Or should it say nothing has changed in 30 years. No plan, No Action, Just lots and lots of Lip Service.
Good article.
Canada’s performance, its objectives and its market power as a grain producer and exporter have changed significantly since the mid-1900s. Unfortunately those changes have not always been positive.
In 1966 Alex McCalla, who was then at the University of Minnesota but who would go on to become one of the world’s top economists studying agricultural trade, described the world wheat market in his paper “A Duopoly Model of World Wheat Pricing.â€
“Canada and the United States are the duopolists, with Canada the price leader and the United States the usually silent partner,†McCalla said.
He went on describe the world’s other exporting nations as “a fringe of price followers,†and he theorized that the acutal objective of the close Canada/U.S. relationship was to maximize exports of wheat from each country.
That was then.
By the late ’60s, the world wheat market began changing. In 1978 Chris Alaouze at the University of Wisconsin collaborated with two University of Melbourne agricultural economists on the paper “Oligopoly Pricing in the World Wheat Market.†They described the wheat market in the ’70s as a “triopoly involving the United States, Canada, and Australia.â€
Alaouze credited Australia’s growing power to the boom in its wheat storage capacity, coupled with the country’s willingness to hold wheat stocks over to the following marketing year instead of selling into depressed markets
Canada and the United States recognized the power that this strategy had brought to Australia, and they began inviting the Aussies to quarterly meetings to discuss wheat price and market share.
However, according to Alaouze, with a third major wheat producer at the table, Canada switched its marketing objective from maximizing exports to maximizing revenues.
This opened a door for the U.S., and William Wilson at the North Dakota State University has postulated that by the mid-’80s, the Americans had become the world’s recognized wheat price leader.
In his 1986 paper “Competition in the International Wheat Market,†Wilson wrote, “Canada’s exports were restricted due to logistics and transportation problems which served as constraints and had an overriding influence on their stockholding decisions. Decisions were made in the mid-1970s to solve these problems, and thereafter the apparent Canadian strategy was to export according to transportation capabilities, as opposed to stockholding. This was an indication of perceived reduction in market power, and Canada essentially became a part of the competitive fringe.â€
Fast-forward to today
In the 30 years since Wilson’s paper, and despite numerous Canadian studies of our grain-handling system, we have not solved our transportation, storage, and handling bottlenecks.
Our exports are still constrained by a lack of capacity beyond the farm gate. And farmers and the agricultural industry are suffering because of this.
While commercial storage capacity over the past half-century enabled Australia to become competitive in world wheat markets, the rationalization of branch lines and replacement of local elevators with inland terminals has actually reduced Canada’s storage capacity, even though our production continues to increase.
Canadian Grain Commission data reveals that in 1970 we had 19.6 million tonnes of elevator storage. By 2014, this number had dropped by more than a third to 12.1 million.
So, although Australia can store two full crops in commercial storage, Canadians can store only about 20 per cent of their average grain output.
If it is true that storage capacity is a key determinant of market power, then Canada is losing out.
Theoretically, our evolving country collection system should be both more efficient and lower cost, given faster loading, inland cleaning, increased blending ability, and multiple turns at facilities. But in a system where capacity is constrained, these advantages can only be optimized if there is transparency of supply and demand, and if deliveries are efficiently co-ordinated so the right grains go to the right facility at the right time.
Who is responsible for ensuring this transparency and for co-ordinating delivery in an open-market system?
Unfortunately, the competition in the world grain markets is also increasing. Nizami Imamverdiyev of the Institute of Agricultural Development in Transition Economies (IAMO) looked at the increasing competitiveness of Kazakhstan, Russia and Ukraine (KRU) in the world market for a paper he presented at the 2014 IAMO last June.
Imamverdiyev made two points that Canadian farmers might want to pay close attention to. First is that according to USDA forecasts, these KRU countries will ship 22 per cent of the world’s grain exports by 2021. Second, their increased output will largely mitigate all the concerns that we hear so often about whether the world’s farmers will be able to feed our growing population.
Imamverdiyev also listed advantages the KRU countries have that will help them grow their market share, including low cost of production of high-quality wheat in Kazakhstan, better transportation links from Russia to both the EU and former Soviet Union countries, and the ready access from Ukraine to deepwater ports on the Black Sea.
In a 2013 Market Watch interview, Arkady Sichevsky, president of the Russian Grain Union was quoted as saying: “We are capable of offering the global market less expensive wheat than competitors.â€
In the same article, Volodymyr Lapa, general director of the Ukrainian Agrarian Business Club said, “In the midterm perspective, the share of Ukraine, Russian and Kazakhstan in seven to 10 years will grow to 30 to 35 per cent of global wheat exports as compared with 12 to 17 per cent currently.â€
The KRU is not the only region that has the potential to increase production and exports. For instance, infrastructure improvements underway in Brazil could have a dramatic impact on global markets.
On October 29, 2014, the Wall Street Journal also reported that the Congo would be leasing up to 25 per cent of its arable lands (640,000 square kms; an area bigger than France) to foreign investors in the hope that those investors will build the infrastructure needed to transform the subsistence farming in that country into a modern agricultural industry.
Know your competition
Perhaps the best description of the current Canadian strategy for exporting grains might be “let the market decide.†But for this strategy to be successful, we must have better co-ordination between all sectors of the value chain. We need transparency of supply and demand, costs, and prices at all levels of the value chain.
We must have market intelligence into consumer preferences for types and quality of crops, plus insight into timing of sales and delivery. Then this information must be transmitted throughout the value chain — all the way back to the producer.
Most importantly, all sectors of the value chain must work together to ensure we can and will deliver what the market is asking for in a timely and efficient manner. If any link in the chain is unable or unwilling to meet this objective, we simply will not be competitive.
A cardinal rule for any business, no matter its size, location, or product, is that management must know their competitors. To be successful, management must find out where they are outperforming their competitors, and where competitors have an advantage. Businesses must learn from their competitors’ successes and failures as well as from their own experiences. They must adopt or adapt what their competitors are doing to stay competitive.
Canadian grain farmers need this information as much as anyone. We need to understand every step in getting our grain to the end-user, which means beyond the local elevator.
The Australian solution
Three years ago Australia recognized the need for increased market intelligence in grain exporting to identify potential export markets and to increase the international competitiveness of Australia grains.
Its solution was the creation of the Australian Export Grains Innovation Centre (see bottom). AEGIC has not only completed a review and business analysis of the Australia grain system, it also sent a delegation of seven people to Canada in October to do a similar study of the Canadian grain export system and to look into what we are doing, both right and wrong.
According to Dr. Peter White, AEGIC supply chain specialist, “These analyses form two purposes — first, the identification of profitable and strategically desirable investment decisions, and second, the identification of unprofitable or spurious activities.â€
And, White adds, “The overall outcome is the enhanced efficiency of export grain supply chains and the return of a greater percentage of export value creation to producers.â€
Nor is AEGIC ready to rest on its heels. After it completes its Canadian studies, it is planning a business analysis of the Ukrainian grain system next year.
Through AEGIC, Australia is doing what every successful global business is doing. It is learning from its competitors how to make its system more efficient, and it is using those efficiencies to identify and grow markets.
While Australia works to grow its exports, Canada has been busy rationalizing in the name of efficiency. We have been deregulating under the guise of freedom, and privatizing in hopes of farmers receiving higher returns from corporate “partners.â€
Yet in many cases the opposite has occurred. Canadian farmers have been so busy building their individual farm businesses they have ignored the Canadian grains industry as a whole. Simply put, we cannot see the forest for the trees. And because of our short-sighted, inward focus we have been and continue to lose market share in the global grain market.
Good article.
Canada’s performance, its objectives and its market power as a grain producer and exporter have changed significantly since the mid-1900s. Unfortunately those changes have not always been positive.
In 1966 Alex McCalla, who was then at the University of Minnesota but who would go on to become one of the world’s top economists studying agricultural trade, described the world wheat market in his paper “A Duopoly Model of World Wheat Pricing.â€
“Canada and the United States are the duopolists, with Canada the price leader and the United States the usually silent partner,†McCalla said.
He went on describe the world’s other exporting nations as “a fringe of price followers,†and he theorized that the acutal objective of the close Canada/U.S. relationship was to maximize exports of wheat from each country.
That was then.
By the late ’60s, the world wheat market began changing. In 1978 Chris Alaouze at the University of Wisconsin collaborated with two University of Melbourne agricultural economists on the paper “Oligopoly Pricing in the World Wheat Market.†They described the wheat market in the ’70s as a “triopoly involving the United States, Canada, and Australia.â€
Alaouze credited Australia’s growing power to the boom in its wheat storage capacity, coupled with the country’s willingness to hold wheat stocks over to the following marketing year instead of selling into depressed markets
Canada and the United States recognized the power that this strategy had brought to Australia, and they began inviting the Aussies to quarterly meetings to discuss wheat price and market share.
However, according to Alaouze, with a third major wheat producer at the table, Canada switched its marketing objective from maximizing exports to maximizing revenues.
This opened a door for the U.S., and William Wilson at the North Dakota State University has postulated that by the mid-’80s, the Americans had become the world’s recognized wheat price leader.
In his 1986 paper “Competition in the International Wheat Market,†Wilson wrote, “Canada’s exports were restricted due to logistics and transportation problems which served as constraints and had an overriding influence on their stockholding decisions. Decisions were made in the mid-1970s to solve these problems, and thereafter the apparent Canadian strategy was to export according to transportation capabilities, as opposed to stockholding. This was an indication of perceived reduction in market power, and Canada essentially became a part of the competitive fringe.â€
Fast-forward to today
In the 30 years since Wilson’s paper, and despite numerous Canadian studies of our grain-handling system, we have not solved our transportation, storage, and handling bottlenecks.
Our exports are still constrained by a lack of capacity beyond the farm gate. And farmers and the agricultural industry are suffering because of this.
While commercial storage capacity over the past half-century enabled Australia to become competitive in world wheat markets, the rationalization of branch lines and replacement of local elevators with inland terminals has actually reduced Canada’s storage capacity, even though our production continues to increase.
Canadian Grain Commission data reveals that in 1970 we had 19.6 million tonnes of elevator storage. By 2014, this number had dropped by more than a third to 12.1 million.
So, although Australia can store two full crops in commercial storage, Canadians can store only about 20 per cent of their average grain output.
If it is true that storage capacity is a key determinant of market power, then Canada is losing out.
Theoretically, our evolving country collection system should be both more efficient and lower cost, given faster loading, inland cleaning, increased blending ability, and multiple turns at facilities. But in a system where capacity is constrained, these advantages can only be optimized if there is transparency of supply and demand, and if deliveries are efficiently co-ordinated so the right grains go to the right facility at the right time.
Who is responsible for ensuring this transparency and for co-ordinating delivery in an open-market system?
Unfortunately, the competition in the world grain markets is also increasing. Nizami Imamverdiyev of the Institute of Agricultural Development in Transition Economies (IAMO) looked at the increasing competitiveness of Kazakhstan, Russia and Ukraine (KRU) in the world market for a paper he presented at the 2014 IAMO last June.
Imamverdiyev made two points that Canadian farmers might want to pay close attention to. First is that according to USDA forecasts, these KRU countries will ship 22 per cent of the world’s grain exports by 2021. Second, their increased output will largely mitigate all the concerns that we hear so often about whether the world’s farmers will be able to feed our growing population.
Imamverdiyev also listed advantages the KRU countries have that will help them grow their market share, including low cost of production of high-quality wheat in Kazakhstan, better transportation links from Russia to both the EU and former Soviet Union countries, and the ready access from Ukraine to deepwater ports on the Black Sea.
In a 2013 Market Watch interview, Arkady Sichevsky, president of the Russian Grain Union was quoted as saying: “We are capable of offering the global market less expensive wheat than competitors.â€
In the same article, Volodymyr Lapa, general director of the Ukrainian Agrarian Business Club said, “In the midterm perspective, the share of Ukraine, Russian and Kazakhstan in seven to 10 years will grow to 30 to 35 per cent of global wheat exports as compared with 12 to 17 per cent currently.â€
The KRU is not the only region that has the potential to increase production and exports. For instance, infrastructure improvements underway in Brazil could have a dramatic impact on global markets.
On October 29, 2014, the Wall Street Journal also reported that the Congo would be leasing up to 25 per cent of its arable lands (640,000 square kms; an area bigger than France) to foreign investors in the hope that those investors will build the infrastructure needed to transform the subsistence farming in that country into a modern agricultural industry.
Know your competition
Perhaps the best description of the current Canadian strategy for exporting grains might be “let the market decide.†But for this strategy to be successful, we must have better co-ordination between all sectors of the value chain. We need transparency of supply and demand, costs, and prices at all levels of the value chain.
We must have market intelligence into consumer preferences for types and quality of crops, plus insight into timing of sales and delivery. Then this information must be transmitted throughout the value chain — all the way back to the producer.
Most importantly, all sectors of the value chain must work together to ensure we can and will deliver what the market is asking for in a timely and efficient manner. If any link in the chain is unable or unwilling to meet this objective, we simply will not be competitive.
A cardinal rule for any business, no matter its size, location, or product, is that management must know their competitors. To be successful, management must find out where they are outperforming their competitors, and where competitors have an advantage. Businesses must learn from their competitors’ successes and failures as well as from their own experiences. They must adopt or adapt what their competitors are doing to stay competitive.
Canadian grain farmers need this information as much as anyone. We need to understand every step in getting our grain to the end-user, which means beyond the local elevator.
The Australian solution
Three years ago Australia recognized the need for increased market intelligence in grain exporting to identify potential export markets and to increase the international competitiveness of Australia grains.
Its solution was the creation of the Australian Export Grains Innovation Centre (see bottom). AEGIC has not only completed a review and business analysis of the Australia grain system, it also sent a delegation of seven people to Canada in October to do a similar study of the Canadian grain export system and to look into what we are doing, both right and wrong.
According to Dr. Peter White, AEGIC supply chain specialist, “These analyses form two purposes — first, the identification of profitable and strategically desirable investment decisions, and second, the identification of unprofitable or spurious activities.â€
And, White adds, “The overall outcome is the enhanced efficiency of export grain supply chains and the return of a greater percentage of export value creation to producers.â€
Nor is AEGIC ready to rest on its heels. After it completes its Canadian studies, it is planning a business analysis of the Ukrainian grain system next year.
Through AEGIC, Australia is doing what every successful global business is doing. It is learning from its competitors how to make its system more efficient, and it is using those efficiencies to identify and grow markets.
While Australia works to grow its exports, Canada has been busy rationalizing in the name of efficiency. We have been deregulating under the guise of freedom, and privatizing in hopes of farmers receiving higher returns from corporate “partners.â€
Yet in many cases the opposite has occurred. Canadian farmers have been so busy building their individual farm businesses they have ignored the Canadian grains industry as a whole. Simply put, we cannot see the forest for the trees. And because of our short-sighted, inward focus we have been and continue to lose market share in the global grain market.
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