Vertical integration | CWB forced indirect relationship with producers
Vertical integration is probably coming to Canada’s milling industry as the implications of the open market create new opportunities, says a grain trading executive.
“Grain procurement has become priority number one,” said Doug Hilderman, vice-president for western grain trading for NorAg Resources, an agricultural commodity merchandizer with headquarters in Port Hope, Ont.
“The lack of integration is definitely going to change.… The marketing supply chain is still very fragmented.”
Hilderman said millers and bakers had an indirect relationship with farmers under the CWB monopoly. Buyers would tell the CWB what they wanted and CWB would try to find it or get farmers to grow it and then try set a standard price for all millers.
Read Also
New coal mine proposal met with old concerns
A smaller version of the previously rejected Grassy Mountain coal mine project in Crowsnest Pass is back on the table, and the Livingstone Landowners Group continues to voice concerns about the environmental risks.
“The milling market was stagnant,” he said. “The returns were stagnant for the miller and I think the baker.”
Bigger buyers didn’t get discounts over smaller buyers and had few ways to get closer to the farmer, which resulted in little incentive to invest in the industry.
However, Hilderman now thinks millers and bakers will want to work closely with farmers to encourage them to grow specific varieties so they can make specialized products.
He also thinks farmers will make more money from the open market because buyers are fighting with each other for specific types of grain.
“More buyers are looking for the same tonne of grain,” he said.
Hilderman, who came to NorAg after 13 years with ADM as Canadian grain manager, said NorAg is among the companies that have entered the western Canadian market because of the end of the CWB monopoly.
“There could be 12 to 14 companies, credible companies, that are out trying to buy grain in Western Canada,” said Hilderman.
He said working with farmers makes it easier for millers and bakers to ensure they get exactly what they want. The inability to easily work directly with farmers has retarded the development of some products that are common in the United States, such as whole wheat white bread, he added.
“I think as we move out of this bulk grain handling, bulk information kind of model that we have been in, that we’re going to see more information on what the consumers are after, what varieties, what traits, protein functionality,” Hilderman said.
“That’s going to make growers maybe make better planting decisions.”
