Grain shipping capacity on Canada’s West Coast is in the midst of a major overhaul.
Over the past few years, factors that include the de-regulation of the Western Canadian wheat market and the emergence of new grain industry competitors has resulted in a flurry of port investments that could add more than 15 million tonnes of annual grain shipping capacity to Canada’s busiest export corridor.
All told, Canadian grain companies are on track to invest roughly $1.5 billion on Vancouver-area port facilities in a period spanning less than a decade.
That number does not include other investments — also valued in the hundreds of millions — that are aimed at enhancing grain origination capacity in western Canada’s most productive grain growing regions.
With so much investment, there is little doubt that Canadian grain companies see expansion and modernization as a top priority.
But with every investment there is risk.
And for Canadian grain companies, one of the biggest risks is the cost of carrying unutilized grain export capacity.
Kyle Jeworski, Viterra’s president and chief executive officer, said heightened competition is a good thing.
“All consumers like competition,” Jeworski said in a recent interview.
“I think it keeps everyone focused on serving the needs of customers.
“But if I look at the available export capacity today and I compare it to what’s produced and what’s grown on the Prairies, there is arguably a significant amount of excess capacity that’s already on the West Coast and in Canada in general.”
As one of Canada’s largest grain handling companies, Viterra has invested significant amounts of money into its Canadian grain handling network.
Since the dismantling of the Canadian Wheat Board monopoly in mid-2012, Viterra has opened new country elevators at Grimshaw, Alta., Ste. Agathe, Man., and Kindersley, Sask.
It also announced plans in late 2016 to build a new 30,000 tonne elevator at Wadena, Sask., and it recently opened a newly upgraded pulse processing facility at Tempest, Alta.
There have been other investments as well, but perhaps the company’s most important capital project was a $100 million upgrade to the Pacific Terminal, located on the south shore of Vancouver’s Inner Harbour.
The Pacific Terminal is designed to handle delicate crops such as peas and lentils.
The upgrade, completed last year, included new bulk weighers, upgrades to shipping conveyors and rotary cleaners, improved electrical and dust control systems and a new ship loading system capable of loading “post-Panamax” vessels, the largest vessels that can navigate through the recently expanded Panama Canal.
“Our goal through this project was to create a highly efficient port terminal in Canada with unprecedented capability for processing a diverse range of commodities,” Jeworski said in an Oct. 27 news release.
The investment “will enhance our strategic position on the West Coast, as well as our ability to connect the production of our farm customers with our destination customers globally.”
Viterra’s largest competitor is also solidifying its position.
Last November, Winnipeg-based Richardson International completed a $140-million up-grade to its export terminal on the North Shore.
That project added 80,000 tonnes of storage capacity and included key improvements to the terminal’s rail yard and grain receiving systems.
The improvements will allow Richardson to move more than six million tonnes of grain annually through the facility.
Before the expansion, the Richardson terminal typically handled around three million tonnes per year.
Also on the North Shore, one of the industry’s newest players is about to embark on possibly the biggest grain project that the port has ever seen.
Next month, G3 Global Holdings will begin construction on a brand new terminal with a price tag expected to exceed $500 million.
Completion is expected in mid-2020, in time for new crop grain deliveries.
At full capacity, the G3 terminal will add eight million tonnes of West Coast export capacity annually, said company officials.
As well, Parrish & Heimbecker submitted a joint application with Paterson GlobalFoods to build a new grain export facility on the Fraser River.
The proposed Fraser Grain Terminal at Fraser Surrey Docks will have total storage capacity of nearly 100,000 tonnes and could boost West Coast grain export capacity by three to four million tonnes annually.
Jeworski said the emergence of new grain industry competitors is a good thing for farmers.
“I think farmers having options is always a good thing,” he said.
But significant excess port capacity might not be in the industry’s best interests.
“I think we’ve got some real life business cases that we can look at and one of those is in the Pacific North West of the United States,” Jeworski said.
“I already believe that there’s excess capacity (on the West Coast) but we could move to an environment of significant excess capacity in the future.
“There is a risk there,” he continued. “If the pie is the same size and you’re just distributing it differently, I’m not sure if that drives any new jobs or any additional value overall.”
G3’s Gerrand offered a different assessment.
When asked if port capacity is becoming overbuilt, Gerrand said farm production is increasing and global demand for Canadian grain is growing.
“There is enough grain,” he said. “Canadian grain production is growing and we believe it will continue to grow.
“We think that the crops that we had in 2013 and again in 2016 and 2017 will become the norm and as crop production continues to grow across Western Canada, we’re going to need not only additional capacity to get that product offshore but we’ll also need efficient capacity.
“Do we need all of the capacity that we have on the North Shore today? Arguably, there will be some that won’t be fully utilized. But we think the future is in the kind of efficiencies that we’re building.”
A veteran grain industry official who spoke with The Western Producer said competition for farmers’ grain should be expected to heighten when the additional export capacity comes on line.
“I’m not sure where all of the grain is going to come from,” said the source, who spoke on the condition that his name be withheld. “The competition in the Canadian grain handling industry is already very structured. Existing companies have gone through lots of acquisitions and they’ve positioned themselves very strongly.
“Grain companies are now going to start fighting each other for that grain share because that’s the only way you can get a return on your investment, is with throughput.”