Gobbling up farm suppliers
It seems the days of the independent farm supply firm might be coming to an end.
It is a rare week when there is not an announcement of some mainline grain company buying a locally owned farm supply outlet.
Perhaps the biggest move in this direction happened last week when the Manitoba and Alberta wheat pools announced they were making a friendly takeover bid for Humboldt Flour Mills which, despite the name, gets most of its revenue from farm supply and special crop business.
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Humboldt Flour has been accumulating farm supply businesses in the last 18 months, and has assembled 12 outlets.
Why is this happening?
By international standards even the big Canadian grain companies are small and tied too closely to regional production variables. The three pools in particular were provincially oriented and could be hurt by local production problems.
To increase stability, they have to geographically diversify.
Another reason to invest in the farm supply business is changing technology. The wave of the future is precision farming, using satellite or aerial imaging, geographic information systems, combine yield monitors, soil sampling and variable input application to get the best, most environmentally responsible impact from expensive inputs.
For many producers, sophisticated use of inputs will require assistance from consultants and usually those consultants will be found at farm supply outlets.
If you are suppling a farmer with agronomic expertise, you will probably supply him with chemicals and fertilizer, usually one of the more profitable business operations in a grain company’s lineup.
What will concentration in farm supply business ownership mean for producers?
It might seem there will be a reduction in competition for the farmer’s business, but that isn’t necessarily so.
As grain companies acquire operations in areas they haven’t been before, they will have to fight for market share and build customer loyalty. Their long-term survival depends on it.
Most agri-business observers say not all players in the grain handling business will survive in a less regulated environment with competition from multinationals such as ConAgra, ADM and Louis Dreyfus.
So for the next few years there could be more competition in farm supply as the big businesses jostle to be among those left standing when the dust settles.
