Farmers lose in port storage arms race

(December 22, 2016)  Some months ago I remarked on the amount of new grain bins farmers were purchasing (Prairie Arms Race) so they could store their crops for longer periods and ‘pool’ their returns by choosing when to give up ownership to one of the ABCD group’s agents.  This need for grain storage is another cost for farmers from Ritz and Harper killing the Canadian Wheat Board.  It is a reality that is a far cry from when Minister Ritz was gleefully assuring farmers that grain bin sales people would be very unhappy because grain would move so quickly “farmers will not have to start their trucks in winter” after the CWB was gone.

However prairie farmers are not only spending thousands on new grain bins, they will also be spending millions of dollars financing another arms race in storage and grain handling as grain handling companies are expanding or building new inland terminals.  Not to mention announcements of at least two new port terminals for Vancouver.

Most farmers know that rather than itemize their costs, the grain handling companies hide them in a catch-all category called “basis” – a term sufficiently vague that it allows compliant economists and others to stop the conversation there.  Repeated often enough it reliably induces a consensus trance in audiences and prevents uncomfortable questions.

Consensus Trance

Questions like:  where is the justice in allowing a collection of oligarchs to take between one-third and one-half the value of the prairie grain crop away from farmers when farmers used to receive their crops’ full value by using the collective bargaining power of the Canadian Wheat Board?

One of the most recent additions to the storage and handling race is from Parrish and Heimbecker Limited (P&H) and Paterson GlobalFoods Inc. (PGF).  They are well into the regulatory process to replace their 15,000 tonne port terminal on the Fraser River with a new 77,000 tonne model.  This is a significant investment for these two smaller companies but only about a 5% net capacity gain for the port of Vancouver.

Using its deep pockets and the hundreds of millions of dollars effectively gifted to it from CWB assets (paid for by farmers) G3 Corp. has built new inland terminals and acquired existing ones across the prairies.  They have also announced plans for new port terminals on both the east and west coasts.  The one at Vancouver will have a reported capacity of 180,000 tonnes on the Burrard Inlet.  If we accept reports, Vancouver’s terminal capacity is set to be increased by about 28% as a result.

However, it is unlikely this build-out will do much, if anything, to improve farm-gate grain prices for prairie farmers.  We know when the companies can download costs, they do.  That’s just good business for them.  It is a rare farmer with the choice of more than one grain elevator at a delivery point.  According to the Canadian Grain Commission, less than 10% of Manitoba delivery points have more than one Elevator Company.  In Saskatchewan the number is 20% and in Alberta it is a mere 12%.  That does not create much competition.

While some farmers may think grain companies compete for their grain it actually works the other way around with hundreds of farmers chasing one grain company.  If there is any competition among grain companies, it will be paid for by other farmers being forced to take a lower price for the same grade and quality of grain some other time in the crop year or at some other delivery point in the system.  With no effective regulation to prevent profiteering by the grain handling oligarchy it is all too easy for them to make farmers pay for the increased handling capacity they are building on speculation.

In spite of the monotonous claims to the contrary by the Western Grain Elevators Association, the cartel representing the grain elevator oligarchy, we know from impartial Canadian Transportation Agency hearings this problem is not a transportation issue.

With the CWB farmers typically received about 90% of the port price after elevation costs and about 80% after paying rail costs.  We seem to be well on track to seeing agricultural economist James Nolan’s careful explanation in December of 2014 being confirmed by experience. He observed that without the CWB’s market power farmers were getting around 40 to 60% of a grain sale.  He went on to note some economic models show that the farmers’ share could decrease to about 20%.  With this speculative boom in grain handling capacity, it seems that model may just be moving closer to reality.