People knew it was coming, but that didn’t make the news any less arresting.
Saskatchewan Wheat Pool announced last week that its Project Horizon elevator consolidation program will result in the closure of 235 grain elevators at 170 locations across Saskatchewan over the next two to three years.
The company released the number as it announced that it was taking a restructuring charge of $19.4 million before tax against its earnings for the fourth quarter.
Pool officials have said all along that each new high-throughput terminal built under Project Horizon would replace 10 or 12 existing locations. With 14 such projects in the works for Saskatchewan, it has always been clear that would mean the demise of many smaller elevators.
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Bruce Johnson, Sask Pool’s executive vice-president for grain, said the news shouldn’t come as a great surprise. The pool is catching up with other grain handling companies, which have been closing elevators at a faster pace over the past decade. And he said those most affected by the closures have had advance warning.
“In the site selection process, we met with all the local committees probably over a year ago, so those folks were aware of the changes that were coming,” he said.
Nevertheless, some farm leaders and grain industry officials said they were taken aback by the scope of the announcement.
“I was startled by the numbers, at how many are actually on the way out,” said Nettie Wiebe, president of the National Farmers Union.
Sinclair Harrison, president of the Saskatchewan Association of Rural Municipalities, said while it was understood there would be closures, that doesn’t make it easier to take for those losing their local elevator or rail branch line.
He was upset that many elevators slated to be closed are on lines where local people may want to set up short lines.
“In those areas where there are branch lines and there is viability, this makes absolutely no sense,” Harrison said.
However Johnson said the pool’s plan is in part a response to the railways’ announcements of rail lines they plan to abandon during the next three years.
“I can’t keep elevators open on lines that are going to be abandoned,” he said. “That makes no sense whatsoever.”
Wiebe said while elevator rationalization may make sense from a business perspective, and the pool has a responsibility to shareholders to maximize profits, she said the company has a greater responsibility to rural Saskatchewan.
“I don’t know what good corporate citizenship is about if it isn’t in some way connected to the well-being of the people in the society and the economy,” she said, adding the short-term profit outlook of the pool is far less important than the long-term fate of a lot of rural communities.
Johnson said the pool is sensitive to concerns about the impact of elevator closure on small towns and villages and rejected suggestions the pool is abandoning rural Saskatchewan, noting the company is spending $270 million under Project Horizon to build or refurbish 22 grain handing facilities across the Prairies, including 14 in its home province.
“That’s a lot of money in system renewal,” he said. “It’s not as if we’re walking away from grain handling in Saskatchewan. That’s the heart of what we do.”
He said the pool can’t afford to let companies like Con-Agra come in and “cherry-pick” the best main line locations and build state-of-the-art facilities without responding in kind.
“We have to compete,” he said, adding the larger facilities being built allow the company to provide better service to producers.
At the end of the rationalization process announced last week, the pool will be operating 212 elevators at 144 locations. That’s a decline of about 33 percent in the past decade. Johnson said last week’s announcement deals with 99 percent of the elevator closures planned for the foreseeable future.
Hugh Wagner, general secretary of the Grain Services Union, said the union has been told the closures will result in the elimination of 145 jobs, although the union hopes it can reduce that through negotiations.
He thinks last week’s announcement was designed mainly to send a message to investors that the pool is taking strong action to cut costs and restructure, in light of poor financial results for the third and fourth quarters.
“I have no doubt this announcement is certainly driven by the need to pander to Bay Street and to resuscitate a flagging share price,” he said.
Johnson said that’s not the case: “It has nothing to do with the marketplace. It has everything to do with operational necessity.”
