We acknowledge the remarkable achievements in our grain-economy over the last few decades -- scientific-capacity, technology-advancement, yield-increases, crop-diversification, among others. But contrary to conventional wisdom, we maintain that our farm economy is not living up to its full potential – we are too dependent on bulk-trades with not enough crop-diversification. We could be realizing much greater value from our grain-exports, with higher margins to our producers.
At the core of our “mission” is a paradigm-shift to direct-sales through containerized export-channels. This would reduce producers’ dependence on bulk-trades, which limit their potential to pursue a value-driven diversification strategy, thereby limiting the margins they realize from grain-trades. This is by no means to restrict bulk-trades, by regulatory or other means, but to make grain-trades more competitive with alternative sales-channels, allowing producers to increase their margins.
There are a number of obstacles to overcome to achieve this mission -- lack of access to end-markets and shortage of container-supply being foremost among them. We have a strategy to tackle both, but first we need a desire on producers’ part to try new trade-channels. Anything “new” can be scary due to market or trade risks, but, we also sense that producers take too much comfort in bulk-trades, which many believe have served them well in the past and will continue to do so in the future.
Our annual grain exports were hovering around 25 MT, but following the 2002-drought climbed up to 30 MT, and into next decade above 40 MT. In 2020 we saw an unprecedented peak at 50 MT, but falling back to 40 MT in 2021. This crop-year, 2021-22, is sending danger signals -- wheat exports down 40%, durum 35% and canola 45% compared to the same time previous crop-year. It is too early to reach conclusions but the global risks we have been referring to might be materializing.
We seem to be entering a period where the risks we try to bring attention to are surfacing, contrary to the belief that bulk-exports can always be relied on. If 2021-22 export-sales do not catch up, this coming crop-year’s producer-sales may be in jeopardy since bulk-stocks will still be carrying the previous year’s crop-purchases. Thus, there may be reasons to be considering alternative export-channels out of necessity, not just in search of further crop-diversification and higher-margins.
Here, we try to look into our existing export-portfolio, to gain better insights into the risks grain-exports face and how to mitigate them, by reducing our exposure, like in canola, and paying more attention to containerized wheat-exports. We also note that as successful as we have been in the pulse domain, we are still scratching the surface of the global market potential. Selectively, we also bring attention to plenty of further diversification opportunities in other coarse-grain and oil-seed domains.
Revisiting the vulnerabilities of our grain exports
Let us start with the export-dependence of our grain-economy. We export about half of what we produce, a share twice as high as the US. Yield-increases are still on the rise, thus we expect to produce even more in the coming years. Future viability of our grain-economy is dependent on overseas exports, as North American markets are mature with very limited growth prospects. Thus, we must pay more attention to global demand and supply patterns to come to terms with where we stand.
Despite all the diversification efforts, our two major export crops still account for 75% of our total grain exports, wheat roughly 50% and canola another 25%. Global canola trades are relatively small, with our market-share at 70%, which makes us far too exposed and vulnerable. We are the world’s premier source of high grade wheat varieties, though not with a huge market share. Thus, we are much more secure in this domain than in canola, but still have a lot more to do to shore up our strengths.
As we noted before, China had become our largest export destination, taking up 20% of our total grain exports; in the last 25 years China accounted for more than half our aggregate grain export growth. China’s economic growth is slowing down, and so is its appetite for more grain imports. Moreover, our trade relations have soured to such an extent that China may take more radical action, like a total import ban or a moratorium, putting one-fifth of our grain exports in jeopardy, a huge hole to fill.
China is the world’s 2nd largest grain-producer, only 10% less than the US, but it is by far the largest grain-importer, taking up 20% of global exports (same share of ours). Its grain consumption has been increasing but so have its crop-yields. Though it still needs to import vast volumes, now it is turning away from the Americas to its west, a vast region we call New Grain Belt. Other grain-importers from Asia Pacific may be looking to do the same, increasing competition for another fifth of our grain exports.
The moral of the story is simple: though our grain-exports face risks, we do very little to understand them, let alone try to mitigate them. We take comfort in our past export-growth, and feel too secure about the future to be taking steps to reduce our dependency on bulk-trades and staple-crops. If we paid more attention to the risks we face, perhaps we would be keener to diversify our exports through new channels.
Need to limit our exposure to canola exports
The shift to canola started as an escape from CWB’s monopoly over wheat and barley, initially in a small way, but in time becoming our second largest crop behind wheat, about a quarter of both our grain-production and grain-exports. Producers were happy to realize somewhat higher revenues and yields than from wheat. Prices held there own in relation to other crops and volumes kept growing in tandem with overall grain output, making canola an indispensable pillar of our grain economy.
With a persistent shift to canola we became the second largest producer of this crop, just behind the EU. But unlike EU that processed or consumed most of what it was producing, we had to export much of what we grew, making us the world’s by far the largest exporter of canola-seeds, with 70% global share in a fairly narrow market, less than 20 MT trade volume (one-tenth of wheat). Also, one importer was taking half of our exports, China, itself 3rd largest canola-seed producer behind us and EU.
As long as export-volumes were growing and China was importing more, we did not pay much attention to our exposure. We woke up when China started threatening to reduce its imports of Canadian canola, even halt them altogether. Given limited capacity elsewhere, China could not easily replace us, but could increase its own production. One-third more land-allocation to canola on China’s part, a fraction of that used for corn or wheat, would reduce our canola-seed exports by half.
In an effort to limit the export vulnerability that comes with our market dominance, now there are plans to crush more canola domestically to use as a bio-fuel source. But we have our doubts about the value-proposition behind this new grain-based industrial-chain that may not leave enough margins to satisfy grain-producers. Moreover, there are multi-dimensional environmental implications that we will not get into here but suffice to raise the obvious -- why grow fuel instead of food?
Instead, we would advocate switching to crops that would yield higher margins to producers. There are other oil-seeds to consider, like high-grade soybean we are having such success with. Also, many producers seasonally rotate between canola and wheat, an indication that soil-conditions are not unique to canola; they are also conducive to wheat, barley or other coarse-grains, all better value-propositions.
Leveraging our reputation in wheat exports
Our global position in our even-larger-volume-crop, wheat, has been much different. Unlike canola, a niche oil-seed, wheat is the 2nd largest volume crop produced in the world after corn, and represents the largest trading-volume, almost 30% more than corn. We are 7th largest wheat producer and 5th largest exporter in the world, with our export volume only a third less than the US, the largest exporter. US, Russia and EU have 15-16% of global exports each; like Australia and Ukraine we have 11-12%.
Unlike in canola, where we have 70% market-share and highly dependent on one importer, China, our position in wheat is much stronger. Wheat accounts for 50% of our grain-export volume, but our market share is highly defensible. Moreover, what distinguishes us is the quality of wheat we export, which in value terms makes us the world’s largest exporter. With the varieties we produce and the quality of what we export, we truly stand-out as the premier source of wheat on the world-stage.
Our wheat exports were 20 MT 25 years ago, and still the same in 2021, albeit with fluctuations in the interim and an all time high at 25 MT in 2020. But the wheat share of our grain exports declined from 75% to 50%, a sign of healthy diversification in our export mix. Our share of global wheat trades did decline but we maintained our position as the highest value exporter on the world stage. The challenge now is how to leverage this position to further increase the value of our wheat exports.
We have a broad range of varieties in the types of wheat we grow and export, be it hard-red or soft-white, all known for their excellent quality and grade differentiation. But the jewel in our wheat basket is durum, about a fifth of our wheat exports that fetch more than double the price of other varieties. Though we dominated durum trades with 60% market share, lately we have been missing out on growth prospects, both in our traditional European markets and emerging ones in Asia Pacific.
Again, the main bottleneck here is our reliance on bulk-trades that may not hold us back from differentiating our wheat varieties, as they all trade in large volumes, but prevent us from meeting end-user requirements with more specific crop attributes in smaller quantities. We could be increasing the value of our wheat exports further through direct-sales channels that can be fulfilled with containerized deliveries.
How to exploit our full potential in pulses
Pulses are ancient crops, dietary mainstay of many old civilizations but rediscovered lately for their protein content, highest among all grains. Global pulse production was always significant (50-60 MT) but mostly locally consumed. That started to change lately with annual trade-volumes reaching 16-17 MT -- comparable to canola in both production and trade volumes, but much higher in value. International Grain Council recently added pulses as a grain-class so that they would get more attention.
Only into this century that we discovered our potential in the pulse domain. After dedicated R&D efforts into soil-conditions and farming-practices, we established our selves as the best pulse-growing region in the world. Though dry-peas had long been grown in Ontario and Quebec, Prairies (especially Saskatchewan) became the focus of attention, with the potential of growing the highest quality varieties of a wide range of pulse-crops -- first lentils and beans, later also chick-peas and faba-beans.
Peas entered our statistics with 2 MT of exports in 2000-01, and peaked at 3.4 MT in 2016-17 -- they were close to 3 MT in 2020 but dipped below 2 MT with the draught-effect. Lentils did not enter export-statistics until the late 2000s, but increasing to 1.4 MT in 2020, before slumping back to 1.1 MT with the draught in 2021. In the last couple of years chick-pea and faba-beans started appearing in our export records but in very small volumes. Thus, our total pulse exports are still in 4-5 MT/yr range.
Unlike our other staple-exports like wheat and canola, pulse trades are mostly containerized, and our exports are in the hands of grain-companies with end-market-reach, through regional wholesalers and even processors. A local start-up in partnership with an end-market distributor, gave the initial boost to our pulse-exports. Since, another old US grain-company entered the market with formidable containerization capacity. But direct trading channels are still underdeveloped.
With best growing-conditions in the world and an already established reputation, we are still grossly under-performing our potential in global pulse-trades. After 20 years in the making, our global market-share is still about 25%; there is potential to double our exports to above 10 MT annually. We are hoping to contribute to this growth through our trade-facilitation efforts by opening up more market access channels.
Further export diversification and growth opportunities
Let us first sum up the principal export-crop domains we tried to cover above:
Canola: Our exports are vulnerable, too large a share of a narrow market and dependence on China. We must reduce our seed-exports, and rather than bio-fuels, we favour switching to other crops to better serve producer interests.
Wheat: Our exports are even larger but with a much more defensible global market share. In fact, we could increase the value of our exports by focusing on direct, containerized exports of higher-quality varieties with specific attributes.
Pulses: With a stellar reputation in this domain, we have achieved notable growth but still under-performing. There is potential to double our high-value exports in this domain through already established as well as new channels. But our diversification and growth potential is not limited to these three domains:
Soybean: We have been successful with high-grade varieties to escape the bulk markets dominated by US and Brazil. Since the early 2000s our exports have increased steadily reaching 3.5 MT in 2021, with even further growth potential.
Barley: Our exports of this traditional board-grain had dwindled to 1 MT but in 2021 it was up to almost 4 MT. There is further growth potential in exports of barley varieties for malting, shipped in containers to brewers and distillers.
Oats: This has long been in our export mix in small quantities, 1 MT/yr or less, but increasing to 1.5-2.0 MT range more recently. As in other coarse grains, there is growth potential by targeting specific uses/markets in container-loads.
Whether in bulk or containers, we tend to look at export prospects through specific crop-lenses. We tend to overlook the diversity of our crop-mix, and the potential in preparing mix-loads of crops to export for specific purposes to fulfill custom-orders:
Animal-feed: All animal-husbandry sectors (beef, pork or poultry) tend to buy from feed-producers but with all the crop varieties (and other ingredients) we could be exporting container-loads of custom feed-mixes directly to feed-lots.
Breakfast-mixes: There are huge and rapidly growing breakfast-cereal markets across Asia Pacific. We have all the ingredients to be shipping custom ordered cereal-mixes in containers to manufacturers or distributors, like we do in pulses.
Milling/processing: We could also target flour-mills or food-processors the same way. Often, they need not just one crop but mixes that can directly go into their production-lines -- container-loads of custom-mixes delivered directly to plants.
To identify these export opportunities, whether crop-specific or custom-mixes, we need a much better understanding of end-markets. We have to study production-consumption trends, industry structures, processing technologies, and supply-chain practices -- all areas we are woefully inadequate in serving grain-industry needs. We will turn to these market research and analysis needs in our next article.
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