Bunge-Viterra merger has drastic implications for Canadian farmers
Just five companies known as the “ABCD group” control 90% of the world grain trade – and the B in this group is about to get much bigger.
B is for Bunge, which has announced it is in the process of buying Viterra. The other ABCD companies are Archer Daniels Midland, Cargill and Louis Dreyfus, which have dominated the grain trade for over a century, with China’s COFCO joining the list more recently. In Canada, grain elevation and handling has been dominated by five companies from the early 2000s until 2015: Cargill, Viterra, Richardson, Paterson and Parrish & Heimbecker. In 2015 after the Harper government gave Bunge and the Saudi Agricultural and Livestock Investment Company (SALIC) the former Canadian Wheat Board’s assets, the new company G3, moved into fifth spot. Viterra is currently a subsidiary of the Swiss conglomerate Glencore, is 40% owned the Canada Pension Fund Investment Board, and has its headquarters in Regina, Saskatchewan. Bunge’s acquisition of Viterra would leap-frog it into first place in Canada, and move it into third place after Cargill and COFCO on the world stage.
Viterra and G3 are dominant in wheat, while Bunge is dominant in canola, soy and corn. Combining them gives one company massive market power over the largest crops grown in and exported by Canada.
Until 1997, farmers owned close to 60 percent of Canada’s grain handling system through their co-operatives, and until 2012, controlled all exports of prairie wheat and barley through the farmer-directed Canadian Wheat Board. With farmers in charge, the profits from sales were returned to our rural communities and were engines of rural prosperity.
The recent public consultations on Canada’s competition policy highlighted its gaps and deficiencies. Then, the NFU called for changes that would ensure the Competition Bureau prevents harmful mergers, including by outlawing mergers that result in any company having more that 20% of market share in any sector, and prevents companies from using their dominance to exploit smaller players, among other recommendations.
The CR-4 ratio – four-firm concentration ratio – refers to the market share of the four largest firms in a market. If the CR-4 is less than 40%, a market sector is considered to be competitive; if CR-4 is above that, anti-competitive behaviour can be expected. Efficiency gains from economies of scale are not shared with customers, but captured as profits and used to further accelerate consolidation. If the Bunge-Viterra merger goes ahead, we are looking at a CR-4 ratio above 80% in Canada’s grain handling sector.
Today, farmers produce larger quantities and higher value products than ever, but now the vast majority of the wealth created on our farms is being captured by the ABCD traders and the highly concentrated input, farm machinery, financial, and food processing corporations. Their market power has so far not been restrained by Canada’s competition policy. Past mergers reviewed by the Competition Bureau have merely shifted assets between already powerful players. The growing gap between the value farmers create and the value we receive from the marketplace amounts to billions of dollars every year, accelerated by the gap in market power between farmers and the multinationals they must deal with.
In light of the Competition Bureau’s failure to prevent rapid consolidation of market power in the Canadian grain and oilseed sector, the National Farmers Union encourages the federal government to make a counter offer to purchase Viterra and return its assets to the control of Canadian farmers and workers through a new co-operative. This would be in the national interest, ensuring food security and maintaining the proceeds from grain and oilseed exports within the Canadian economy.
In 2018, the Government of Canada purchased the yet-to-be-built Trans Mountain Pipeline for $4.5 billion, and has invested approximately $21.5 billion in construction since then. The government has proven it has the financial capacity to make large investments. Unlike the pipeline, the Viterra network exists, and is operating. For a purchase price of just $US 8.2 billion ($CDN 10.9 billion) – a net annual cost of $CDN 3.94/acre of Canadian farmland over 30 years — Canada would own the world’s eighth-largest grain trading company. Instead of waiting for the Competition Bureau to hive off pieces of Viterra, G3 and Bunge to the other big players in the grain industry, the federal government could create true competition in the sector by ensuring the farmers who produce the commodities will own and control the assets they have created, and regain the market power needed to safeguard farmers’ interests in the international marketplace.
Backgrounder:
Canada Pension Plan Investment Board buys 40% of Glencore Agri
by Cathy Holtslander, NFU DIrector of Research and Policy, published June 2016 in NFU Newsletter – https://www.nfu.ca/publications/union-farmer-newsletter-june-2016/
On April 6, 2016 the Canada Pension Plan Investment Board (CPPIB) closed a deal to acquire a 40% stake in Glencore Agri, Glencore International’s agricultural division, for US $2.5 billion.
In 2012, the CCPIB set a goal to invest $5 billion in agriculture, focusing on buying farmland in Canada, USA, Australia, New Zealand and Brazil. CPPIB described such investment as “it has historically provided stable returns and will be a new source of diversification for the CPP Fund. CPPIB believes that rising populations and incomes in some developing economies will increase demand for agricultural products.” CPPIB now owns 120,000 acres in the USA and in 2014, purchased 115,000 acres in Saskatchewan. In 2015, the Saskatchewan government blocked the CCPIB’s plans for further purchases with amendments to the province’s Farmland Security Act. Buying the stake in Glencore Agri accelerates the CPPIB’s agriculture investment strategy by expanding its scope beyond land holdings alone. With the Glencore deal, CCPIB obtains equity in 667,000 acres of farmland in Australia, Kazakhstan, Ukraine and Argentina.
The Glencore-CPPIB transaction puts the Canadian public into a somewhat troubling relationship with farmers, as the success of our national pension fund will depend, to a certain extent, on Glencore maximizing its income at the expense of prairie farmers. The irony is sharpened, knowing that a major part of Glencore’s agricultural assets were created through the work of farmers to achieve more control over their own economic destiny by organizing co-operative grain marketing and handling companies so they would not be forced to deal with the private grain trade.
The Grain Growers Grain Company, established in Manitoba 110 years ago, was the first large farmer grain cooperative on the prairies. By 1912 it was handling 28 million bushels of grain, had 27,000 members and had a terminal at Thunder Bay (then Fort William). In 1911, the Saskatchewan Cooperative Elevator Company formed, and in 1913, the Alberta Cooperative Elevator Company was established. The Alberta organization joined with the Grain Growers Grain Company to form United Grain Growers, or UGG, in 1917. The Saskatchewan and Alberta Wheat Pools were each set up in 1923; the next year Manitoba Wheat Pool was established. In 1926 the members of the Saskatchewan Cooperative Elevator Company voted in favour of it being sold to the Pool. Farmers were successful in getting the single desk Canadian Wheat Board established in 1935. The prairie grain cooperatives operated as farmer-run businesses that included all members in their success for decades.
The 1989 Free Trade Agreement with the USA, NAFTA in 1994 and the end of the Crow’s Nest Pass freight rate benefit in 1995 brought about major changes in the prairie agricultural economy. Several co-ops scaled up through mergers and/or restructured in response to the emerging situation. In 1993, the UGG restructured to allow some of its shares to be sold on the stock market. In 1996 the Saskatchewan Wheat Pool restructured in a similar way, though only farmer-members were entitled to full voting rights. In 1998 the Alberta and Manitoba Pools joined to form Agricore Cooperative Limited. In 2001 UGG and Agricore merged to form Agricore United.
In a highly controversial decision, the Saskatchewan Wheat Pool restructured as a business corporation in 2005 and ceased being a cooperative. When it took over Agricore United in 2007 the merged company rebranded as Viterra. At that point, the combined assets of Agricore United and Sask Wheat Pool included seven export terminals, over half of the Thunder Bay and Vancouver port capacity and 58% of Western grain handling capacity. Virtually all of this value was created by farmers working together on the principle of “one member, one vote” to build market power and create wealth for mutual benefit. This success is a testament to the efficiency of co-operatives in finding the balance between collective and individual interests while assembling and deploying resources to create useful outcomes.
The Competition Bureau approved the Pool-Agricore merger on the condition that Viterra reduce its dominance within Canada by selling Cargill the Vancouver Terminal and some grain elevators and selling a number of elevators to Richardson International. Cargill is one of the four multinationals that dominate world grain trade. Richardson is Canada’s largest privately held grain company, and was one of the private traders that spurred farmers to develop the co-ops a century ago.
In 2012, the federal government dismantled the farmer-directed single desk Canadian Wheat Board. This was a key factor in the decision by Glencore International, a multinational mining, metal, oil and commodity trading corporation based in Switzerland, to take over Viterra in a $6.1 billion deal. By then, Viterra had also acquired significant Australian capacity, including 109 grain elevators, eight port terminals, 17 retail depots and six malting facilities.
The Canadian Competition Bureau’s approval of Glencore’s acquisition required Viterra to sell most of its retail farm input business to Agrium and 23% of its Canadian grain handling and processing assets to Richardson International. Agrium had recently acquired the Australian Wheat Board (AWB) when it was privatized in 2010. It kept the AWB’s retail input business and immediately sold the grain handling side to Cargill. Today, Agrium is the world’s largest farm input retailer, as well as being a major global fertilizer manufacturer and potash mining company. Viterra is still Canada’s largest grain handler, with 1.8 million tonnes of grain storage capacity.
By mid-2015, Glencore was $30 billion in debt due to a severe downturn in mineral prices. In September it announced plans to sell some of its agricultural assets to maintain its credit rating. On April 6, 2016 it agreed to sell 40% equity in its agriculture division to the CPPIB for US $2.5 billion. The CPPIB outbid sovereign wealth funds from Singapore, Qatar and the Saudi Arabian Livestock Investment Corporation (which partnered with Bunge to create G3 and take over the assets of the former Canadian Wheat Board in 2015). CPPIB gets representation on Glencore Agri’s board of directors and the authority to eventually choose to buy more equity or trigger a public offering to sell its shares.
In May, 2016 media reported Glencore Agri may sell an additional 9.9% of its equity. While agricultural asset sales will help Glencore reduce its debt, the company may intend to use the money to invest in physical infrastructure such as storage facilities so it can purchase more grain when prices are low to hold and sell when prices rise. With a high enough storage capacity, such a strategy would also function to depress prices to farmers.
Farmer resistance to the private grain trade with the development of grain co-ops and the establishment of the single-desk Canadian Wheat Board shows how farmers obtained significant economic power by working together economically and politically. Since the early 1990s, the wealth they created in the form of large enterprises and institutions has been taken over by private interests as a result of domestic and international political decisions that give priority to corporate ownership and control of the grain sector.
Perhaps it is better that CPPIB, rather than a foreign sovereign wealth fund such as SALIC, acquired the 40% equity stake in Glencore Agri. However, CPPIB’s interests are now aligned with Glencore’s, seeking to maximize shareholder returns, further entrenching a system that requires some to lose so others can gain.
