posted May 22, 2012 15:15
Fewer farmers in our future
By Bruce Johnstone, The Leader-PostMay 19, 2012
It would be tempting to say "I told you so'' when news broke this week that Alliance Grain Traders would not be going ahead with its much-ballyhooed $50-million pasta plant in Regina this year.
Many commentators, including yours truly, were skeptical the elimination of the Canadian Wheat Board's single desk would lead to much value-added processing in the Prairies, as its supporters claimed.
Of course, Conservative politicians, including Prime Minister Stephen Harper, were quick to link the announcement of a pasta and pulse processing plant in Regina with the elimination of the CWB's monopoly.
In fact, the prospect of getting rid of the single desk was only one of the factors that caused AGT to decide to build the pasta plant in Regina. Other factors were that AGT had an established pasta brand, Arbella, and international distribution network and that the company could now source durum wheat closer to major markets in North America.
At that time, AGT was riding a wave of high pulse prices and a high share price - around $23 a share. Today, it's a far different story for AGT's share price, which is less than half what it was last October.
The European financial crisis and its impact on European banks caused loans to developing countries for food imports to dry up. While sales were up, profits for AGT's first quarter were $2.8 million, down from $7.2 million for the first quarter of 2011.
As demand for processed pulse products was waning in the developing world, the cost of construction in Saskatchewan was rising, creating another impediment to proceeding with the project. As a result, capital spending was scaled back and projects, like the pasta plant, were put on the back burner.
This is the way businesses - especially exportbased businesses selling processed agricultural commodities to the developing world - have to run. They have to remain flexible and respond quickly to market signals. Political ideology doesn't cut any mustard with the markets, even if the PM thinks building a pasta plant on the Prairies is the greatest thing since sliced bread.
Mind you, the pasta plant may well get built next year, as AGT founder, president and CEO Murad Al-Katib promised this week. Then again, it might not. Construction prices aren't expected to go down anytime soon and we appear to be in an extended period of economic and financial turmoil, making major capital investments riskier.
Let's face it. Building a pasta plant on the Prairies was always going to be a risky business. We're a long way from major markets, and transportation costs, especially for bulky perishable food products, make them less competitive with products that are manufactured and processed closer to those markets.
If open markets were all that was necessary for pasta and other processing plants to thrive, why don't we see them in places like North Dakota, where durum wheat is grown?
However, one thing the elimination of the single desk will change is the acceleration of the consolidation happening in the agricultural industry. The proposed takeover of Viterra Inc., Canada's largest grainhandler, by Glencore International, the world's largest commodities trader, is certainly one sign of that.
Glencore has admitted that the removal of the wheat board's monopoly on Aug. 1, freeing up the CWB's $6 billion in wheat and barley sales to all comers, was a motivating factor in the Swiss company's plans to launch the $6.1-billion bid for Viterra.
In fact, the one thing that we can be sure of is the trend toward consolidation will continue gather momentum. The recent Statistics Canada 2011 census of agriculture is proof of that.
The census shows the number of farmers in the province decreased by nearly 17 per cent in the last five years, while the average farm increased in size by an equivalent amount.
As statistician Doug Elliott remarked, the pace of change will only increase in the next five years following the demise of the single desk. "Think of this profile as the 'before' picture of Saskatchewan agriculture.''
The 'after' picture will be fewer medium-sized family farms and more large corporate farms. Like it or not, that's the future of farming in Saskatchewan.
posted May 22, 2012 19:04
The fricken free market is not even open yet and this clown is calling it a failure. The change to prairie ag will take time. At least we know Goodall has one voter for the next election.
posted May 22, 2012 21:27
I haven't run any numbers but I'm
guessing the reason we don't mill more
durum in sk is because our population is
too low. Probably cheaper to transport
raw product vs flour which is much less
dense and pasta is fragile so it
wouldn't transport well over distances.
posted May 23, 2012 6:12
It would seem land is on the way up. Recently a quarter of bare farmland sold for an even million about five miles south of Red Deer, Alberta and I'm hearing another 6 quarters close to Penhold sold for close to 6 million.
Both sales to local farmers.
posted May 23, 2012 12:22
Markets are BS based mosta the time.
Duhhhhh lets getter done wit a pastie
plant, let the free market rein, NOT!
Future holds a lot more fraud and huckster
dealing, ya bet........... How aboot a
chopstick factory, er a strawbored plant,
er pigeon kings, fish ponds er, ostriches
and emus, just what Comedian angribusiness