March 2012 Archives

Peace River region farmer Leo Meyer may be a lone voice in the agriculture wilderness, but he is urging Western Canadian farmers not to be complacent about plans by the Swiss-based Glencore International to take over Viterra.

Meyer has always been passionate about the agriculture industry. He is a farmer, sells and trucks grain across Western Canada and has been active in a number of industry association. He says he isn’t being a fear mongerer, but he doesn’t see the take-over of Canada’s largest grain company, by a multi-billion dollar global commodity trader as a good move for prairie farmers.

And he is particularly concerned that so far so much of the deal has been transacted with out farmer input, and very little opposition.

Meyer is urging producers to contact their member of parliament and various commodity and lobby organizations to have the take over bid reviewed carefully by the federal Industry Minister and The Competition Bureau to ensure the interests of Canadian farmers are properly served.

NOT THE PLAN

“This buy out is not what thousands of Canadian farm men and women worked for decades with their blood, sweat and tears, to see have happen to the grain industry,” he says.

Meyer is referring to the efforts of farm families over the past 100 years to build producer-run grain companies such as Alberta Wheat Pool, Saskatchewan Wheat Pool, Manitoba Wheat Pool and United Grain Growers. As the Canadian and world economies changed that led to different mergers among those grain companies, which eventually resulted in the creation in 2007 of Viterra as the largest single grain handling company in Canada.

While the Viterra take over would give Glencore control over much of the Canadian grain market, he also sees the deal as being the foot in the door — the thin edge of the wedge — in limiting farmer choice of crop inputs, including options of from who and where they can buy seed. 

He says although Viterra was a large company in itself, operating in a global marketplace, the take over by Glencore would put control of the Canadian grain industry in a much bigger pair of hands. Glencore is a commodity trader dealing in a wide range of agriculture commodities such as wheat, corn, barley, oil seeds and sugars. It also is big in the oil, gas and coal industries as well as metals and minerals. Annual revenues are between $150 and $200 billion, it has about $80 billion in assets and 60,000 employees worldwide.

“What this take over means is that Glencore has just about every corner of the world covered — particularly on the cereal side” says Meyer. “They control the Black Sea area and Russia, and they have a large stake in Australia. What they were missing was a foothold in North America and with this they will have it. And it isn’t just an ordinary foothold, it is a foothold in the top quality cereal region in the world. It is significant.” 

CONTROL MARKET

Meyer says the combination of big business with very deep political connections increases the risk of a commodity, such as grain, being used as a bargaining chip in all kinds of political agendas. "You don't agree with our politics? Well, perhaps I'll make a phone call and shut off your food supply"...that kind of scenario.  

Meyer says total wheat production in the world is between 685 and 700 million tonnes. Out of that about 115 million tonnes is traded annually. What’s up for grabs is control of that trading portion of the grain market.  While Meyer has long been a pro-choice supporter for Western Canadian grain farmers, he says with the CWB monopoly gone, it opened the doors for Glencore to make its move. Again he makes this point, “this isn’t what pioneering founders of Canadian grain companies had in mind.”

While the initial offer was for Glencore to take over all of Viterra’s operations, that plan has since been modified, bringing both Richardson International (Pioneer) and Agrium into the picture. Viterra currently has about 45 percent of Canada’s grain handling capacity while Richardson has 25 per cent. The latest take over proposal would see part of the Viterra grain handling facilities sold to Richardson increasing it’s stake to about 33 per cent, and leaving Glencore with 33 per cent. Much of Viterra’s ag retail/crop input business would be sold to Agrium.

“The only reason that Richardson and Agrium were brought into the picture was to try and calm the waters,” says Meyer. He says Glencore/Viterra knew it would be tough sell if Glencore took over the entire Viterra operation.

There has been little opposition to the proposed take over. Prime Minister Stephen Harper and federal Agriculture Minister Gerry Ritz have both said it is “a good thing”. And even producer commodity organizations such as the Grain Growers of Canada and the Western Canadian Wheat Growers have given qualified support to the proposal. They support the deal as it concerns grain handling facilities, but are concerned about Agrium getting dominate control of the input and retail side of the business.

RETAIL CONCERNS

Stephen Vandervalk, president of the Grain Growers of Canada and a Fort Macleod, Alta. area farmer says he isn’t comfortable with Agrium having control over 30 per cent or more of the farm input business.

“They are a well respected company,” he says. “But we have a huge concern about what this means. This proposal will not only give them a huge market share in some areas, but Agrium also supplies some products to their competitors – to other retailers. In my area for example, it would mean we go from having three retail options down to two, so that could have a huge affect on farmers. I have talked to Agrium and they don’t see the concern, but as an organization it is definitely a concern we will be pushing forward with the Competition Bureau.”

Meyer says with big players such as Glencore and Agrium getting such large control of the Canadian grain handling and ag retail business, respectively, he fears it is just a matter of time before farmers will have little choice about even what grains they can grow or seed they can buy. “It could be like the canola seed business,” says Meyer. “We will have few options, and if we want to farm we will have to buy this product at this price. We will dance to what ever tune they want to play.

“I see it becoming impossible for farmers to have truly independent farming operations. We will have to be “in somebody’s system” or we won’t be able to farm.”

He urges producers to pay attention to the situation and to express their views. 

Lee Hart is a field editor for Grainews in Calgary, Contact him at 403-592-1964 or by email at lee@fbcpublishing.com

As a farm boy it still doesn’t take much to impress me. I grew up near an eastern Ontario community of about 1,200 people — Chesterville. And when I moved West for a job in the early 70s, I landed in Cranbrook, B.C. which at the time had a population of 7,000 or 8,000 people and I wondered how I would ever navigate around this big “city”.

Today, I live in Calgary — a city of 1 million people, and in the city I try to avoid driving much further than 10 minutes from my home. That’s about the same amount of time it took us to get from the family farm to Fulton’s Grocery Store, or the Co-op feed store, or the Beamish (dry goods) Store in Chesterville when I was a kid…so not much has changed. Those three stores had pretty well everything a person needed in life.

The other day I was commenting about big business taking over big business and I came across a few numbers, which impressed me.

In NW Calgary I am about 10 to 15 minutes away from two busy Walmart stores, including a Walmart Supercentre, four Safeway stores, a Costco, a Superstore (Loblaws) and four McDonald’s Restaurants. There is no shortage of places to spend my food dollar and every other dollar I have.

Certainly in the last few years, I have heard many speakers talk about how it’s the consumer and the retailer who call the shots in agriculture these days. Well, forget the consumer, they’ll buy anything if the price is right, but here are a few facts I discovered about the size of the food business (and I didn't make these numbers up). 

Walmart – founded in 1962, owned by the Walton family. The company has nearly 9,000 stores around the world, operates in 15 countries, has 55 different store or company names. It has an annual revue of $421 billion and get this…Walmart has 2.1 million employees. I didn’t know that.

Costco — another big player in the food industry. Costco was founded in 1983 in Kirkland, Washington (hence the Kirkland brand name on a lot of their products). Costco has 592 stores in the U.S., Canada, UK, Japan, Mexico, Australia, Taiwan, Korea and Puerto Rico. Costco has revenue of $88 billion and about 150,000 employees.

Loblaws – good old Canadian company founded in 1919 — we all know and love Galen Weston who does a great job of promoting President’s Choice foods. Loblaws has more than 1,000 corporate and franchise supermarkets across Canada. Serves 14 million shoppers weekly, The company almost went broke in the 1970s, but then reinvented itself and now has revenues of about $35 billion annually. It has 136,000 employees.

Safeway – established in Idaho in 1915. It has 1,725 stores in North America. Has revenue of $41 billion and employs about 180,000 people.

McDonalds – founded in 1940 by Richard and Maurice McDonald, San Bernardino, California. The company has 33,000 restaurants world wide, and 400,000 employees — (although one information source says it is closer to 1.9 million employees if you include all franchises). McDonald’s has total revenues of about $24 billion annually.

Cargill – established in 1865 in Minnesota, still owned by the Cargill family. It isn’t in the food retail business, but is big in many aspects of the agriculture industry. It operates in 66 countries, has annual revenues of about $120 billion and employs 142,000 people.

Grainews – owned by Glacier Media, based in Vancouver, established in 1988 (Glacier not Grainews). The company owns seven daily newspapers, more than 60 weekly newspapers across Western Canada and a large family of trade publications including Grainews. Total company revenue is about $250 million annually and it has 2,000 employees including one very, very hard working field editor in Alberta.

So there you have a quick snapshot of the corporate leaders in food retail and I had to throw in the ag information industry, too.

So which group of employees is really bringing home the bacon for their employers? Cargill leads this pack. Each Cargill employee generates about $845,000 in revenue for the company, Costco workers are in second place at $586,000 worth of revenue per employee. The rest of the companies are all in the $150,000 to $250,000 revenue range per employee, except for McDonalds which trailed with only $60,000 worth of revenue generated by each employee.

The dedicated Grainews/Glacier employees aren’t generating as much revenue per person for their employer as some companies, but we are loveable, and let’s face it…that is priceless.

(The other thing I noted in my extensive research — the Walmart workforce, (2.1 million), is just slightly smaller than the Chinese army (2.3 million). However, if Walmart and the total McDonald’s franchise workforce formed an alliance and were armed and mobilized, it would be larger than the U.S. military which has the largest single workforce in the world of 3.2 million people. Based on my figures Walmart and McDonalds could overtake the world. And Grainews will be there to provide coverage.) 

Lee Hart is a field editor for Grainews in Calgary, Contact him at 403-592-1964 or by email at lee@fbcpublishing.com

A reader, not too long ago, accused me of having no economics or business sense, to which I took great exception because it was true.

So as I comment here today about mergers and acquisitions just keep in mind I know nothing about anything.

Maybe these questions have popped up for centuries, but as I read this week about plans by Glencore, the world’s largest publicly traded commodity supplier to buy Viterra (and now Richardson International and Agrium have got into the deal), the questions that come to mind are “when is enough, enough?” “When are you big enough?” “When does the bubble burst?”

I know there are economies of scale — if you are setting up a pen to raise five chickens, you might as well add another couple feet and raise 10 — the cost may be 10 per cent more, but not double and you have twice as many birds. I get that. 

But, I look at these companies — and it’s not just agriculture it is every corporate sector – and the mindset is to buy more, get bigger. But when is enough, enough? Glencore is the biggest commodity trader already and it buys the largest grain company in Canada. So what will that mean? I guess it becomes a good deal for Glencore and likely Viterra shareholders. But, does it do anything for farmers or a milling company that uses Canadian wheat to make bread, and really does it do anything for society in general?

Oh, geez, I am turning Liberal or worst yet, a tree hugging socialist — an orange NDPer? If this persists someone shoot me.

Maybe there are all kinds of economic theories that support why bigger is better — and the economies of scale is a good one — but, I suspect there comes a point in business where it really has nothing or little to do with strengthening the company and is more about egos and bragging rights — they do it because they can — in this case little Bobby Glencore now has more marbles than anyone else.

The other observation, in my economic ignorance, is eventually as these corporations get bigger, they also begin to fall apart. It may not always happen, but often enough.

I like to see smaller, independent businesses or underdogs succeed, but something pricks my senses when big business cuts an even-wider swath. I wouldn’t say it is fun to watch giants fall, but I have to confess it does stir some morbid satisfaction. Here I am commenting about cold hearted, dollar-driven economics, and truth is I may be no more compassionate myself.

Lee Hart is a field editor for Grainews in Calgary, Contact him at 403-592-1964 or by email at lee@fbcpublishing.com