We are calling for a shift in overseas grain-trades, from consolidating in bulk to selling specific types or grades of crops directly to end-users. These sales will not be in large volumes to meet market-wide needs, but in smaller quantities that end-users can purchase directly from producers to meet their own needs, instead of going through a stream of intermediary channels. Deliveries can be made to end-user facilities in containers at scheduled intervals to meet their input requirements, by crop type and volume, thereby reduce stock-levels and inventory costs.
This is not a novel concept we invented; it is practiced widely across North American grain-trades. Corporate buyers had long discovered the virtues of procuring grains directly from producers, cutting out consolidators or traders, thereby reducing their costs while also leaving behind higher margins for producers, as multiple buyers compete over what they produce. In Canada, as certain crops were dropped from CWB’s monopsony, the same competitive market dynamics had taken hold.
When we started advocating direct-sales for overseas exports, however, the concept seemed alien to most producers. There was a belief that overseas grain-exports had to be consolidated in bulk and traded in large volumes. As we bring up in many of our articles, many producers seem to take this model as a celestial dictum, the only way to export grains overseas, whether in the hands of a public-monopsony, CWB in the past, or today’s private-oligopsony that has captivated these trades since.
In several recent articles, we tried to bring attention to how market forces had reduced the need for consolidation across North America. A shift to containerization would achieve the same in overseas trades, the same as truck or rail shipments in North America. Some of this started to resonate but still with show-me type reactions, which we will once we start attracting prospective overseas buyers. But the first step is overcoming producer skepticism, as it takes two parties to trade.
Here we take another stab at the topic in the hope of overcoming the resistance to both direct-sales and containerization. We start with a familiar theme: virtues of direct-sales and how they can be achieved in overseas trades, just as they have been across North America. Then we turn to containerization, how this revolution took hold of industrial and retail chains in all corners of world trade, and why it is equally suitable to grain-trades, with clear evidence that it is already taking place.
We cite examples from around the world, European Union and across Central Asia to the Pacific coast, and the benefits containerization has brought to both sellers and buyers of grains. The same is achievable from North America to Asia, particularly in view of so many containers returning empty across the Pacific after delivering retail and manufactured goods. We will get into the logistics of repositioning empty-containers in the interior to serve our grain-export trades in a subsequent article.
Direct-sales versus bulk-trades
To avoid any confusion or misunderstanding, let us first clarify what we mean by direct-sales. Loosely speaking, the term can mean any exchange between two parties, including a sale from a producer to a consolidator or grain-company with the intent of reselling to another buyer. But these are precisely the types of sales or trades we are trying to avoid along the supply-chain. A direct-sale in our vocabulary is from a producer to an end-user – like a miller, processor, crusher, or even feed-lot.
When the Canadian Wheat Board was the sole buyer of grains, and necessarily the sole marketer and seller, there were no direct-sales in grain-trades in Canada. As certain crops were dropped from CWB’s monopsony, direct-sales became possible and would prove to be beneficial to both producers and end-users, as intermediaries were cut out, leaving higher margins to share between the two parties to the trade. There were fewer buyers than sellers, but since there were still multiple buyers in the marketplace, competition prevailed, and producers still got their fair-share.
The significance of these trends was overlooked during the acrimonious debate over the future of CWB. Instead of learning lessons from North American trade practices, overseas grain-trades were viewed very differently where the same model could not possibly work. In fact, there were no differences; the same could be achieved to benefit producers in overseas-trades, as they had in domestic and transborder ones.
Let us first look at what had taken place in domestic markets. Under pressure from meat and dairy industries, feed-grains were the first to be dropped from CWB’s monopsony in the mid-1970s. These industries were significant grain buyers across the country, but particularly in Ontario and Quebec, relying on not only local sources but also buying from the Prairies. Grain producers started selling to meat-dairy farms as well as feed-companies, which were not mere traders or consolidators but added value to the supply-chain as processors, packagers, and distributors.
In the next decade or so oats and other cereals, together with more specialty crops, were also dropped from CWB’s net. Direct-sales allowed end-users to start buying these, then referred to as non-board grains, from producers. Oats were particularly controversial at the time with plunging prices due to overproduction or imports. Naturally, the blame fell on CWB’s abandonment of this crop, but soon corporate purchases kicked in. The breakfast-cereal industry had been around for more than a century, with direct procurement programs already in place across North America.
Another specialty crop outside CWB’s domain was canola, grown in much smaller volumes back then but would become our second largest export crop behind wheat. We would become the largest exporter of this oilseed of own creation, a rapeseed variety, with two-thirds share of global trades, while also exporting large volumes of canola-oil. Primary buyers of relatively modest domestic-consumption share were crushers, canola-oil producers, as well as other food-processors. Producers were selling direct to these buyers, not just in the Prairies but across the border to the US.
By 2020, a bumper crop year, we were exporting 51 MT of grains, 50% of this volume wheat-durum and 23% canola – among smaller volumes, barley, soybean, and peas 5-6% each, oat and lentil 3-4% each. Two crops, wheat and canola, accounted for almost three-quarters of grain exports, perhaps better than 30 years earlier when wheat alone accounted close to 90%, but still a far cry from a truly diversified export portfolio. The crop-mix of our production-base was already more diversified, with prospects of even further diversification through exports, but focus on bulk-trades, driven by large volumes, was hindering specialty-crop exports in small volumes.
Going back to the 19th century, wheat had always been our primary export crop, if not our only crop-export, even in the days when Ontario was the center of our grain economy. As Ontario faded from the grain scene, and the center of gravity shifted to the Prairies, wheat remained our staple-crop, and luckily now in a region where soil and weather conditions were much more favorable. With modest advances in seed-quality, farming-methods, introduction of grain-elevators, railway expansion, and rise of coop-power, the Prairies became a leading source of wheat in the 1920s.
Even more improvements were on the way: advances in agronomy, mechanization of farming, regulation of crop-quality standards through CGI, and market stability brought by CWB. With the animosity against government role rising into the 1970s and beyond, we started to forget that in the post-WW2 era Canada had become the king-of-wheat on the world stage. Yields were still rising, but production and export volumes started to level off into the 1990s, and, mainly because of other crops grabbing more land, our share of global wheat trades started to decline. At the same time, competing regions had started to close the quality-edge we had enjoyed.
Wheat and canola had come to dominate our crop-base through different paths. Wheat was the only crop settlers knew, and it turned out that the land they were settling was very suitable for its production. Also, wheat came under the protection of CWB in 1935 and stayed in its monopsony until 2012. Canola was a Prairie invention, a type of rapeseed with superior qualities in not only its oil but also meal. The local conditions were very favorable to its production and proved to be a good rotational option to wheat. Also, unlike wheat, canola became a dominant crop outside the net of trade-regulations, in fact a rebel-crop to defy CWB’s monopsony.
Their destinies, however, merged in bulk-trades. The sole custodian of wheat-trades was CWB, which was also the architect of the bulk-system developed to move wheat from farm-gates to inland-elevators to coastal terminals to export markets. CWB did not own assets along this logistics-chain; it managed the flows through third-party contracts. The bulk-system expanded, improved, and integrated over time, while upholding crop quality and integrity to high standards. The system was refined and sectionalized as wheat exports became increasingly differentiated by type and grade.
As canola exports were growing, CWB did not have jurisdiction over them, but the bulk-system was there to also handle canola, like it did all varieties of wheat as well as barley. In fact, with fewer types and varieties, canola was even more suitable to bulk-trades, but it had to be bought from producers and sold to overseas markets. Private grain companies and coops that already owned the elevators and terminals on the bulk-system were the natural candidates to play this role, and became the principal custodians of canola-trades, like CWB had been of wheat and barley trades.
When CWB’s lock on wheat-barley ended in 2012, their trades were up for grabs, and fell into the lap of the same grain-companies that owned the assets on the bulk-system – by this time, coops had already been privatized, and they had become like other grain-companies. Weeks after its monopsony ended, now a regular grain-company, CWB announced its entry into canola-trading, paving the way to its future owner, G3, to become a member of the grain-trade-club with control over overseas exports of wheat, canola, barley, and other crops handled through the bulk-system.
This was the overseas side of our grain exports, highly captive to bulk-trades, now roughly 85% of all grain exports through the west-coast – 75% wheat and canola, 10% other crops. This is about half of what we produce in total, while the other half is sold to domestic and transborder markets, where trading patterns are different. In these latter markets, direct-sales impose the necessary discipline for grain-trades to function more competitively – including wheat-barley trades freed from CWB’s monopsony only a decade ago, and also canola, free to trade openly all along.
In North America corporate buyers are familiar with production sources to do their own procurement, what we refer to as direct-sales, to set price bench-marks for other trades. If there is consolidation or processing involved, price differentials reflect the value intermediaries add. The key requirement for direct-sales from producers to end-users, however, is the means of transport to be able to make direct deliveries to processing plants by truck or rail, without having to consolidate in bulk.
The substitute for this in overseas exports is “containerization”, which has not taken hold in North America like in most parts of the world. Overseas grain-trades remain captive to bulk-systems, which the vested-interests perpetuate by claiming that “bulk” is the most efficient and cheapest way to transport. This is a fallacy that producers pay the price for believing: squeezed margins from bulk-trades, and limited diversification prospects to higher value crops that must be containerized.
Global advent of containerization
Now let us leave grain-trades aside and reflect on containerization per se, how it got underway, gained momentum through the latter half of the 20th century, and engulfed global general-freight trades into the 21st century. Now more than 90% of non-bulk cargo movements worldwide are handled in containers, representing a volume close to half-billion TEUs (twenty-foot-equivalent-units). These containers are moved along intermodal-chains – by truck, rail, and ship, transferred through truck-terminals, rail-yards, and container-ports, without breaking up the contents.
In the last 50 years the world economy opened to trade in a way never seen before, with exports increasing from 20% to 60% of GDP. There was a strong policy-push behind this, but it could not have happened without the intermodal-revolution. Manufacturing-chains globalized and integrated beyond borders, while retail-chains reached to all corners of the world to procure, with goods moving in standard-boxes by all modes of transport and being transferred from one to the other seamlessly.
The idea of containerization was not new; we can trace its roots back 18th century England, when coal started moving in wooden-boxes, 10 of them on canal-boats, then carried by horse-drawn wagons. Into the railway-age, iron-boxes replaced the wooden ones. Thus, the idea was around when we were plunging into the grain-era, but it was of little use as grain had to be bagged to get to box-cars and unloaded to transfer on to ships. Without intermodal transferability, boxes were of little value.
In the first half of the 20th century there were attempts to introduce boxes of various sizes into railway operations on both sides of the Atlantic. There were also efforts to use containers on ships, with the world’s first container-ship built in Montreal in 1955 and introduced to service from Vancouver to Skagway, Alaska, carrying 600 containers, which would then be transferred on to railway-cars bound to Yukon. This was the first intermodal-operation with a purpose-built ship, custom-railcars, and trucks at the Vancouver end – the service continued to operate until 1982.
At about the same time, 1957, a visionary trucking entrepreneur Malcolm McLean had started a service on a refitted tanker-ship, carrying 58 trailer-vans with two-boxes on each, from New Jersey to Texas. A couple of years earlier, together with an engineer, Mclean had designed standard boxes from corrugated-steel that could be securely stowed on ships, lifted by cranes, and hauled by truck or rail. By separating boxes from the chassis, the concept of standard intermodal-containers was born.
Given the efficiency improvements and cost savings, nobody was going to be able to hold back the intermodal-revolution that had gotten underway. However, given the vested interests of different modes of transport (truck, rail, and ship), globally as well as in the US and across Europe, battles were never ending. But some form