Collection I (Featured Articles I-X)




Forward:


When we launched this portal a couple of months ago, we were convinced of the need for it but unsure of its immediate impact. We have been pleased with the results so far as our combined following, site-visits and social-media, has reached above 1000. We still have a long way to go but as we are trying to determine how to guide our promotional efforts to reach a wider audience, we thought we would reflect back on the origins of the concept and what had enticed us to embark on it.


In this vein my memory goes back 30 years to a study I had conducted into container supply bottlenecks in Saskatchewan and how they were stifling the region’s economic development potential, particularly its agricultural export prospects. Before any of the recommendations, prime one being an inland-container-port, could even be considered the government had changed, putting everything on hold.


Under the new government I was appointed to Chair the Grain Transportation Taskforce -- at the time both transport and agriculture portfolios under the same Minister. The mandate was cast broadly to address all transportation challenges confronting the grain-industry, including container-supply problems. The Taskforce consisted of a retired Deputy Premier, prominent academics as well as corporate and union representatives. We issued a fairly comprehensive report, but with another cabinet-shuffle, neither the report nor its recommendations saw the light of day.


After that my career shifted to China, where I would later spend more than a decade engaged in various supply-chain and intermodal-transport projects, witnessing the development of the world’s largest ports, coastal and inland. Upon my return to Canada, I was surprised to see the core recommendation of our 1990 study already implemented, Global Transportation Hub in Regina. But despite its grandiose title, it was largely a ghost-town, focused on land-development, not grain-handling or containerization. I had been involved in two dozen logistics and industrial parks in China, but clearly, these types of projects were not as easy to pull off in Canada.


At the farm-end of the grain-economy, however, it was a different story: astonishing progress driven by scientific-and-technological advancement. Most producers had diversified their crop-base, now running advanced farms with the capacity to grow anything the world needed. They were still trapped in a bulk-warp but given a chance would jump to the opportunity to shift to higher-value specialty crops. Lack of direct-sales and container-logistics channels were holding them back, but these challenges were a lot easier to tackle than developing the production-capacity. Producers had the foresight and the entrepreneurial spirit to drive an export-revival.


Leveraging my contacts in China, I embarked on a grain-export initiative to fulfill custom contract-orders procured across the Prairies and delivered to flour-mills, feed-lots and processing-plants in containers. It was meant to be a modest start-up but the volumes to a handful of buyers were likely to reach 1 MT or more. In developing the concept I received considerable support from the Minister I had served under in the 1990s, a fourth-generation farmer with intimate knowledge of the grain industry. I was honoured when he agreed to join my efforts, but the initiative fell victim to the abrupt deterioration in our trade-relations with China.


Stewing over the disappointment but too stubborn to give up, I came up with the Prairie Grain Portal concept, this time not a direct trading initiative but an export-facilitation platform. The concept was largely modelled after Ali Baba that I had followed closely when I was in China, how it had nurtured B-to-B sales along various supply-chains. In the process it had thrown a life-line to small and medium size enterprises (SMEs), now thriving participants in China’s vast industrial-chains, often misunderstood to be dominated by multi-nationals (MNCs) and state-owned enterprises (SOEs). Also, Ali Baba had opened up export opportunities for SMEs. The concept had to be modified to grain-trades but held a great deal of promise.


Again, I had the fortune of my Minister’s wise counsel and support, delivering his final verdict as follows: I can’t see why producers would not be keenly interested. Shortly after our launch, another prominent figure signed-up to our portal, the Premier of Saskatchewan when I had undertaken the 1990-study that got me started down this containerized grain-export path. With encouragement coming from both ends of the political spectrum, not just politicians but prominent figures engaged in agriculture all their lives, I was convinced of the viability of our novel mission.


Of course, these are still early days; 1000 plus followers of a new portal-initiative is not going to set the grain-industry on fire. But it looks like we are on to something that may steer the future of the Prairie grain economy in a new direction, paving the way to greater prosperity for producers who care to take advantage of new export channels. Naturally, we still have doubters if not critics among our visitors, but we have to do everything we can to win them over, with not just ideas or concepts but real results in the export arena. At least, I am encouraged to continue down this path of further crop-specialization, direct-sales and containerized logistics channels.


Once we launched the portal, we knew we had to embellish the concept and elaborate on why we were doing this, how we were going to pursue it, and what results we expected to come out of the initiative. To this end we planned to publish more content, which we have been doing over the last two months by publishing new posts every few days. This volume is a compendium of ten such 5-page articles, introduced with this Forward, and at the end concluded with Next Steps.


The first two posts focus on “why”. Specialize or Perish tries to bring attention to producers’ captivity to bulk-trades and the margin-squeeze these trades put them under. Path to Prosperity expounds on the need to shift to higher-value crops, specialty grades of our staples or new varieties, and to this end, the need to open up direct-sales channels and develop the necessary container-logistics capacity.


The next three posts focus on “how”. We describe the collaborative nature of the trade facilitation process, by first urging producers to participate in the process, Call for Collaboration, followed by Market Insights of our own to give producers a taste of the type of export prospects we see out there. Then we offer a Roadmap for Collaboration, how we propose to promote exports by showcasing farm-profiles, while we take on the task of identifying prospects through market-research efforts.


Then we turn to the nature of direct-sales, focusing on three more topics. We start with Risks and Rewards, trade-offs producers face and how they can mitigate trade-risks. The next article on Specialization deals with the scale-factor, how contract sales opportunities will be open to producers of all sizes to participate in. This is followed by our outlook on Industry Structure, with many new players emerging.

We conclude this volume with two articles on next-steps. The first presents our Research Agenda, where we will focus our efforts in the coming months: global competition (emerging and developed regions), regional-markets we concentrate on (mostly Asia Pacific), crop or industry segments we will target. Finally, we turn to Recasting our Global Image, with a focus on our region’s advanced production-capacity and crop-variety to meet the needs of discerning grain importers.


We close with a few pages on Next Steps, activities we will focus our efforts on in the coming months to grow our following and deepen engagement on the part of producers, our primary audience. In particular, we highlight six set of activities: market-research, portal-following, producer-meetings, farm-profiles, export-image and buyer-targets. We conclude this agenda with a call on our followers to generate support to our cause from producer-associations and government-agencies.


We will continue to report on our progress and findings on a regular basis, posts every few days on different topics and action-items. We hope that you will follow these posts and respond to our new campaigns to advance our mutual cause. In the meantime, please do not think that we are ignoring the execution prong of our mission -- grain-handling and container-logistics. We have a lot on the go in this respect, capacity-development, which we will be reporting on periodically.


I - Prairie Agriculture at Crossroads: Specialize or Perish



Over the last three decades the Prairie grain-economy has undergone a fundamental transformation with noteworthy gains


Grain output increased by 50% and export volumes by 60%, even more in value by diversifying to higher value crops. There is a tendency to attribute all these achievements to market-liberalization, through deregulation and privatization. These policy reforms made the Prairie grain-economy highly market-driven, but much more of the credit must go to producers

By embracing latest advances in agronomy and technology, producers increased their crop-yields and diversified their crop-mixes -- first to canola in a big way, and later pulses, at a smaller scale but higher value. Farms have become much larger through persistent consolidation, with advanced farm-machines in the fields and larger storage facilities, using much improved seeds, fertilizers and pesticides, while refining farming-methods and embracing new farm-management systems


All these advances and achievements have given producers a sense of comfort and security, which is justifiable but should not mask the looming risks on the horizon. Despite all the diversification, Prairies are still too dependent on staple-crops that in turn are captive to bulk-trades. Wheat-exports are down from 85% to 50% of the total but only to be substituted by another bulk-crop, canola. These two crops now account for 75%, while 85% of crop-exports through the West Coast are still in bulk


These bulk-trades are exposed to increasing competition from emerging-producers. Moreover, China has been the main driving force behind global demand for grain-exports, with its share of global trades reaching 20%. Now China is trying to become more self-sufficient and increasingly turning to emerging-producers to its west to meet its import-needs. These trends are likely to dampen demand for our bulk exports, pushing prices down and in turn squeezing producer-margins further


This comes at a time when producers are already under pressure to increase their margins to pay-back the debt-overhang from years of investment, be it for land acquisitions or equipment purchases. Their only salvation is diversification to higher-value crops that can yield higher margins outside the web of grain-companies and their bulk-trades. In this vein, however, they face a dual-challenge -- lack of direct-sales and containerization channels, which is our mission to help them overcome


While a sense of unbridled optimism still prevails, particularly among politicians and vested grain-industry interests, the time has come to interject a sense of realism over our export prospects through traditional bulk-channels. The Prairie grain-economy is stuck in a bulk-trap, with low-margins which are likely to get squeezed even further. The time has come for producers to think about alternative sales-channels to increase their margins -- future prospects in bulk-trades are grim


Export growth and diversification


Our largest grain export is wheat, 20 MT 25 years ago and still about the same, but down from 75% to 50% of the total. Our exports increased significantly over this period, by close to 60%, with a fairly wide range of crops in the mix -- soybean, pea, lentil, barley, corn and oat. But the most significant growth was in canola, exports reaching 10 MT. Now two staple-crops in our grain export basket, wheat and canola, represent a 75% share -- next largest shares, soybean and peas, less than 10% each


Perhaps the grain-economy is in much better shape now than 25 years ago; we are exporting 60% more and at least two crops account for 75% share instead of just one. Also, the remaining 25% is more diverse with higher value crops in the mix. Still, we cannot overlook our vulnerability in relying on just two staple-crops with such a large share, both exported through bulk-channels. Even in other crops, we rely too heavily on bulk-shipments, as much as 85% of all grain-exports through the West Coast


We can be proud of the quality of our export-staples, but as long as we consolidate them in bulk we cannot differentiate the specialty types and grades that tend to fetch higher prices in world markets. Bulk-trades of most crops are vulnerable to increasing competition from emerging growers with a much lower cost-base than us to compensate for the lower yields they achieve. We already see China, by far the largest importer on the world scene, turning to the emerging grain-belt to its west


We must also recognize that rapid export growth we have enjoyed was largely driven by imports from China -- more than 60% of the growth in recent years, now taking 20% of our exports, single largest destination. As China tries to become more self-sufficient, turns to emerging-regions for ordinary grades to meet its needs, and imports only specialty grain varieties and grades, our bulk-exports may be in peril, particularly in view of the fact that canola accounts for half our exports to China


We may not own up to it, but the bulk-trap our grain-economy is in poses serious dangers to our export prospects. Our grain handling systems are geared to bulk-trades, while our direct-sales and containerization channels are woefully inadequate to facilitate the diversification of our crop-mix to higher-value varieties or grades.



Farm consolidation and advancement

Rapid output growth the Prairies enjoyed has been due to yield increases -- driven by science-and-technology applications, more or less on the same land foot-print. Latest farm-machines equipped with positioning, guidance, spreading and sensing devices introduced increasingly AI-driven functionality, paved the way for precision-farming. Also, advances in crop-genomics improved seed-quality, coupled with applications of more effective fertilizers and pesticides, contributing to higher yields


At the same time, the farm-economy went through massive consolidation. In the highly collectivized era farms were modest in size (typically 1,000-2,000 acres) but now mega-farms are quite common (20,000 acres or larger). Farm-size per se does not result in significant scale-economies, but makes technology more affordable for larger farms, where equipment can be utilized more effectively. Also, larger farms can diversify their crop-mixes more effectively by sectionalizing their lands


Neither the farm-consolidation nor the advanced-technology adaptation we saw in recent years would have been possible without significant capital-investment on the part of farmers. In theory, the yield increases that were being achieved should have been adequate to pay for all this investment, but in practice revenues were not commensurate with the capital outlays, be it for land-acquisitions or equipment-purchases. Farmers have been accumulating debt to stay on this advancement-path


Contrary to common belief, we do not have sufficient data on farm-finances to pass judgement on the scale of farm-debt. Clearly, farmers still have enough equity to be able to continue to barrow from conventional sources though mortgages or leases. Lenders have not yet faced a serious default-crisis; yield increases have been steady with a long stretch of good crop years (only one poor one in 2002), but one severe draught (like the one we might be going through this year) can change all that


At the root of the mounting debt-load is the margin-squeeze producers are under within the confines of today’s grain industry structure -- captive to bulk-trades in the hands of grain-companies. Only if producers had the channels to diversify to higher-value crops, they could increase their margins, thereby pay down the debt they owe




Industry structure and market-power


In the regulated era CWB had a monopoly on wheat and barley exports, and owned the terminal-assets (inland and coastal) to facilitate those exports. The farm-collection system (mainly country-elevators) was in the hands of provincial wheat-pools, collectively owned by producers. Into the reform era the primary policy goal was to liberalize the grain economy, by not only abolishing the CWB but also privatizing all the industry’s assets, whether owned by CWB or the wheat-pools


The faith in unfettered market-forces ran so strong that consequences of wholesale privatization was given hardly any thought, in the belief that no evil could come from a fully liberalized, market-driven grain-economy. However, these efforts resulted in a highly concentrated industry structure with a handful of grain companies holding considerable market-power, which they could exercise through the control they had over the bulk-system -- handling most exports, as much as 85% from the West Coast


The faith in market-forces was not misguided when looked at from a broader global perspective. There were multiple sources of grain-production around the world, virtually across all continents, albeit with varying climatic-and-soil conditions, as well as agricultural knowhow and access to technology. But there was enough scope for intense competition in global grain markets to set prices in accordance to market demand -- grain companies operating in Canada were price-takers in world-trades


However, the other end of the supply-chain was overlooked, giving grain-companies considerable buying-power in purchasing from producers -- what economists call an oligopsony. It was unrealistic to expect more than 100,000 farm-entities to get their fair share of the surplus from grain-trades when the buyers controlled the only bulk-grain handling-system. If producers had access to alternative sales and logistics channels, the outcome would indeed be different, driven mainly by market-forces


These are the market realities that give rise to the margin-squeeze producers are under. The solution is not to revert back to the old system, by re-nationalizing the bulk-system, but to facilitate alternative sales and logistics channels, whereby giving producers a chance to shift to higher value crops they can export in containers




Our mission: new trade and logistics channels

Proponents of the status quo stick to a laissez faire position to defend the prevailing system, refusing to acknowledge its shortcomings. Their premise is that producers already have the freedom to grow whatever they want; if there was demand for different types of crops that fetched higher value, they would be growing them. But if sales-and-distribution channels do not exist to reach global markets, they would be limited to feeding their own friends-and-family, at best their local communities


The reality is that the way the grain-economy was privatized, with no regard to industry-structure, left the producers captive to bulk-systems in the control of grain-traders, squeezing producer-margins and limiting their choices to staple-crops that trade in bulk. Our mission is to push liberalization further through new channels, for Prairie producers to connect with end-buyers thereby further diversify their crop-mix in pursuit of higher margins -- a more market-driven, competitive grain-economy


Prairies have already gone through a wave diversification to pulses, like peas and lentils, by becoming a prime source for these high-value crops. There are further growth opportunities in pulses as well as many other crops -- new varieties and even specific grades of our staples (wheat, barley and canola). These crops are generally sold in smaller quantities to end users, requiring pre-export preparation, shipped in containers with their identity preserved (IP) without entering the bulk-streams


With the growth in pulse-trades, a number of grain companies emerged specializing in this domain; the same may happen in other crop domains as well as new direct-sales channels. We will be pursuing all these opportunities but with a different business-model than traditional grain-companies that try to purchase at farm-gates. We will function as an open-platform to facilitate direct-sales between producers and buyers, while shouldering processing and containerization as a third-party service-provider


Our mission is to free producers from the bulk-trap they are in and the margin-squeeze that comes with it, by creating direct-sales opportunities that can leave them with higher-margins from grain-trades, thus higher-returns on investment -- thereby elevate the Prairie grain-economy at large to a more prosperous plateau




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Prairie Agriculture at Crossroads
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II - Our Grain Economy Vision: Path to Producer Prosperity




In our previous featured article we noted the advances made in the Prairie grain-economy, achieving significant yield increases and export growth. Though often attributed to policy reforms, these advances were primarily driven by producer initiatives. But despite all the progress they made, producers could not escape the bulk-trap they were in with squeezed-margins. Our mission is to chart an alternative course to prosperity by opening up new export channels with higher margins.


The policy debate over the grain-economy has always been polarized, one camp defending the virtues of a collective-order and the other advocating privatization. The latter camp won over, which perhaps was an inevitable outcome of market liberalization pressures globally, but the process has gone unchecked without any safeguards. This gave rise to a highly concentrated grain-industry, leaving producers largely captive to bulk-trades with limited options to diversify to higher-value crops.


This same polarization now prevails over future prospects, some nostalgic of a bygone collective-era but with no options to claw back, while others stick to a laissez-faire approach in the belief that market forces should take care of the challenges they face. We have a somewhat different vision for the future of the grain-economy: market-driven, but one that serves producer-interests through new export channels, thereby giving them opportunities to diversify to higher-value crops to prosper.


Before getting into our vision, let us first emphasize the perils producers face. For many, margins are already too thin to retire the debt-load they are carrying from past investments in pursuit of consolidation and advancement. These margins are going to be further squeezed as bulk-grain prices come under pressure from emerging producing regions that are achieving steady yield-increases. Producers are going to bear the brunt of these added pressures, not the grain-companies or trading-interests.


The good news is that there are plenty of diversification opportunities for producers to escape the bulk-exporting-trap they are currently in, and to increase their margins. Prairies are endowed with some of the best climatic and soil conditions in the world to grow a huge variety of crops. Producers have the most advanced farm-technology and agronomy-knowledge at their disposal, and possess the know-how to apply all these elements to grow higher value, identity preserved crop varieties, than the region’s customary staples.


The vision we are presenting here could be deemed radical or disruptive as the necessary trade and logistics channels are not currently in place, or at least not mature enough to give producers sufficient comfort. But they exist in other parts of the world, and all the elements are in place to develop them in our own backyard. This is a mission we are shouldering to give producers more choice in what they grow, together with market-research, trade-support and risk-management functions.



Value driven diversification


Against the background of significant yield increases and export growth it may be difficult for producers, particularly those who have expanded and modernized their operations, to relate to the necessity of an alternative path. Even though some producers may not feel the pinch, the overall debt-burden the farm-economy is carrying should be seen as a troubling sign. Even more worrisome is the future, looming competitive threats posed by increasing yields in emerging grain-regions.


Dwelling on the exuberance of sustained export growth, we tend to forget that 60% of this growth has come from China. Now that China is trying to become more self-sufficient, turning to the New Grain Belt to its west for most of its basic needs, one-fifth of our grain exports may be in jeopardy. Even when we mend our badly damaged trading relations with China, export prospects are going to be limited to specialty grades or types of grains, not what we have been exporting in bulk.


Our core mission of value-driven-diversification is not something new to Prairie producers. Even before CWB was dismantled, producers had seen the wisdom in diversifying from wheat to canola. Our wheat-exports did not decline but canola-exports reached half that volume; these two crops now account for 75% of our total grain-exports. Though canola generates higher export-proceeds in value, like wheat it is exported mostly in bulk, thus still yields relatively low margins for producers.


Still, canola added one more major crop to our grain-basket, reducing producers’ dependence on wheat and more significantly adding more value to the provincial economies. In Saskatchewan’s case (largest producer) in 10 years canola production reached 10 MT (compared to 15 MT wheat) -- increasing 300% in value to catch up with wheat, about $3 billion, with another $1 billion from canola-oil. Now with vast crushing-capacity increases contemplated, canola will also become a bio-fuel source.


The more significant value-impact came with the shift to pulses. Even at smaller volumes their value increased to $3.5 billion, in 10 years 700% growth in lentils and 200% in peas -- now more than either wheat or canola. Most importantly, these crops are handled outside the bulk-systems, opening up new channels for producers.




Pushing the envelope further


Addition of pulses to our export portfolio was indeed a momentous development, a turning point in value-recognition to diversify outside the bulk-cage. Pulses still represent a small share of export-volumes (less than 10%) but in value as large as canola (at least for Saskatchewan) and yield higher producer-margins. Discovery of our virtues in growing these ancient crops was not accidental, requiring considerable research and policy support, but the benefits were indeed significant to the regional economy.


The shift to pulses got underway slowly in fear of market uncertainties on the part of producers, as well as bottlenecks in cleaning, processing and shipping. Early markets were domestic or at best the US, but in time a whole new industry segment emerged to service this domain. AGT, with access to Middle East markets, gave a huge boost to the pulse-sector, and the more recent takeover of a cluster of distressed assets by an old US grain-company, Scoular, will greatly increase our global market reach.


There is still huge growth potential in the pulse segment, but there are plenty of other promising opportunities to pursue in other domains, including varieties and grades of our staple-crops. Our wheat exports in bulk have been holding their own but with no appreciable growth as we have failed to target flour-milling trends for specialty-grades, even in durum that we are known for. Similarly we have missed out on new distilling and brewing trends that could have boosted our barley exports.


Another huge advantage we have is the diversity of our coarse-grains and oil-seeds. We tend to take the easy path of exporting whatever crops we grow in bulk. There is greater value in targeting end-users, and exporting custom-mixes they need in containers, to create steady export flows into established supply-chains. We cite our past work in this regard in cereal and feed industries in China that had presented immediate export prospects, but there are many more such examples to pursue.


Our mission is to identify sales opportunities for producers to fulfill with specific types or grades of the crops they grow, delivered to buyers’ doorsteps in containers, be it processing or distribution points. Naturally, these opportunities will also be open to specialized grain-companies, like AGT or Scoular selling pulses or other crops.