Friendly takeover | Glencore may sell off assets, port facilities
Farm groups are leery of any potential Viterra takeover that would result in consolidation of the company’s substantial Western Canadian grain handling and crop input assets.
Media reports indicate Glencore International PLC, a Swiss firm that is the world’s largest publicly traded commodity supplier, is attempting a friendly takeover of Canada’s largest grain handler along with two Canadian partners.
The reports suggests Glencore and Richardson International would divvy up the company’s grain handling and food processing assets and port facilities while Agrium Inc. would get its crop input business.
Viterra has a 45 percent share of Western Canada’s grain handling business and a 35 percent share of the agri-products market, according to the company’s 2011 annual report.
The company owns 82 primary grain elevators and 11 special crops processing facilities in North America in addition to seven port terminals. It also operates 258 farm supply stores in Western Canada.
Doug Chorney, president of Keystone Agricultural Producers, worries about Richardson getting its hands on some of that substantial grain handling volume.
Richardson already controls about 25 percent of the western Canadian grain handling business through its 75 country facilities and four export terminals.
“There’s no upside really for producers. It’s great if you’re Richardson I guess because you’re going to have so much market share,” he said.
“It also makes it hard for the grain companies that are left to compete, especially with the terminal control at port because some of the smaller grain companies need to have access to that.”
Another farm leader is more concerned about fertilizer consolidation. Agrium owns 60 farm supply retail outlets in Western Canada and exercises influence on independent retailers.
“Fertilizer is one of our biggest input costs in farming, so we really need competition there to try and get fertilizer prices down as low as we can get them,” said Arlynn Kurtz, vice-president of the Agricultural Producers Association of Saskatchewan.
Greg McDonald, general manger of Grow Community of Independents, a collection of 24 independent crop input dealers, said Agrium’s rumoured involvement in the bid makes a lot of sense.
“Everyone is very aware of the aggressive acquisition that Agrium is wanting to do in the retail market,” he said.
The fertilizer manufacturer is also the world’s largest retailer of agricultural products with 1,250 facilities worldwide. Agrium wants to grow that portion of its business to $1 billion in earnings before income, taxes, depreciation and amortization by 2015 from $769 million in 2011.
“Agrium has pretty bold projections as to how much market share they want in fertilizer, crop protection and seed in Western Canada with their retail outlets,” said McDonald.
Independent retailers own about 30 percent of the market share in the crop input business, which is down from about 40 percent a few years ago.
Agrium supplies many of those independents with fertilizer.
“It’s always an uneasiness when one of your major suppliers, if you’re an independent, also is becoming so aggressive on the retail side of the business,” said McDonald.
He said most of the remaining 35 percent of the market share in the crop input sector is split evenly between Federated Co-operatives Ltd., Richardson, Agrium and Cargill.
McDonald said farmers are right to be concerned about Agrium taking over Viterra’s dominant position in the crop input business.
But he suspects there could be more competition coming from the United States under an open market because with more grain expected to be trucked south of the border the backhaul could be fertilizer.
The Competition Bureau is legally required to review any merger the size of the proposed Viterra deal.
When Saskatchewan Wheat Pool took over Agricore United to become Viterra it was ordered by the bureau to dispose of some of its assets to rival grain companies.