly, particularly in Alberta, was the fact that their barley could not be sold into the U.S. and fed to their own cattle in feedlots south of the line.

These sentiments boiled over in the spring of 1996 when a group of roughly 40 Manitoba farmers, many of which belonged to a group called Farmers for Justice, decided to cross the U.S. border into North Dakota to sell their grain at a U.S. elevator – whether the wheat board liked it or not.

However, since the wheat board was the sole seller of Canadian wheat unless the seller had a special permit, the wheat board commissioners didn’t like the idea and the farmers were met at the border by armed guards dressed in SWAT team outfits, police dogs and a police helicopter.

Their trucks were confiscated and some were given jail time.

The story, of course, appeared in newspapers across Canada and follow-up stories continued for months afterwards, which is exactly what the Farmers for Justice had planned on.

It proved to be a serious black eye for the board and damaging to its reputation at a time when its usefulness was already being questioned.

And, among the people questioning the usefulness of the Canadian Wheat Board was the current Prime Minister of Canada, Stephen Harper.

At one time Harper was president of a group called the National Citizen’s Coalition, whose motto is “More Freedom Through Less Government” and a member of the Reform Party of Canada, resolved to get rid of the wheat board.

Finally, on July 31, 2012, in Saskatoon, Saskatchewan, his Minister of Agriculture was finally able to announce the introduction of Bill C-18, the “Marketing Freedom for Grain Farmers Act” and the Prime Minister, while standing in a Saskatchewan farmyard the following day, told a crowd that “Never, never, never” will farmers be again punished for trying to sell the wheat they grew on their land.”

Stripped of its mandate as a monopoly, the wheat board was once again made a voluntary agency, as opposed to being compulsory for Prairie farmers (membership was made compulsory for Western Canadian farmers in April, 1943 via the War Measures Act) and was instructed by Ottawa to prepare for privatization.

Ian White, who remained president and chief executive officer (CEO) of the board throughout the storm, followed these instructions and set out to buy or build the beginnings of a new grain handling network. Prior to the change to the board’s mandate, the agency was restricted from owning stationary real estate other than its headquarters building in Winnipeg, which has now been sold.

However, Ottawa’s end game was not to establish a new, competitive grain company in Canada, but to find a buyer for the remnants of the Canadian Wheat Board. A request for expressions of interest went out to the industry and the result was the sale to G3 Holdings Corporation.

In a prepared statement, White said at the announcement: “Under the terms of this transaction, G3 will invest C$250 million (subject to closing adjustments) for 50.1% of CWB. The other 49.9% will be allocated to a trust for the benefit of farmers and administered through the Farmer Equity Plan announced by CWB in 2013. G3 is a joint venture between Bunge Canada, and SALIC Canada, a wholly owned subsidiary of Saudi Agricultural and Livestock Investment Company (SALIC).

“G3’s significant investment in CWB together with the Farmer Equity Plan will create a major new competitor by facilitating the continued expansion of our grain handling network. Creating value for farmers will continue to be at the core of CWB and this plan offers them a unique opportunity to have equity, at no cost to them, in an international grain company.”

G3 seeks expansion

Since that announcement it’s been made known by G3 that the Bunge/Saudi venture is looking at plans to significantly expand Western Canada’s grain handling network, including plans for a new, high throughput, grain export terminal on Port Metro Vancouver’s North Shore.

The Saudi government is no stranger to British Columbia’s shipping industry. Dubai-based DP World operates the Centerm container terminal located on Vancouver’s inner harbor, recently purchased the Fairview container terminal at the Port of Prince Rupert and operates the ship loading facility at the Port of Nanaimo on the East Coast of Vancouver Island, an operation the port management says the company is looking to expand.

G3, based in Ottawa, is part of SALIC, which has been on a worldwide search for sources of food production to stabilize Saudi Arabia’s food security.

A shortage of water and a growing population with a preference for bread and meat as a foodstuff has created a huge demand for wheat and feed grains. At present, it is in the process of phasing out much of its domestic agriculture, including wheat growing, in an effort to preserve water supplies. Instead, it will rely almost exclusively on imported wheat and feed grains.

In past years, under the Canadian Wheat Board, Western Canada was a major supplier of wheat and barley to Saudi Arabia and the proposed new export terminal, if it goes ahead, will most likely play a key role in fulfilling the kingdom’s future food needs.

Karl Gerrand, CEO of G3 and former executive with Saskatchwan-based Viterra, told World Grain the new company has embarked on a feasibility study to determine whether Vancouver is the right place for a major new terminal and if this is the time to build one.

“We’ve made some significant investments already, but we’ve still got a lot of work to do. We have design work to do, we’ve got some costing work to do, we’ve got all of the various processes that we’re embarking upon, we’re meeting with the community and local groups to try and make sure we’re engaging them.”

Gerrand said the terminal that’s envisioned for the port will be roughly the same size as the existing grain export terminals at the port. However, plans are to construct the terminal so it sits at right angles to Burrard Inlet and not parallel to the shore.

He said the major difference will be the fact that the new terminal will be serviced by a loop track design that will enable the facility to handle three 135-car unit trains on site that will be unloaded without having to break the train apart.

“The locomotive will bring a full 135-car unit train onto the site and, with the circular track, we will be able to unload the train in about six hours,” he said.

The design of the planned terminal will be similar to the new, high-speed EGT terminal that opened for business July 2011 in Longview, Washington, U.S., owned by Bunge North America and ITOCHU International Inc., a U.S. subsidiary of the Japanese trading company ITOCHU Corp.

The new terminal will be capable of handling all of the variety of crops now grown on the Prairies, Gerrand said, but focusing primarily on wheat, canola, barley and durum.

He’s optimistic that the rail bottlenecks that have plagued Western Canada’s grain transportation system are either fixable or in the process of being fixed.

“It’s not just about the railways,” he said, “It’s about the infrastructure that’s being built and the infrastructure that’s in place. The model that we envision is one that’s focused on high efficiency. We’re looking at building looped-back lines at terminals across Western Canada. We have four under construction now as part of our acquisition of CWB – all 135-car loop track facilities.

“Our vision includes dedicated (grain car) fleets that would run from our loop track facilities in the country to our loop track facility at the port.”

He said G3 could either own the fleet of cars or the railways, depending upon the economics and discussions are ongoing with both major railroads. The size of the fleet, he said, could be upwards of “a couple of thousand” rail cars.

He also said the company envisions having roughly 15 inland terminals with four in Quebec and the rest in the West.

Gerrand said if the approval processes go as planned, construction of the new Vancouver terminal could begin next summer with the first grain being loaded in 2019.

Based in Vancouver, British Columbia, Canada, Leo Quigley writes for a variety of national and international publications specializing in agriculture and transportation. He can be reached at Quigley@dccnet.com.