Competition bureau, ag economists find significantly reduced competition, more costs to farmers if transaction proceeds
REGINA — Bunge and Viterra said last week they still expect the proposed merger of the two companies to proceed, even after a Competition Bureau of Canada review identified major concerns about reduced competition.
A report by three University of Saskatchewan agricultural economists for four Prairie farm organizations reached the same conclusion. Richard Gray, James Nolan and Peter Slade completed the report for the Agricultural Producers of Saskatchewan, Alberta Grains, the Saskatchewan Barley Development Commission and the Saskatchewan Wheat Development Commission. It was released April 29.
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Both reports confirm what farm organizations have said all along.
“This report brings to the forefront the severe repercussions farmers could face in the wake of the Bunge-Viterra merger,” said APAS president Ian Boxall.
“We are particularly concerned about the potential for escalated costs and diminished profits for farmers, which would jeopardize their livelihoods, devastate rural communities and erode the sustainability of Canadian agriculture.”
The Competition Bureau said the merger would result in “substantial anti-competitive effects and a significant loss of rivalry between Viterra and Bunge in agricultural markets in Canada.”
It said Bunge is likely to materially influence G3 through its minority interest. Bunge holds a 25 per cent interest in G3’s parent company.
The larger company would have the most oilseed crushing facilities and primary grain elevators in Western Canada, whereas right now Viterra is a significant competitor to Bunge and G3 for canola.
The bureau specifically identified concerns in the areas where the Altona, Man., and Nipawin, Sask., crush facilities operate, saying canola price decreases in those areas would lead to anti-competitive effects.
“When considered over the volume of purchases in these areas, the aggregate impact of these price effects is likely to be $7 to $9 million in the Altona area and $8 to $10 million in the Nipawin area in lost farm revenues annually,” the bureau said.
The economists said the sector is already concentrated and will only become more so with this merger.
They found the Vancouver export basis would increase about 15 per cent and canola crush margins would increase by 10 per cent.
“We estimate in our report that the restrictions at the Port of Vancouver alone could increase the export margin by $7.10 to $7.50 (per tonne),” Gray said in an interview.
“And if you take 75 million tonnes of production in Western Canada, well, that’s $500 million a year right there that would come out of producers’ pockets. It’s real dollars.”
The report said the only viable way to maintain current competition at port would be for Bunge to divest its port terminal interest in G3.
The economists said the impact on canola crushing would be an $8-per-tonne increase in margin if the proposed Viterra crush plant is built, and $13 per tonne if it isn’t. That would further reduce farm income by about $200 million a year.
Gray said the capital value to farm balance sheets is huge. Capitalizing $500 million a year at a five per cent rate is about $10 billion.
“It’s a significant thing for producers that have a permanently higher export basis.”
Gray said there are several things that could happen now. The federal transport minister is reviewing the competition bureau report, and he expects farm organizations will continue their arguments against the deal.
Saskatchewan agriculture minister David Marit said he is confident the company would maintain a presence in Regina, where Viterra currently has its head office.
“Obviously we’ve talked about (the report),” he said.
“I would hope they would find solutions to what the Competition Bureau has raised.”
On a call to discuss Bunge’s first quarter results, chief executive officer Greg Heckman said the deal should close by the middle of this year. Regulators in 13 countries haven’t yet approved it, but he said it was too early to speculate on whether the company would have to shed assets to close.
“We believe the noted concerns are misplaced and look forward to working with Transport Canada and the Bureau to provide further information addressing these points,” the two companies said in response to the Competition Bureau report.
“We are pleased the regulatory process is advancing and are confident the transaction will yield considerable benefits to Canada.”
The Competition Bureau review is non-binding.
