Agricore United chief executive officer Brian Hayward seems pleasantly surprised to realize his company is the king of the prairie grain industry.
He says his old company, United Grain Growers, made the right moves in the 1990s and that’s why it succeeded. But he also remembers a time when he thought the company could fail.
“In 1991, when I started at this job, had UGG remained the way it was … the company would have folded somehow or other,” said Hayward.
He cited poor facilities, and outdated computer and accounting systems.
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In 1993, UGG stopped operating as a co-operative and became a publicly traded company, which allowed it to raise money by selling shares.
It also allowed UGG to later form a partnership with U.S. multinational Archer Daniels Midland.
UGG used its new investment and share capital to pay down debt and rebuild its elevator network. By 2001, the grain company had rebuilt its infrastructure and was carrying a debt of $368 million, slightly higher than its 1991 debt level of $340 million.
Meanwhile, Saskatchewan Wheat Pool was also upgrading its facilities and expanding.
But its financial picture was different. By 2001, Sask Pool was burdened with a debt of nearly $1 billion, more than twice its 1991 debt level of $469 million.
Agricore – the company formed by the merger of the Alberta and Manitoba pools -was also swimming in debt. By 2001, Agricore had an accumulated debt of more than $900 million, more than double the combined debt that the Alberta and Manitoba pools had been carrying a decade earlier.
How these grain companies simultaneously managed debt and upgraded facilities allowed UGG to assume a dominant position in the prairie grain industry, said University of Manitoba agricultural economist Daryl Kraft.
In November 2001, the UGG absorbed Agricore in a merger that many grain industry players describe as a takeover.
The offshoot, Agricore United, is now the biggest grain company in Canada, thanks largely to UGG’s ability to raise money by selling equity stakes while maintaining a reasonable debt load.
“It appears now, after the fact, that the level of debt that Manitoba Pool, Alberta Pool and Sask Pool each took on, if they had thought about future potential scenarios, it would really question whether they could finance those payments and retire that debt,” said Kraft.
“Even if they had maintained their market shares, with the fluctuations that exist in grain handling and farm service revenues, could you carry that much debt? The answer appears to be no.”
