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1981 Canadian grain: farm exports are key to economy J. W. Madill

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Recommended Citation Tempo, Vol. 27, no. 1 (1981), p. 33-37

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by J.W. MADILL/General Manager Pool

s Canada's grain industry enters tious by any of the other major grain producing nations, which include the A U.S.S.R., China, and India, as well as its fourth quarter century of the U.S. But for Canada, grain is i operation, it has three primary basic; Canada is more dependent on objectives: the export of grain than is any other • To increase its total grain exports nation-it's the fifth largest grain pro- to 30 million metric tons annually by ducer, but the second largest 1985. exporter. Gaining a firmer hold on its • To ensure its position in the export position, behind that of the world grain marketplace by selling U.S., is seen by Canada not only as only a quality product. possible but also essential to its eco- • To balance the use of grain so nomic well being-especially in the that its domestic users flourish at the west and in Ontario, where the same time as its all-essential export nation's grain production is centered. market is being supplied. The economic activity generated Such objectives probably would be viewed as being impossibly ambi- 33 CANADIAN GRAIN

by the Canadian grain industry Has grain that is traded in the world. except for 1978-1979, Canada has been calculated at roughly two-and- Based on the pattern of worldwide been maintaining 10 to 11 percent of a-half times the value of actual grain grain consumption during the past the world trade in wheat and other safes, which are estimated to be decade, projections for 1985—the tar- coarse grains. The U.S., which is the between $3 billion and S4 billion for get date set by Canada for fulfilling major grain exporting nation, sales alone, its number one objective—suggest accounts for approximately 50 to 60 and probably double that if all grain that the world demand for wheat and percent of the world's total. sales are included. Thus, these three coarse grain will be about 219 million Though past statistics would sug- objectives are endorsed by the metric tons, If Canada maintains its gest that Canada will continue to 150,000 grain producers in Western current market share of 10.5 percent, increase the production and exporta- Canada, the Canadian government, however, its level of grain exports at tion of grain, does it have the poten- grain handlers, transporters, proc- that time would be only about 23 tial to increase such exports by as essors, and others, despite some fric- million metric tons. In order to reach much as 30 million metric tons? Sev- tion and much disagreement about its target of 30 million metric tons by eral studies have been completed the procedures for their imple- 1985, therefore, Canada will have to which take into account the mentation. increase its market share by increas- increased acreage, increased yields, If Canada can meet its first objec- ing grain exports 38 percent. new varieties, summerfallow land, tive of increasing its grain produc- and alternate crops that would be tion, and thus its exports, can it be Has Canada the Potential? required in order to achieve that assured that the worldwide demand Canada has attained the position of level. If one uses historical data to for such production will continue? being a major world grain producer project the 1985 production, esti- Past statistics and (Future projections and exporter because of its geogra- mates come up short of an export- suggest that it can. phy, the unique structure of its grain able surplus of 30 million metric tons. During the seven years ending in industry, and the skill and persever- Thus, to meet 1985 objectives, ade- 1980, the worldwide production of ance of its farmers. quate incentives must be offered. grain (which includes wheat, rice, Most of Canada's grain is produced Incentives that would stimulate corn, barley, rye, oats, sorghum, and in a fairly narrow belt of land stretch- grain production would appear to be millet) increased at an average ing along the southern border of its in the areas of price, marketing, and annual rate of 1.73 percent, while the western provinces. Covering 197,000 transportation, if incentives were worldwide consumption increased by square miles, it is an area blessed present in those areas, extra produc- 2.25 percent. This difference was due, with rich soil and with a climate that tion would come from: new land and in part, to a world population produces a high quality grain Can- summerfallow land being put into increase of 1.95 percent; and the ada's hard red spring wheat, for production; land being turned from demand was satisfied by carryover example, has long been the standard the production of alternate crops to stocks from crop years in which the for bread , and, recently, new the production of grain; new varieties production of grain outweighed the wheat grades with greater protein of grain; and further use of fertilizers, demand. content have been introduced. chemicals, and irrigation. An even greater difference is evi- Though Canada produces 40 mil- dent between the rate of increase in lion metric tons of grain annually-or The Industry's Structure grain production and that of world about 12 percent of U.S. production- Also a factor in Canada's achieving its trade, the latter of which has grown it has been able to compete with the objectives is the structure of its grain at an average annual rate of 5.6 per- U.S. in world markets. In 1979-1980, industry, which combines features of cent since the 1973-1974 crop year. for example, it exported a record 21.7 both a central agency system and The primary reason for this disparity million metric tons. (Such exports commercial enterprise. The structure is that three of the five major grain account for 70 to 80 percent of its is that of a complex mixture of producing nations—the U.S.S.R.. wheat production, as compared to 50 players, each of whom is involved in China, and India—consume more percent for the U.S.) Total exports the movement of products from a grain than they produce. They, have been increasing at-an average widely scattered geographic area, together with Europe, import approx- annual rate of 7.2 percent per year through a complex rail network, to a imately 60 percent of all the since the 1973-1974 crop year; and, limited number of outlets. That

34 aspect alone demands a high level of is a guaranteed floor price estab- tives, private companies, or the fed- cooperation and coordination. But lished by the government However, eral government. These terminals are when the customer, weather, and if funds remain at the end of the crop responsible for receiving, cleaning, government regulatory bodies are year after the grain is sold, and after storing, and weighing grain, and then added, cooperation and coordination the board pays its expenses, the loading it aboard vessels. become critical. farmer will receive a final payment. Farmer-owned cooperatives have By far, the greatest impetus for the Other governmental departments played a major role in" the Canadian development of a grain industry in also are involved in grain marketing, grain industry ever since the railways Canada has come from the federal the Department of Industry, Trade, first crossed the western prairies. The government, and it continues to play and Commerce works primarily on four major farmer-owned coopera- a vital role. At the turn of the century, export development through trade tives-the Alberta Wheat Pool, the the government provided the funds offices located around the world. The , Manitoba for rail construction, built terminal Grain Marketing Office administers a Pool Elevators, and United Grain elevators, and eventually became fund to assist private firms with mar- Growers—own about 77 percent of involved in regulating the industry, in ket development for grains and oil- the primary elevators and handle the fall of 1979, it appointed a grain seeds. And the Canadian Interna- about 75 percent of the total grain transport coordinator, who was given tional Grains Institute, funded by the entering the elevator system. The the authority to make whatever Department of Trade, Industry, and unique role of cooperatives is to pro- adjustments that might be necessary Commerce, tries to develop and vide service to the farmers who are in Canada's grain system to accom- maintain new markets. the owners of the organizations. Any plish the goal of a 50 percent increase Most of the Canadian grain that is earnings by the organizations are in exports by 1985. not traded in the export market by returned in the form of patronage The federal agency created to regu- the Canadian Wheat Board is sold on cash dividends or increased reserves late the Canadian grain industry is the domestic market through the to the farmers who delivered grain. the Canadian Grain Commission, a Winnipeg Commodity Exchange, a Responsible for the movement of branch of the Department of Agricul- nonprofit organization which grain to a port terminal or to a ture. it is the commission's responsi- operates Canada's cash and futures domestic user are several railway bility to establish grain grades and grain markets. The exchange plays a companies. Canadian Pacific Rail, a standards, license elevators and over- central role in facilitating open-mar- shareholder-owned company, has tra- see their operation, ensure accurate ket grain transactions. ditionally moved just over 50 percent weights of grain shipments, evaluate Also on the nongovernment side of of the grain that the nation produces. the quality of crops and new grain grain marketing are the grain compa- Canadian National Railways, which is varieties, and set the maximum tariffs nies, which are owned either pri- government owned, hauls slightly that are chargeable for services ren- vately or by farmer-owned coopera- less, with the slack being picked up dered within the industry. tives Their role in the grain industry by a few small regional railroads. Another federal agency that has is to collect the grain in the country control over grain is the Canadian and to ship it to port terminals or to Problems to Overcome Wheat Board, which the government domestic users. Production potential, a well-struc- established in the mid 1930's to sell Of the eight major tured system, and incentives to the wheat, oats, and barley on the export companies in Canada, four are Industry will not be enough, however, market, and also domestically if it is owned by grain companies which are if Canada is to meet its 1985 produc- used for human consumption. The farmer cooperatives, and the tion and export goal. Canada also wheat board also offers farmers an remainder by grain companies which will have to struggle to overcome five alternate market for the sale of their are owned privately. There are major and persistent problems, the domestic feed grains. approximately 3,500 primary elevators dominance of which has varied with Answerable to parliament through in western Canada, and they have a the times: its minister, the Canadian Wheal total storage capacity of over nine > Transportation. Board sells grain for farmers at cost, million metric tons. • Farm economics. paying them an initial price through Grain terminals, of which there are • Labour interruptions. its elevator operators. The price paid 24, are owned by farmer coopera- • Uncertain petroleum supplies.

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Transportation. At present, it appears tion has increased these costs made to upgrade the country's eleva- that problems in the transportation considerably tor system. Approximately $250 mil- system may be one of the factors thai Improvements to the grain market- lion has been spent by the industry will prevent Canada from meeting its ing system have concerned not only during the past five years, and it is export objectives. Such problems are railroads. In 1978, both the Alberta expected that this amount will dou- endemic in a northern country which and Saskatchewan wheat pools ble over the next five to 10 years. All must move its goods vast distances added 78,000 and 84,000 metric tons of the recent and anticipated expen- across mountain ranges, lakes, and of storage capacity, respectively, to ditures within the grain industry total rugged terrain. In an effort to solve its grain-related transportation prob- lems, Canada has initiated a number of improvements to increase the car- "With stocks generally depleted, the danger looms that rying capacity and efficiency of its disappointing harvests worldwide again next year railroads. The sight of hopper-bottomed would lead to widely fluctuating prices and perhaps grain cars is very common across serious food shortages in some areas of the world. The Canada's prairies today because of fact that we face such a prospect just two years after the 14,400 such cars that have been put into the railway system since accumulating our largest global stocks of grains in over 1972, at a cost of approximately a decade underscores the continued fragility of the $55,000 per car The funds for these world food situation—that the balance between too cars have been provided by the fed- eral and provincial governments, and much and too little food can tilt easily, and rapidly, from by the Canadian Wheat Board, In one direction to the other," addition, over 8,400 older cars will be rehabilitated for $355 million. J, DAWSON AHALT/chairman USDA World Food and Agricultural Outlook and Situation Board Other efforts have been or will be made to speed up the gathering and distribution of grain. Old and ineffi- cient branch lines have been closed, their terminal facilities on the west some $2.5 billion. Farmers them- and a program for rehabilitating rail coast. The purpose of this was to add selves, through investments in land, lines has been started by the govern- surge capacity to the system and to machinery, and other equipment, ment that will cost over $700 million. increase the system's total through- probably have invested an equal One project, for example, the build- put capacity. Also adding to the sys- amount. ing of a tunnel near Roger Pass, B.C., tem's west coast grain storage capac- will help increase by 45 percent the ity is Pioneer Grain, which opened a Farm economics. The most important shipping capacity of the Canadian new terminal in Vancouver in 1979, element of the will always Pacific through the mountains. As a bringing the grain storage capability be the farmers who produce the result, the time required for a car to on the west coast to close to one mil- grain. It is they around which the deliver grain to port and then return lion metric tons. In addition, six of whole system revolves. Farmers, how- for another load has been decreasing. Canada's grain handling companies ever, always have been faced with an Who pays the freight for transport- have joined together to build a uncertain future caused by fluctuat- ing grain? A commission appointed 220,000-metric-ton terminal elevator ing grain prices, unpredictable by the government reported in 1974 at Prince Rupert, B.C. Other additions weather, uncertain markets, and, that of the $234 million it cost to and improvements to terminals have scariest of all, inflation, which has move grain that year, the producers been made in Thunder Bay, Ont. and pushed up the cost of doing business were paying $89.7 million, the gov- through the St. Lawrence Seaway. The on the farm. Only some of these fac- ernment $55.4 million, and the rail- total cost thus far of improvements to tors can be ameliorated by govern- ways were absorbing the balance of terminals is estimated at $400 million. ment stabilization programs and crop $89.4 million. Since that time, infla- Large investments also are being insurance.

36 Ten years of inflation has increased ing the same period, the number of Labour interruptions. Equally impor- the pressure on the economics of a family farms in Canada decreased by tant to the Canadian grain industry is farm operation. The cost of land, 18 percent, or 61,685 farms. the effect of labour interruptions dur- equipment, and other farm inputs It should be noted that most grain ing the shipment of grain to market. has increased dramatically. New companies and cooperatives were Strikes at elevators, on railways, and farmers with adequate capital can organized for grain handling only. at port terminals can cripple the sys- arrange financing, but they face Over the years, however, they have tem. The grain industry realizes that it heavy interest payments. shifted dramatically into complemen- can never be the master of its own The risk for farmers is even greater tary activities, thus expanding their house where labour is concerned. when one considers that grain prices revenue producing base and increas- Many integral labour groups have are more often a function of world ing their stability. Diversification also only marginal relations with grain, markets than they are of production has been a means of assuring the and their union contracts have no costs at home. Price decisions quite supply of essential products. grain signatories, yet a strike by such often seem to be made in Washing- The first and most logical area of groups can stop grain exports ton and in Brussels. Canadian grain expansion was agroproducts, includ- overnight. people learned long ago that it does ing such items as fertilizers, chemi- no good to cry foul when the indi- cals, seed, livestock supplies, grain Summary vidual Canadian farmer seems to be bins, and farm equipment. In 1978- There is a vital role for grain in the competing on the world market 1979, for example, the three prairie development of man's destiny. Even against the U.S. Treasury, or with the pools had combined agro sales of with phenomenal technological multifaceted power of the European over $200 million, and this is expect- advances and significant growth in Economic Community Canadian ed to be even higher in 1979-1980. other industries, agricultural produc- grain must go to export for the most In addition to selling fertilizer in tion will continue to be a determin- part. Yet, bargaining for price is not the country, the three prairie pools, ing factor in the economic well-being possible for the Canadian farmer, or together with Federated Cooperatives of Canada and other Western for his organization, usually. The suc- Limited, own Western Cooperative nations. Grain has been traded cessful farmer has been one who has Fertilizers Limited. Western, in turn, around the world for centuries and adapted to changing circumstances, owns and operates two fertilizer has reached a volume of over 180 most often by changing his produc- manufacturing plants-one in Alberta million metric tons each tion patterns. produces more than 300,000 metric- year. A few examples of how the costs tons annually—a phosphate mining The Canadian grain system itself to the Canadian farmer have risen operation in Idaho, and two ammo- has been evolving for all of its 75 over the years can be illustrated if we nia plants. years, and in 1980 it faces some of the use 1971 as a base year for our index. most challenging adjustments in its The following items reflect price Unassured petroleum supplies. Like history. For despite its proven capa- levels as of the first quarter of 1980: inflation, the supply and cost of bility to fulfill its objectives, it is sub- ject to serious dislocation and crip- Percent increase petroleum offer persistent problems 1971-1980 over which Canada has little control pling ineffectiveness. Total farm inputs 757.6 at present. Such uncertainties are a It is to meet these challenges that Buildings 737.5 problem not only on the farm, but the Canadian grain industry has made Equipment 717.0 also between the farm and seaport. a heavy capital investment in recent Fertilizers 200.4 Though Canada is capable of energy years. The ultimate objective is to Labour 166.4 self-sufficiency, given wise manage- take advantage of the opportunity for Petroleum products. 113.6 ment, agriculture has not been given Canadian grain to serve world needs. a priority, the promise that farming To achieve this, the industry has set The investment required for a farm will be allocated the portable petro- new goals and found better cohesive- today is considerable One impact of leum fuel that it must have would ness than in the past. The system is th is is shown in the growth of cor- make investments in the grain very Canadian; it is copied from no porate farms, which increased by 65 industry more certain and planning one. In many ways, it reflects the percent between 1971 and 1976, Dur- more constructive. country in which it operates.

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