End of the CWB monopoly did not spark more IP sales, due to the hefty premium charged for handling
Carsten Bredin thought the end of single desk grain marketing in Canada would be the beginning of a new era of identity preserved sales of wheat and durum.
He was wrong.
“That was my expectation and we were excited by that,” said the vice-president of grain merchandising with Richardson International.
“For many, many years we didn’t have the ability to provide what our customers were asking for. We didn’t have control of that marketing system.”
Bredin was convinced that the end of the Canadian Wheat Board’s monopoly on western Canadian wheat and barley exports in 2012 would lead to more identify preservation business for grain companies.
Customers had expressed an interest in contracting for specific varieties of wheat, and he thought it would be easier to co-ordinate now that grain companies were bypassing the CWB middleman and dealing directly with customers and growers.
However, the premium that customers would have to pay to disrupt a bulk grain handling system tasked with exporting 48 million tonnes of grain, oilseeds, pulses and special crops a year is simply too hefty for many to afford.
There are exceptions, such as British bakery Warburtons, which still contracts specific varieties with Canadian growers to make its bread.
“It’s the (United Kingdom), it’s not Asia. They can afford to do that and they have built their business on it,” said Bredin.
“But there are not a lot of customers out there that are willing to pay that type of premium.”
John Buboltz, vice-president of merchandising and transportation with Cargill, agreed.
“IP programs have become smaller and smaller,” he told the Canadian Global Crops Symposium.
“How do we move bulk commodities as efficiently as possible? That has been the focus.”
Bredin said the problem with identify preservation programs is that they interrupt a grain handling and transportation system de-signed to move bulk commodities.
“If you do multiple IP crops, you’re just going to congest the system and you’re always stopping and starting, stopping and starting,” he said.
“When you’re dealing with a (No.) 2 red 13 (percent) or you’re dealing with a canola or a pea or a barley export program, you can push quite a bit of volume in several shipments as opposed to one hold on a ship, which is typically what an IP program is.”
For example, let’s say west coast ports moved one million tonnes of bulk grain per month.
Bredin believes total monthly exports would shrink to 750,000 tonnes due to reduced efficiencies if grain companies decided to ship 500,000 tonnes of identity preserved grain.
“How do you get rid of the other 250,000 tonnes?” said Bredin.
It’s why identity preserved programs come with a hefty premium and why most customers think the quality of wheat and durum they receive from Canada is sufficient.
“Velocity of movement has been more important than extracting that small value for a niche product,” he said.