The sale of the CWB to G3 Global Grain Group will help deliver on some of the promises contained in the Conservative government’s Marketing Freedom agenda.
However, it is still not clear if the company, in the long term, will bring a new business attitude to the Canadian grain handling sector.
Eliminating the Canadian Wheat Board monopoly was supposed to cause grain prices to “respond better to market demand, giving farmers the opportunity to achieve the premium prices they deserve,” according to a government backgrounder on the legislation.
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We are still in the transitional phase from monopoly to open market.
The line elevator companies, the new CWB and other companies are competing for farmers’ grain, and it is easier to sell directly to American buyers, but the wide basis levels farmers endured in the last two years indicate that the level of competition in the market is still inadequate.
The entry of G3 Global Grain Group, a joint venture of Bunge and SALIC Canada, a wholly owned subsidiary of Saudi Agricultural and Livestock Investment Co., tightly links the CWB to an international grain company with deep pockets.
Bunge, which started in 1818, operates around the world as a grain, oilseed, sugar and fertilizer trader, handler and processor. It had sales of almost $58 billion last year and a net profit of almost $4 billion.
SALIC’s involvement provides CWB with access to capital and the Saudi Arabian market. The oil-rich desert kingdom imports most of its food. This could give CWB a competitive edge selling grain to Saudi Arabia and the rapidly growing population of the Gulf region.
The mere association with Bunge and SALIC should make the CWB more competitive.
However, they have a plan of building a coast-to-coast grain handling network.
This deal gives CWB size, access to capital and international reach, giving it the potential to become a more equal competitor to the likes of Richardson, Viterra and Cargill. Increased competition should narrow basis levels.
CWB retains its Winnipeg head office, its price pooling offerings and a system that allows farmers to build equity in the company by doing business with it. If it is profitable and produces dividends, then farmer equity holders will get money. If the company becomes more profitable, presumably the value of the farmers’ equity will become more valuable.
However, this deal also holds disappointments.
The farmer trust will hold 49.9 percent of the company, but it gets only one seat on the board. It seems little more than window dressing.
CWB will operate as a private company, so there will likely be little publicly available information on its finances except obliquely through Bunge’s financial reports.
Also, G3 can after seven years buy out farmer equity held in the trust at market value, raising the possibility of no direct farmer ownership or influence in the future.
Agriculture minister Gerry Ritz can say he didn’t kill the CWB. The name should carry on for a long time, although the company is nothing like the old monopoly and those who treasured the single desk feel cheated.
Taxpayers might too. Ottawa provided hundreds of millions of dollars to CWB during the transition but gets nothing from the sale because G3’s $250 million commitment stays in the CWB.
History will judge Ritz’s labours. If the new CWB is a disruptive force rebalancing the market to farmers’ favor, he will lionized. If the company is just another “me too” player in a status quo market, his star will be tarnished.
