BY MILTON BOYD, PhD
GRAIN
CO-OPS
Nosmall task
LARGE GRAIN CO-OPERATIVES IN
Western Canada began around the early
1900s, but had faded out by the early
2000s—the grain industry had become
more competitive and co-operatives lacked
the efficiency needed to compete with
private firms. While nostalgics might wish
for a return to the days of the large grain
co-operatives, attempting to form one to-
day would likely be very challenging. Four
challenges that could make it an uphill
battle to form a large grain co-operative
include finding and entering markets that
lack competition and are underserved,
obtaining assets that are sufficiently low
cost, having strong governance and man-
agement, and having economies of size
and low costs.
Finding and entering markets:
For a
grain co-operative to have the best chance
to succeed, there needs to be an under-
served market and lack of competition—
otherwise there may be a limited need for
the co-operative and it could struggle to
compete. Currently, the grain industry is
likely well served and competitive, mak-
ing it difficult to form a large co-operative.
In the early 1900s, the three former
FORMINGA LARGEGRAINCO-OPERATIVE INWESTERNCANADA
COULDBE ACHALLENGE
Prairie grain pool co-operatives and Unit-
ed Grain Growers were formed because
of lack of competition and poorly served
markets. However, by the early 2000s, the
grain industry had become quite compet-
itive, with well-run and efficient private
firms. The co-operatives faced more
competition, were less efficient and were
unable to survive. The grain industry had
become more competitive due to better
regulation, but also due to farmers having
larger highway trucks to haul grain fur-
ther and obtain better prices. Farmers also
began to use cellphones and the Internet
to find better prices, and became more
educated and business-savvy—all of which
made the industry more competitive.
However, going forward, farmers will
need to press government and regulators
to ensure there is competition in the grain
industry. If any large grain assets come up
for sale, farmers should push regulators
to ensure they be purchased by new firms
entering the industry to preserve or add
competition. As well, farmers need to con-
tinue to push for fair rail transportation
costs and service for grain.
Obtaining low-cost assets:
Unless a
large grain co-operative can obtain assets
at low cost, it could be difficult for it to
compete. There is talk that some Viterra
assets may be put up for sale, and the last
time its ownership changed hands it sold
for about $6 billon. At this price, if 20,000
farmers (for example) were to buy Viterra
to form a co-operative, it would cost about
$300,000 each—likely too costly. Farmers
may prefer to invest in farmland. But if
lower-cost grain assets became available
in the future, then this might be appeal-
ing. However, many farmers lost their
investment in the Saskatchewan Wheat
Pool with its near bankruptcy in 2003, so
they may be wary of investing again in a
large grain co-operative.
Strong governance and manage-
ment:
Grain co-operatives need strong
governance and management, but a
number have had challenges accomplish-
ing this under a co-operative structure.
Boards of directors need members with
expertise in management, grain han-
dling, finance, investment, accounting,
law, risk management and transpor-
tation. The Saskatchewan Wheat Pool
lacked this expertise, leading it to take
on excessive debt and make poor man-
agement and investment decisions.
Economies of size and efficiency:
A
co-operative needs sufficient economies
of size, and must be efficient and large
enough to keep costs low. Also, a large
grain co-operative would likely need to
have export port facilities to compete. The
Inland Terminal Association of Canada, a
group of smaller farm-held grain handlers,
creates important competition for under-
served markets. However, the association
has shrunk from 11 members down to five
in recent years. One reason may be that
some of the firms were too small to com-
pete with the size and expertise of larger
private firms.
Grain handling hasn’t always been easy
for U.S. co-operatives either. Farmland
Industries was the largest co-operative in
the United States when it filed for bank-
ruptcy in 2002. In addition, CHS, now the
largest U.S. co-operative, has seen its rev-
enues decline from $42.7 billion in fiscal
year 2014 to $34.6 billion in 2015.
In the end, while the possibility of a
new western Canadian grain co-operative
is not out of the question, these aforemen-
tioned factors make it a long shot.
Milton Boyd, PhD, is a professor in the
department of agribusiness and agricultural
economics, and an adjunct professor in the
Asper School of Business, at the University
of Manitoba.
Spring
2016
Grains
West
42
