Alberta can’t afford to lose opportunities for value-added industry.

An entire national economy benefits from the jobs, investment and export earnings gained by selling processed goods instead of raw commodities. But the system set up long ago to market prairie wheat and barley now appears to be inhibiting value-adding processing.

Someone who has seen the local effects firsthand is Steven Snider, who farms at New Norway, Alberta, and sells organic milling grain for use in Sunny Boy Cereal.

“I have seen a local conventional producer wanting to supply grain to the mill in Camrose, which would give him better prices and allow production of higher value products,” says Snider. “However, he backed out when he found out the cost risk associated with the grain ‘buy back’ process.”

The Canadian Wheat Board is currently the only legal marketer of wheat and barley for human consumption in Alberta, so producers are compelled to sell grain into the CWB pool system. They can then buy it back to deliver to a domestic buyer. If the price at close of pooling about 18 months later proves higher, the producer is billed for the difference, turning a value-adding sale into a financial horror. In a well-known case in Saskatchewan, a producer was billed for a difference of $2.28/bu for buy-back.

“The flour mill in Camrose could be a huge opportunity for local producers and a boost for the Alberta economy,” says Snider. “But producers are reluctant to commit grain because of the price risk it involves them in, so value-adding opportunities are lost.”

Choice influences exports

The lack of choice in wheat and barley marketing is also felt in Alberta’s malting industry, which buys $90 million of barley and adds considerable value processing it to malt. The value-added contributes significant wage and export earnings to the provincial and national economies.

Yet in spite of ample supplies of Alberta malting barley and strong demand for high-quality malt, Alberta’s and Canada’s malt houses are now running some 200,000 tonnes per year below capacity compared to five years ago. Also, operators of the three malt houses most recently built in North America chose not to build in Canada.

Bob Chappell is the president of Rahr Malting Canada at Alix, Alberta. “A problem with the current restricted method of marketing malting barley is that maltsters don’t have the ability to send true market signals to attract high quality grain for making the high quality malt our buyers want,” he says. “Neither the farmer nor the maltster can get the full value-added gains possible.”

He points out that Canada is losing market share with Japan, a key malt customer. Business is being lost to European and Australian suppliers. Their advantage is partially due to agricultural income support, but also because they have improved their product and have more price flexibility than Canadian maltsters are able to offer.

Chappell’s colleague, Director of Logistics Robert Sutton, explains that the rest of the world operates under an open marketing system. This provides all other maltsters with the ability to send proper price signals to attract deliveries of the quality and quantity needed. Under the single-desk system in western Canada, that’s very difficult.

“For both producers and buyers of malting barley, marketing choice could provide more flexibility in terms of pricing and marketing contracts,” Sutton says. “The growth this facilitates in value-added processing means farmers and malting businesses could better determine their business destiny and long-term stability together.”

Chappell and Sutton agree that the Canadian Wheat Board can definitely offer benefits as one of the marketing choices for malting barley. On any given day, buyers can obtain large volumes of malting barley with one call, which can make for an orderly market. But having additional marketing choices could clearly help increase value-adding contributions to the provincial and national economy.

“We would support a limited trial and let producers evaluate how it works out,” says Chappell.

Choice matches new realities

Brant Randles, President & CEO of Louis Dreyfus in Calgary, says he thinks a dual marketing system for marketing cereal grains will stimulate the development of value-added industry in Alberta by fostering an entrepreneurial, free enterprise environment. With limited choice, options are limited.

“Choice is king,” says Randles. “When choice is limited, it is very difficult to add value. In fact, I’d say there really isn’t much incentive to add value.”

Randles claims the world grain market has changed enormously in the past few years. “Everyone is familiar with the fact that the state trading enterprises have decreased in importance, while the number of smaller buyers wanting specialty products has increased. Sales to these new players requires a more complex marketing and logistics strategy than in the past.”

Competition is also changing. The number of grain exporting countries has increased quite dramatically in the past couple years. “We’ve seen India, Pakistan, Brazil, and the former countries of the Soviet Union start exporting wheat. The diversity of supply, each with their own unique quality characteristics, coupled with a very volatile ocean freight environment, makes trade a lot more dynamic and complicated.”

Randles says more choice would also result in greater information flow. This would help producers manage their operations more profitably.

“Greater information flow enables the grower to make better decisions and do a better job of budgeting for a profitable farm operation,” he points out. “Information is available from several credible sources. Access is easily available and instantaneous.

“I also believe open market systems encourage more value-added processing because investors have greater assurance of a steady supply of raw materials when they can deal directly with suppliers. Farmers, in turn, can respond to clear and direct market signals.”

More value-added is also good for producers. Randles adds: “It increases demand for product. In Canada, we process about 3 million tonnes of wheat and durum annually. More than 15 per cent of the total originates from Ontario and Quebec. The balance is exported, consumed as feed or carried over.”

Randles says that a dual market system would also positively affect Canada’s international trade opportunities by giving more than one source access to export markets. “In Canada, wheat farmers are more export dependent than farmers in the EU or U.S. For them, the more buyers they have competing for their grain the better.”

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