A debate brewing within Alberta Wheat Pool will have a familiar ring across the Prairies. The company is facing heavy investment demands during the next decade and some pool members are questioning if its 71-year-old co-operative structure can generate enough cash to pay the bills. Should Alberta Pool join other grain handling co-ops in changing its structure to attract non-co-op investment? In the following special report, Saskatoon-based national correspondent Adrian Ewins examines the issues at stake in the looming Alberta debate, which begins formally in Calgary later this month.
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Alberta Wheat Pool has set out on the same path that led two other prairie grain companies to the Toronto Stock Exchange.
Its owners are split over whether their company will end up in the same place.
In the last two years, United Grain Growers and Saskatchewan Wheat Pool decided to sell public shares, seeking outside capital for investments they said were needed to keep them competitive into the next century.
Now, it is Alberta Pool’s turn to grapple with the same issue.
The pool says it needs nearly $200 million to invest in capital projects and diversification efforts over the next 10 years.
When the co-operative’s 72 delegates gather for their annual meeting in Calgary in late November, they will be presented with a report analyzing the company’s future capital requirements and what can be done to meet them.
The report, prepared for the board of directors by an outside consulting firm, is not expected to recommend any single course of action. It will present a number of options for delegates and members to discuss and debate during the winter.
The final decision likely will be made at the delegates’ semi-annual meeting next spring, although there is some support for giving members a direct vote.
“If it comes down to something that fundamentally restructures the organization, then people may be inclined to ask the membership what to do,” said delegate Peter Galloway of Fort Saskatchewan, near Edmonton.
Pool president Alex Graham declined to be interviewed for this story, saying through a spokesperson it was “premature” to discuss the issue before the annual meeting. Chief executive officer Garry Dewar was also unavailable for an interview.
But delegates and directors who were willing to talk said their company is facing the same financial pressures that prompted UGG and Sask Pool to go public.
“It’s felt that we have a number of expansion plans we’d like to go ahead with,” said delegate Kevin Loveseth of Viking. “Whether we borrow that money long-term or go public to raise the funds is the million dollar question.”
Opinions differ
While all the Alberta Pool delegates and directors interviewed agreed the company must look for innovative ways to raise capital, there are differences of opinion about just how urgent the situation is.
Bill Fedeyko of High Level said the cash squeeze facing Alberta Pool may be even more serious than at Sask Pool.
Earnings from operations are not high enough to finance the upgrading and modernizing of its grain collection system and investment in other ventures, he said. “It’s not an argument, it’s a fact. The bucks are not there.”
The unpredictability of earnings was driven home to Alberta Pool in 1992-93, when a small, poor-quality crop and slow grain movement combined to produce a net earning of just $515,000.
“There hasn’t been a lot of cash earned the last few years,” said delegate Marvin Fischer of Hilda. “There are capital projects that need funding and there don’t seem to be the monies to do it.”
But director Allen Oberg of Forestburg counsels caution. He does not like the sense of urgency that seems to be taking hold and disputes any suggestion the pool will go out of business if it doesn’t make changes.
“I don’t want delegates or anybody to be rushed into making a bad decision just because they feel it’s now or never,” he said.
During the five years ending July 31, 1993, Alberta Pool recorded an average net earning of $7.9 million, ranging from the low of $515,000 to a high of $13.2 million in 1988-89.
In its 1993 annual report, the pool identified nearly $200 million in capital requirements:
- $140 million for investment in new and upgraded country grain handling facilities over the next 10 years.
- $42 million over the next 10 to 15 years for investment in diversification projects and value-added industries.
- $10 to $12 million over the next two or three years to upgrade existing facilities and to build new warehouses.
Even if the pool does decide to seek out new sources of capital funding, it is still far from certain just how that will be done.
Some delegates said they favor the Sask Pool model of converting all member equity to shares and listing all those shares for sale on the stock exchange. Others would prefer a less sweeping reorganization of their 71-year-old co-operative.
Preserve integrity
That could mean spinning off some of the company’s assets, like export terminals, into a separate company and selling shares in that new business. Such an approach would preserve the co-operative integrity of the “mother company,” said Galloway.
He added that Alberta Pool approached Sask Pool several times during the past year to explore the idea of selling shares in some jointly-held assets, but Sask Pool preferred to go it alone.
Another approach might be to limit publicly-traded shares to a minority of the pool’s total equity or requiring that a certain percentage of shares be held by members.
Who is in control?
That idea appeals to Oberg, who said the issue of who controls the company is crucial.
“I would like a system where we would always maintain a percentage of equity or reserves in the company that are held by members,” he said. “I think you need that, or control will just gradually slip away.”
University of Alberta economist Glen Mumey said any time a company takes in outside money, there is loss of control. Grain handling co-ops are in a particularly difficult position.
They end up with two classes of equity holders with different goals, he said.
The farmer members want low service charges to help their farm profit margins. The non-farmer investor wants high profit margins in areas like grain handling and fertilizer sales because that is the return on their investment.
“It’s a fundamental conflict and I don’t know how it gets resolved,” said Mumey.
Sask Pool tackled the problem by selling only non-voting shares to the public. Voting shares will be restricted to farmer-members who elect delegates.
Some Alberta Pool delegates see problems with that approach.
They doubt investors would buy non-voting shares. They fear even if formal control remains with farmer-members, the board and management might think more about share price than farmer service.
