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XXXV - A Prosperous Future for Producers: Our Background and Mission

Updated: Jan 16

We opened the 4th volume of our articles with a long history of grain trades going back many millennia. Then we examined the more recent history of our grain trades to shed light on how our overseas exports got trapped in bulk-trades, followed by another piece on how to escape this bulk-export trap. Our last article provided a bit of a road map on how to kick-start direct sales when global markets were in turmoil.

These four articles attracted a total of more than 2000 site-sessions, a record so far since our launch last Fall. We are delighted with the growth in our website-visits, now close to 10,000, with more than 600 hours of visitor engagement, not bad for a mere information-portal. With this achievement we have declared our experimental launch a “victory” – proof-of-concept validated, now on to real trade-facilitation!

With this article, we decided to take a bit of a pause and provide a statement of clarification on the nature of our mission or mandate, with some background on how we got involved in this domain and how we launched this information portal, soon to turn into a trade-facilitation platform with a real purpose, not just ideas or concepts.

Our platform’s mission is plain and simple: trade facilitation by opening direct-sales channels to overseas export markets and supporting the fulfillment of those sales in containers. The motivation behind our mission is a firm belief that despite all the advancements and export growth the Prairies have achieved, our grain economy is not living up to its full potential. Those who suffer most are producers, with their margins being squeezed and their diversification prospects being thwarted.

At the root of these problems is captivity to bulk-trades, a condition inherited from the CWB-era and perpetuated by corporate interests that became the custodians of those bulk-trades. We can harp on ill-guided government policies for this bulk-trap, but we refrain. Looking forward, instead of government intervention, we rely on market-based solutions to liberate producers, and with them all stakeholders of the grain-economy, even the vested interests if they follow the new wave of change.

In this article we start a recap of how the bulk-system evolved over the years, going back to the early years of the last century, and how it advanced and developed in the post-WW2 era under CWB, surviving into the privatized age. Then we turn to our own background in intermodal systems going back at least 40 years, the last half of which spent in Asia gaining hands-on experience from massive intermodal projects.

Against this background, we describe how our earlier initiatives to containerize Prairie grain exports evolved into the information-portal we are using here. Then we outline our plans to develop this into a trade-platform, structured in three layers: Virtual Trade-Mall to promote the Prairies in export markets, Trade Facilitation module to connect buyers and sellers to engage in contract negotiations, and Trade Logistics Support layer to facilitate the execution of containerized grain-shipments.

A brief history of Prairie grain exports

Our readers may already be tired of our historical references, but one cannot possibly understand the unique issues facing producers without an understanding of this past. At the turn of the 20th century, the Prairies were still being settled but were growing increasing volumes of wheat. With limited local population much of this had to be exported at larger and larger scale, in different ways and channels.

Early days: Railways were instrumental in both settling the region and later moving grains to export positions, and following Confederation, the government had the vision to build them. But it was not smooth sailing for the settlers, who by now had become a new class of wheat-producers: trying to overcome the challenges they faced, not only in farming, but also getting what they harvested to market. Despite all these difficulties, output was on the rise, and so was its share of exports.

In the early 20th century, a class-warfare had started brewing, with the grower-associations challenging the Winnipeg grain-traders. The tensions continued but a semblance of accommodation was maintained; however, WW1 delivered a fatal blow to grain-markets. The government stepped in to monopolize wheat-trades in 1917, and to ride out the post-war storm, set up the Canadian Wheat Board; it would be disbanded a year later, as there was a staunch determination not to extend it.

Into the 1920s, producer associations strengthened their resolve to renew their fight against trading interests through the formation of wheat-pools. Producers appeared to be winning the class-warfare, but they were ill-prepared for the Great Crash of 1929, leaving the pools virtually bankrupt. This forced the government to intervene once again with the re-establishment of CWB in 1935. During WW2, CWB set price for wheat, oats, barley, flax, corn, rapeseed, and sunflower. In 1943 membership became compulsory, with CWB becoming the single buyer and seller of all grains.

Post-WW2: CWB was meant to be a wartime measure but turned into a permanent feature of all grain-trades for three decades, and then four more decades for non-feed wheat and barley. Through the 1970s the most intense pressure to end CWB’s power came from the feed domain, with the powerful meat-dairy industry leading the way. One of the most controversial crops was oats, as its drop from CWB’s net coincided with a sharp plunge in price, followed by a dramatic reduction in acreage.

The most significant impact associated with the curtailment of CWB’s scope was canola. Its introduction to the Prairie crop-mix did indeed coincide with many crops being dropped from CWB’s mandate, including rapeseed. This was the result of years of research in adapting rapeseed to local conditions, with superior oil and meal qualities. It was a major achievement, with canola becoming the region’s 2nd largest crop behind wheat, in both production and export volumes. However, this growth could have happened even if canola had remained under CWB, like the expansion of wheat production and exports in the post-WW2 era under CWB’s jurisdiction.

We are not reaching this conclusion as advocates of a single-desk system, as we had not shed any tears over crops being dropped from the system, nor when CWB was abolished. But we could relate to the virtues of a marketing-board in promoting grain exports, even if that board was allowed to trade, as long as selling to the board was voluntary. This could set a price-floor for all traders (board or private), while also giving producers the option to sell through direct-channels at market prices.

CWB debate: The never-ending debate over the CWB had been politically charged and highly polarized: those in favour of it for the sake of stability and security versus those in favour of market freedom. The debate was always about what crops to free from CWB’s jurisdiction, always with lip service to voluntary participation but never any serious consideration given to marketing-boards. The focus remained on board versus non-board crops, giving producers a choice to opt out by what they produced, not how they sold any given crop. Board-crops dwindled to wheat and barley, but still, represented the largest production volumes, and half of our total grain-exports.

As more crops were dropped from CWB’s mandate, direct-sales channels started to take hold in domestic markets, even across the border to the US. The trends that had started with feed-grains were quick to spread to other crop domains. Corporate buyers were stepping in to buy directly from producers, cutting out traders unless they had some value to add to supply-chains. Cereal-makers across North America were expanding their procurement programs, while Prairie producers were selling direct to crushing or processing plants, and once wheat was freed, also to flour-mills.

Direct-sales channels were key to bringing the necessary market discipline on North American grain-trades, with producers getting their fair share with multiple buyers competing for their crops. There was still more value left over for end-users to realize savings by cutting out trading intermediaries, especially if they had no value to add. This was how grain-markets were supposed to work, benefiting producers and end-users alike. But the same did not happen in overseas exports, which remained captive to bulk-trades. Even canola had fallen into this bulk-trap outside CWB’s domain, and wheat stayed in the same trap, even after CWB was abolished.

Remaining problems: Since the debate on grain-trades had been so focused on the evils of a single-desk agency, with the abolishment of that agency an all-out victory was declared. Now all grain trades were in private hands, and no attention was paid to the remaining structural problems in overseas trades. North American trades were functioning competitively under the market discipline imposed by direct-sales, but overseas exports remained captive to bulk-trades, with considerable market power in the hands of a few grain-companies. However, nobody seemed to care about the implications of this, be it for producers or the grain-economy at large.

Overseas exports are of critical importance since we produce double what we can consume domestically and export to the US. Exports must continue to increase since crop-yields are rising faster than domestic consumption, and export prospects to the US are limited since they also produce more than they consume. Some believe we should curtail overseas exports and remain self-sufficient, but the only way of doing that is abandoning farmland to other uses, and that is neither desirable nor practical. Thus, producers face an export imperative; the problem is that the margins they get from overseas exports tend to be narrower than what they get from domestic sales.

We attribute this to lack of sufficient competition among a few grain-companies, the gatekeepers of bulk-systems – price takers from world markets but with little incentive to compete among themselves in procurement, knowing that sellers are captive to bulk-trades. They tend to squeeze producer margins, while also hindering their diversification to higher value crops. Bulk-traders are driven by volume, and are thus more inclined to consolidate staple-crops than to deal with specialty crops.

Crop-diversification is as pressing an imperative to our high-cost grain-economy as export growth, since our bulk-exports face increasing competition from emerging grain regions with much lower production costs. Producers have every incentive to shift to higher value-crops, but not the bulk-grain traders, as their consolidation assets (inland elevators and coastal terminals) are more conducive to staple-crops that trade in large volumes with high-turnover. Then, why don’t producers switch to crops that are in their own best interest and start trading through other channels?

The solution: If overseas grain-trades were not captive to bulk-trades, we would not be talking about these problems. Across North America, direct-sales to corporate-buyers impose market discipline on grain-trades to function competitively. These types of sales take place because they can be fulfilled by truck or rail deliveries from production sources to processing plants, with no need for handling or consolidation by intermediaries. The same can be done with overseas exports by containers, which grain-trades are already turning to in many competing parts of the world.

We have been developing our bulk-systems for more than a century – consolidating at inland elevators, transporting to export positions by rail in hopper-cars, storing in giant coastal terminals, shipping to overseas markets in bulk-vessels, letting counter parties to bulk-trades receive on their shores and look after local distribution, often changing hands through multiple intermediaries before grains reach end-users.

Though we have embraced this as the only and most efficient way to export grains to overseas markets, there is a better way: selling directly to end-users and getting crops delivered to their doorsteps in containers, with integrity intact and if necessary identity-preserved. Instead of consolidating at elevators, producers can get grains cleaned, graded, tested, and loaded into containers to be transported anywhere.

Intermodal systems have developed in most parts of the world to a point where most trades can be containerized, including grains, at lower cost per ton than in bulk – particularly where containers are returning empty like westbound across the Pacific. Also, buyers realize savings in getting specific types or grades of grains they want, in quantities they need, and in accordance with their production schedules.

How did we get involved in intermodal systems?

The mission of our platform is to achieve a paradigm-shift in overseas grain exports, away from bulk-systems to direct-sales that can be fulfilled in containers. In this vein, we are pursuing a dual-agenda: attract corporate-buyers to procure the grains they need directly from production-sources and facilitate the development of containerized grain handling and logistics solutions. Before getting into our trade-mission, let us provide some background on how we got involved in this field.

Industry background: Our principal founder started a consulting practice in the 1980s, one of the areas focused on was cost-analyses across different modes – marine, rail, truck, and intermodal. Many of the projects involved multi-modal cost modelling for freight or commodity movements. Grains were central to this work in the Great Lakes region involving shipping, but later expanded to rail across the Prairies in regulatory cost-studies, as well as port related matters on the West Coast.

Ironically, the trucking-practice had developed from a railway-funded research project into the impacts of technological and regulatory change on trucking costs. This was also the time when interest in intermodal-systems was heightening with the advent containerization. The railways at the time were staunch believers in the cost advantages of boxcars, thus did not want to hear much about containers. However, that did not stop them from introducing container-services, and in time container-trains across the country, with flood of containers pouring in from both shores.

At the time, another partner led the marine-port side of the practice, while our principal founder looked after the truck-rail side, but both were firm believers that transport systems were at the cusp of an intermodal revolution. Containers had already made inroads into manufactured goods, but forest-products and agricultural-goods were next. The old-guard at ports was not ready to accept this reality, viewing containerships as just another vessel-class, with no understanding of shipping-lines or their container-flow management practices that are key to intermodal trends.