Agri giants poised to grab share

By Peter Koven
Financial Post
Jul 23, 2011

It could be nothing short of a frenzy.

When the Canadian Wheat Board’s monopoly comes to an end next summer, a group of private sector players from Canada and abroad will leap into the sector and seize as much market share as they can. There will be stiff competition as the winners and losers get sorted out, and no one quite knows what the end result will be.

The only thing certain is that the opportunity for the private sector is enormous.

“You’re going to open up 20 to 25 million new tonnes of marketing opportunities for companies inside and outside Canada,” says Curt Vossen, president of agribusiness company Richardson International Ltd.

Industry experts say it is still to early to quantify how big this opportunity is. But the raw numbers of the Wheat Board’s business are undeniable: the company had revenue of more than $5.1-billion last year as the one-stop shop for Western Canadian wheat farmers, and that was down 34% from the year before.

As the monopoly ends, the business model of the industry will undergo a seismic shift. Grain processing companies will immediately try to source the raw material in order to complete their value chain.

Of the companies poised to benefit from a free market in grain, three established Canadian players stand out: Richardson, Viterra Inc., and the Canadian arm of Cargill Inc. Those companies have the established relationships with farmers and customers, as well as the infrastructure in Western Canada necessary to handle the product. They already effectively work as agents on behalf of the Wheat Board, so they know the ins and outs of the business. “None of it is new or unique to us. Physically we can handle the product, because we’ve been doing it for years,” Mr. Vossen says.

International competitors also have their eye on the space, most notably U.S. giant Bunge Ltd. The company is in the midst of a major expansion of its canola processing operations in Western Canada, and that will give it the capacity to handle grains as well.

“Our ability to connect with farmers in canola is a very good base for us expanding into grains,” says Soren Schroder, CEO of Bunge North America.

However, outsiders like Bunge do not have as much transport and logistics capability in Western Canada as the three established players, and will likely try and form partnerships with the incumbents to broaden their position, experts say. Bunge has already indicated that it will do just that.

“You can have the deepest pockets in the world, you can be the biggest players in the world, but you still have to work with those that are well-positioned in those areas to successfully participate in the Canadian marketplace,” Mr. Vossen says.

There are still a number of unanswered questions in trying to predict what the market will look like, especially around the Wheat Board itself. While its monopoly power will disappear, it is still welcome to compete in the marketplace. Federal Agriculture Minister Gerry Ritz said the theory that the board will shrink or vanish entirely is “ridiculous,” though there are many farmers in Western Canada who disagree.

Either way, this will be a momentous event for private sector agribusiness companies, and they are giddy about what is to come.

“We’re certainly getting ready for it. It is going to be a major event for Western Canadian agriculture,” says Richard Wansbutter, Viterra’s vice-president of government and commercial relations.