Saskatchewan Pulse Growers had seen significant revenue decline after lentil prices dropped, but surplus now expected
Saskatchewan Pulse Growers has regained its financial footing after three years of dismal levy revenues.
For the first time in a long time the organization is budgeting a $4.3 million net surplus for 2020-21, due primarily to rebounding pulse prices and demand.
“I’m very pleased to say that we have weathered this very significant downturn in revenue and have come through it in a strong financial situation,” SPG executive director Carl Potts said during the organization’s annual general meeting.
The hard times began in late 2017 when there was a sharp decline in lentil prices compounded by India implementing duties and quotas on imported pulses.
Levy revenues dropped from an excess of $20 million in 2015-16 to below $10 million by 2018-19.
The organization cut expenses and drew down $12.8 million in reserves over that difficult three-year period.
Prior to the tough times, SPG levy payers had expressed anger that the organization had built up massive reserves during a period of high pulse prices and expanding acres.
In response, the organization reduced its levy to 0.67 percent of sales from one percent. Soon after prices fell and India exited the market, triggering the recent slump in revenues.
Potts said SPG has revamped its reserve structure so that it doesn’t end up in a similar situation down the road.
“We don’t plan to hold any more funds than are needed for sound financial reserves and for risk management,” he said.
The organization has set aside $13.8 million in case it is forced to endure another sustained period of reduced revenues.
It also has $1.6 million to pay for closure costs if the organization had to be wound down, $670,000 in capital asset investments and $3.1 million for strategic investments that fall outside the regular budget.
SPG finally has the money to start investing in new research projects. It recently announced $1.2 million in funding for a variety of projects at the University of Saskatchewan’s Crop Development Centre.
It intends to invest a total of $4.05 million in research and development in 2020-21. That is down from the $5 million it had been spending in recent years.
In the future, the organization will be targeting $7 million per year in research and development.
Research spending is down in 2020-21 because in the fall of 2020, the CDC ended its long-term breeding relationship with SPG that saw it produce royalty-free varieties for the province’s farmers in exchange for annual funding.
Outgoing SPG chair Brad Blackwell said all of the CDC varieties that have already been released and those that will be released in 2021 and 2022 will continue to be royalty free.
However, after that growers will start paying more for varieties because of royalties.
In the future, the organization plans to partner with private and public breeding organizations, including the CDC and Agriculture Canada.
SPG will have access to all the genetic material that it has already paid for to be used in future breeding agreements with the CDC or other organizations.
The organization is also exploring the idea of being an investor or owner of a breeding and trait development company.
Any partnership or investment will have to adhere to a couple of key principals.
“Without these principals we will not invest,” said Blackwell.
The first is that any partnership will be approached with an investor mindset.
“There has to be return on investment for growers,” he said.
SPG wants a “seat at the table” when decisions are made about royalties and a portion of those royalties will have to flow back to SPG to be reinvested in research and market development work.
The second principal is that there will have to be “value sharing” with growers when it comes to pricing of new varieties.
“We want to avoid a situation where new varieties are priced in a way that most of the incremental value for growers is captured in the cost of the seed,” he said.
Research priorities for SPG will be root rot disease resistance, herbicide tolerance in lentils and agronomic practices that improve end-use quality of pulses.