VANCOUVER – Cutthroat competition in the special crops trade must give way to a spirit of co-operation if the industry is going to get on top of its nagging profitability problems, judging by what industry leaders said at the Canadian Special Crops Association’s 21st annual meeting.
Processors are undercutting one another, charging unsustainable rates to keep their plants busy, said Murad Al-Katib, president of the CSCA.
“It’s a ridiculous type of situation. We’re killing each other. As an industry we need to recognize it and do something about it,” he told delegates attending a wind-up session on profitability.
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Al-Katib knows of small processing firms charging $2 a bag to process lentils, the same rate they charged 10 years ago.
“What’s wrong with that picture? If my staff wants a 10 percent raise why am I not getting $3 a bag or $4 a bag to do lentils?” he said.
A gate-to-plate study sponsored by Saskatchewan Pulse Growers showed there is money to be made selling special crops, but most of the margins occur at the export destination rather than in Canada.
The study looked at two examples of Saskatchewan lentil sales, one to Mexico and one to Brazil, and found that in both cases the margins of the Canadian trading company were negative, while the packers and retailers in the importing countries made enormous profits.
“Those bottom line profits aren’t coming to the processor today. Processing companies are struggling and that’s why we’ve seen multiple bankruptcies in our sector,” said Al-Katib.
He estimates that during the past seven years, a dozen Canadian processors and exporters have either gone bankrupt or shut down operations, which represents about 10 percent of today’s industry.
Al-Katib said importers and brokers are preying on smaller processing firms by not paying them what their services are worth and the larger firms are forced to compete with those discounted rates.
“That’s really what we’re going to work on more is ensuring that we get the value for Canadian product,” he said.
Peter Wilson, manager for North and South American operations for JK International Pty. Ltd., an international pulse trading firm, has no problem with the special crops industry remaining “brutally competitive,” but their must be collaboration on key issues.
The industry has to stop complaining, roll up its sleeves and create solutions to profit-sucking issues rather than relying on others to fix things like chronic transportation problems.
“It’s not good enough to sit in a pub and give CN and CP a flogging because they’re very easy targets,” said Wilson.
While it is working on that issue, the industry must also find a solution to the western Canadian labour crisis, which draws experienced workers to the booming oil and gas and mining sectors, leaving other industries short-handed and forced to fill vacancies with under-qualified workers.
“It is manifesting itself in problems with quality and in the simple things like bag markings and allocation of bookings,” said Wilson.
Greg Simpson, president of the Western Canadian Marketers and Processors Association, said the labour shortage is forcing firms to consider installing robotic automation at a cost of $300,000 to $500,000 a plant.
“None of these solutions are cheap,” he told delegates.
Costs are rising across the board. Terminal fees, inland freight rates, ocean freight rates, and the cost of carrying grain are all up. And so is the Canadian dollar, which also hurts exporters.
But what really bothers Simpson is the shortage of containers and rail cars and poor rail service, which leads to expensive delays and lost business.
“It’s like trying to build a house but you don’t have any two-by-fours,” he said.
Doug Dunnington, general manager with TW Commodities, a pulse processor in Swift Current, Sask., said another problem is that the bankruptcies have undermined the value of processor assets, making it difficult to grow existing businesses.
One recent auction of a $7 million business generated total proceeds of $700,000 or 10 cents on the dollar. Financial institutions see that and then drop the book value of the remaining plants.
The good news is he thinks the pulse industry carnage is over.
“I do believe the consolidation of cleaning plants has come to an end and those remaining will survive,” said Dunnington.
John Ferguson, partner in Ferguson Bros., a St. Thomas, Ont., bean company, added an eastern Canadian perspective.
His company has been forced to buy acres from growers to compete with crops like corn and soybeans.
“We have to do that by supporting a price that sometimes isn’t marketable at the time, so that cuts into margins.”
Another concern in the bean sector is the competition emerging from developing countries like China, Ethiopia and Argentina where beans are grown in an environment with a lower cost of production, less regulation and unregistered chemicals.
Ferguson ended his presentation on an optimistic note.
“Canada has been profitable in the past and we will be in the future,” he told the CSCA delegates.
Al-Katib said before that happens, the industry needs an attitudinal adjustment. It has to stop being afraid to make money. That doesn’t mean paying growers less, it means charging customers more.
“We don’t need to play if it’s not profitable business. Just say, ‘no,'” Al-Katib told his fellow processors.
