A plan by two major grain handling companies to jointly manage their Vancouver terminals is being scrutinized by the federal government’s competition bureau.
Saskatchewan Wheat Pool and James Richardson International Ltd. have agreed to create a new management company to operate their two terminals, which sit adjacent to each other on the north shore of Vancouver’s Burrard Inlet.
“We are aware of the proposal and we will review it,” said competition bureau spokesperson Tim Weil.
The bureau will evaluate the proposed joint venture to determine whether it will result in a substantial lessening or prevention of competition in the grain handling industry.
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The agency could disallow the arrangement or order the two parties to amend the plan to deal with concerns.
Officials with both companies say they expect to get a green light from the competition bureau.
“We’re certainly confident it will be approved,” said SWP chief executive officer Mayo Schmidt. “We believe the benefits will outweigh any minor issues that might be raised.”
Jean-Marc Ruest, assistant vice-president of legal affairs for JRI, said the company doesn’t believe there is any significant competition issue in the proposed venture.
“The fact remains there is excess capacity at the port and as long as that is the case there should continue to be competition,” he said.
The companies say the joint venture, which is scheduled to take effect in June, will result in more efficient use of rail cars and vessels, more efficient use of storage space, improved throughput and lower costs.
Rail cars arriving on the north shore will be directed to the terminal best able to handle the grain, reducing delays and possible demurrage. Stocks will be more easily managed to ensure grain is available to fill arriving vessels promptly, again reducing costs.
The companies say the new arrangement will also make it easier to provide services to customers in areas such as identity preservation, product traceability, food safety, special crop handling and blending.
Each terminal will continue to be owned by its respective parent company, while earnings will be shared on a basis proportional to the amount of grain handled at each facility. No money will change hands as part of the joint venture agreement.
Schmidt said both companies expect to see an improved bottom line as a result of the joint venture.
“Certainly the expectation is this will benefit both the pool and JRI financially and therefore increase our ability to generate and originate grain and improve logistics in the country,” he said, adding the more efficiently the two companies can move product through their terminals, the more competitive they can be buying grain from farmers.
The pool’s terminal has a licensed storage capacity of 237,240 tonnes, while the JRI facility has a capacity of 108,000 tonnes.
The combined capacity of 345,240 tonnes represents about 36 percent of total storage capacity at the port. Agricore United owns 46 percent of capacity and Cargill about 15 percent. However, AU is under a competition bureau order to sell one of its two wholly-owned terminals to a company not currently represented in Vancouver.
Weil said the competition bureau will look at four specific issues in evaluating the proposal: its effect on market share, concentration of ownership, remaining competitors and the ease of entry for new competitors into the market.
The grain port’s biggest user says it’s watching the situation, but it’s too soon to pass judgment.
Gord Gilmour of the Canadian Wheat Board said the proposed deal could result in more efficient rail and vessel logistics, but the big question is the economic impact on producers.
“It’s certainly something that will affect farmers and as such we’re having a pretty close look at it,” he said. “But it’s premature to say we have an issue with it.”
Terry Pugh of the National Farmers Union said even if the two companies can improve their operating efficiency and their bottom lines through joint management, there’s no reason to believe those savings will be passed back to farmers.
“The big issue here is that in the long term this is another step in the direction towards a continental, U.S. dominated grain market and we’re opposed to that direction,” he said.
Both companies are small players in the global grain market and are likely to be swallowed up by a large foreign multinational eventually anyway, he said.
Ben Chim, grain industry analyst for Dominion Bond Rating Service, said the proposal makes financial sense for both companies and should help make the industry as a whole more efficient.
“If the grain companies aren’t reducing overcapacity in the system, at least they’re doing something to improve the economics of their terminals, which is good,” he said.
