Boom in grain-handling facilities benefits farmers

In April 2016, The Western Producer published a story headlined, “Grain handling: a growth industry?

We needn’t have included the question mark.

Statistics Canada numbers show grain exports from licensed elevators have increased 42 percent in the last 10 years. In the 2014-15 crop year, Canada exported 23.9 tonnes of wheat, topping exports from the United States for the first time in years. Exports of canola oil rose by almost 200 percent from 2003 to 2015, mainly due to demand from China.

And with the Advisory Council on Economic Growth’s recommendations to increase agri-business exports by $30 billion, particularly with exports to Asia, there is a lot of grain to be moved.

So it makes sense that Western Canada’s grain-handling system needed to be overhauled.

In fact, the grain-handling sector in the West has expanded at such a pace that some fret there is too much capacity — that the sector is overbuilt.

Can such a thing be a problem for farmers? Perhaps in the long run, as industry expands and contracts through consolidation, as can be the case. Otherwise, the boom in grain-handling infrastructure has been a benefit to farmers.

Over the last decade more than $3 billion has been invested in locations across the West. Dozens of grain-handling facilities have been built, including crushing plants and pulse processing operations.

Three new grain elevators were officially opened in the last month alone, and more are scheduled to open early next year. When you consider that a grain elevator and accompanying infrastructure can cost $40 million or more, you know the industry is growing increasingly competitive.

Rail has invested too, with the passage of the Transportation Modernization Act (Bill C-49) containing financial incentives. Canadian Pacific Railway plans to spend $500 million on high-capacity grain hopper cars and Canadian National Railway is buying 1,000 grain hopper cars over two years.

Companies with port facilities, including Richardson, Viterra, G3, and Paterson are investing hundreds of millions of dollars to improve their operations. Some will offer capacity to competing commercial grain companies with no port facilities.

And now we see a private-public partnership between Missinippi Rail, Fairfax Financial Holdings and AGT getting into the transportation business, with the purchase of the rail line to Churchill, Man., and its accompanying port facilities.

It’s an international effort: G3 is a joint U.S.-Saudi venture; Richardson, Paterson and Parrish & Heimbecker are Canadian; Viterra’s parent company (Glencore) is Swiss-based; Cargill is based in Minnesota; and a new entry into Canadian grain transportation, GrainsConnect, is a Japanese-Australian enterprise.

There is some thought that this environment, in a decade or so, will look quite different.

If grain-handling capacity is overbuilt to the point of squeezing margins, companies will re-evaluate their facilities, possibly closing or selling some of them. The industry may also go through consolidation — both to rescue struggling smaller elevator owners and to focus competition among the big companies.

Since most grain from the West will go through port facilities on the West Coast, getting grain to port, storing it, and moving it by ship will always be a logistical challenge, especially in the midst of harsh winters, where backlogs can occur.

But in the short-to-medium term, farmers can be buoyed by the competition and robust investment in grain-transportation.

Karen Briere, Bruce Dyck, Barb Glen, Brian MacLeod and Michael Raine collaborate in the writing of Western Producer editorials.

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