Staff Writer
Will getting the government out of the grain market actually help farmers? Or has it simply set-off a buying frenzy for Canadian agricultural and grain companies, giving Canada’s farmers fewer buyers to choose from and lower profits?
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On August 1st, the Canadian Wheat Board's 60-year plus monopoly on wheat and barley exports will end.[i] Yes, the Wheat Board will exist in a voluntary form for up to five years, at which point it could either be privatized or dissolved. But its key function, controlling the export and interprovincial trade of grain products will end, and with it Canadian farmers will be able to sell their gain to any private buyer they choose. There are some outstanding appeals that can still be lodged, but with a Manitoba court tossing out a prominent challenge, the odds for success seem low.[ii]
The Harper government has claimed that eliminating the Wheat Board “will spur our economy, attract investment, encourage innovation and create jobs”.[iii] Previous Canadian regimes had supported the Wheat Board on the basis that it allowed farmers to capture economies of scale, thereby reducing marketing and other transaction costs.[iv] The Government expected that competition between Canadian agricultural and grain companies, such as Patterson Grain, Parrish & Heimbecker Limited, and Viterra, would offer farmers the best price for their wheat and barley.[v]
But one of these companies, Viterra, has recently attracted international merger attention. The takeover of Viterra has included bids from agricultural giants Archers Daniels Midland and Glencore.[vi] Will a Viterra takeover kill competition, which could lead to farmers getting less than under the old-style Canadian Wheat Board?
The takeover of Viterra, located in the province of Saskatchewan, takes place as traders seek to benefit from the upcoming deregulation of the Canadian wheat market. The battle for Viterra reached a conclusion on March 20, 2012 when Glencore agreed to pay $6.1 billion USD for Viterra.[vii] Glencore is a Swiss company with a revenue that approached $200 million USD in 2011.[viii] Interestingly, Glencore is involved in a merger of its own, with it appearing likely that the company will merge with Swiss mining company Xstrata.[ix] Two of Xstrata’s largest shareholders are the Qatar Investment Authority and the private equity company BlackRock.[x] The two companies control about 11.5% of Xstrata’s stock.[xi]
The hourglass shape of international grain market, where the vast majority of grain commodities pass through a handful of processors, shifts market power from the many producers and consumers to the handful of processors.[xii] The purchase of Viterra will further restrict the market forces that the Canadian government had hoped to promote by ending the Wheat Board. So far, farm groups are split on the future impact of the Viterra takeover.[xiii] The main concern remains the impact on ensuring a competitive market for producers.[xiv] Whether the expiration of the Canadian Grain Board and the Viterra takeover will increase competition is yet to be seen; however, Liberal MP and former federal agriculture minister Ralph Goodale fears that competition “could be less, and certainly a lot less Canadian."
But the Canada’s Library of Parliament offers the best sum-up of the politics and impact of ending the Wheat Board:
The issues surrounding the CWB’s single desk and the prohibitions on prevenint farmers from marketing their grain themselves have been highly contentious for a number of years. Some farmers are passionate about the maintenance of the single desk and feel that they will suffer in terms of bargaining power and net revenues if the single desk is removed. Other farms are equally passionate about the removal of the CWB’s single desk, both as a matter of principle and because they believe their revenues will increase in an open market. Countless studies and economic analyses have been undertaken over the years in an effort to support each of these positions, without any obvious dominant position emerging. (Page 24, emphasis added).
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[i] Bruce Johnstone, End of Wheat Board, possible Viterra takeover increase uncertainty for farmers, available at http://www.canada.com/business/Wheat+Board+possible+Viterra+takeover+increase+uncertainty+farmers/6296883/story.html’ See Bill C-18: An Act to Reorganize the Canadian Wheat Board and to Make Consequential and Related Amendments to Certain Acts, Library of Parliament (Canada), http://www.parl.gc.ca/Content/LOP/LegislativeSummaries/41/1/c18-e.pdf.
[ii] Former Canadian Wheat Board directors appeal Manitoba court ruling, available at http://www.canada.com/business/Former+Canadian+Wheat+Board+directors+appeal+court+ruling/6411778/story.html.
[iii] Andrew Mayeda, Canada Government Introduces Bill to End Wheat Board Marketing Monopoly, available at http://www.bloomberg.com/news/2011-10-18/canada-government-introduces-bill-to-end-wheat-board-marketing-monopoly.html.
[iv] Secretariat of the World Trade Organization. 1995. Operations of State Trading Enterprises as They Relate to International Trade, G/STR/2 (2005). October, 1995).
[v] Johnstone, supra.
[vi] Jack Farchy, Glencore agrees C$6.1bn Viterra deal, available at http://www.ft.com/cms/s/0/ea495296-727e-11e1-9c23-00144feab49a.html#axzz1raRoMxsm.
[vii] Farchy, supra.
[viii] Glencore International, Financial Overview, available at http://www.glencore.com/financial-overview.php.
[ix] Marietta Cauchi, Qatar boosts stake in Xstrata to 5% ahead of Glencore tie-up, available at http://www.nasdaq.com/article/qatar-boosts-stake-in-xstrata-to-5-ahead-of-glencore-tie-up-20120409-00489.
[x] Id.
[xi] Id.
[xii] Raj Patel, Stuffed and Starved, (2008).
[xiii] Bruce Johnstone, Farm groups split on Viterra deal, available at http://www.leaderpost.com/business/Farm+groups+split+Viterra+deal/6339944/story.html.
[xiv] Id.
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