A merger between Agricore and United Grain Growers could leave hundreds of thousands of tonnes of grain looking for a new home, say industry watchers.
Combined with new commercial tenders and new car allocation rules, that could lead to a vigorous battle for market share.
“It will certainly shake things up,” said Murray Fulton, an agricultural economist from the University of Saskatchewan.
And it just as certainly creates opportunities for other grain firms to go after that new business in the short term, he said.
Read Also
Increasing farmland prices blamed on investors
a major tax and financial services firm says investors are driving up the value of farmland, preventing young farmers from entering the business. Robert Andjelic said that is bullshit.
UGG and Agricore handled about 13 million tonnes of grain in the year ending July 2000, accounting for about 40 percent of the western Canadian market.
That’s well ahead of Saskatchewan Wheat Pool’s 26 percent, Cargill’s 11 percent and other smaller companies’ combined 23 percent.
However, analysts say there’s no way a newly merged company would maintain that 40 percent share.
“There will be elevator closures and there will be volumes lost,” said David Schroeder of Dominion Bond Rating Service.
“This opens an opportunity for others to increase market share.”
Exactly how much volume is lost and where that grain goes remains to be seen, and with such a small crop the impact may be minimal this year.
Merrill Lynch analysts said the merger could provide Sask Pool with a chance to reverse its recent downward slide in market share.
“In the near term, SWP may be able to gain market share in Manitoba and Alberta, as Agricore United completes its merger, reduces its costs and rationalizes elevator and headcount,” they said in an Aug. 20 commentary.
Fulton doesn’t think anyone has an inside track on grain looking for a new home.
Farmer-owned inland terminals will pick up some additional business, he said, especially from Agricore members who support co-operatives and see locally owned terminals as the next best thing.
More established handlers like Cargill, Pioneer, N. M. Paterson, ConAgra and Louis Dreyfus will pick up business in specific geographic locations
Fulton doesn’t expect Sask Pool to pick up much new market share, since the bulk of the newly available business will be in Alberta and Manitoba, where Sask Pool has a limited presence.
Schroeder said it’s hard to predict the winners and losers in the battle for market share, with so much uncertainty over the impact of the merger and the new transportation and handling rules, especially on the smaller companies that have fared well in recent years.
He said a number of factors drive market share, including availability of elevators, service and loyalty, but the number one factor is price.
