BUSINESS

A crop of changes

The Saskatchewan Wheat Pool plans to go public

DALE EISLER August 1 1994
BUSINESS

A crop of changes

The Saskatchewan Wheat Pool plans to go public

DALE EISLER August 1 1994

A crop of changes

The Saskatchewan Wheat Pool plans to go public

The austere prairie landscape of Saskatchewan tells much of the tale. Across the province, over 500 grain elevators owned by the Saskatchewan Wheat Pool dramatically punctuate the flat terrain, a testament to the dominant role that the 60,000-member co-operative has played in provincial agriculture for 70 years. The Pool was formed in 1924 to give individual farmers more control over their economic destiny in a sector that was increasingly influenced by massive multinational grain companies. It has grown into Canada’s largest farmer-owned co-operative with sales of about $2 billion a year. But that powerful presence also means that the recent decision by the Pool to transform itself from a member-owned co-operative into a public company, with shares trading on the Toronto Stock Exchange, has provoked a vigorous debate about the evolving role of the wheat pool in Saskatchewan agriculture.

Although 80 per cent of the pool’s 137 delegates sanctioned the move at a special meeting in mid-July, the decision to go pub-

lic did not come easily. It followed months of often rancorous internal discussion among the co-operative’s members, many of whom believe that the pool is betraying not only its history, but also farmers themselves. Last week, those who oppose the share offering were weighing their options and contemplating a legal challenge to the pool’s decision. “It’s fairly clear that after this the pool will be a co-operative in name only,” said Doug Faller, a farmer from Southey, 50 km north of Regina. Like many opposed to the share offering, Faller argues that once the pool opens its doors to outside investors, it will be no different from such grain-handling conglomerates as Cargill Ltd. and Pioneer Grain, both of Winnipeg, which do not give farmers a voice in their operations.

Still, the imperative to compete in a rapidly changing and increasingly deregulated global agriculture market leaves the pool little choice but to adjust to new conditions. In the next three years, pool officials estimate, the co-operative will need as much as $150 million to invest in efficient, high-volume grain-handling

facilities. ‘We must adapt to the financial world we operate in if we are to remain competitive,” pool president Leroy Larsen told Maclean’s.

The pressure to compete is exerted by a host of new developments ranging from trade liberalization in global agriculture under the General Agreement on Tariffs and Trade (GATT), to fiscal pressures that are forcing federal and provincial governments to slash farm subsidies.

Under the GATT rules, agreed upon last December, even the $560-million annual grain transportation subsidy from Ottawa to prairie farmers, known as the “Crow benefit,” is now in jeopardy, since it could be deemed an “export subsidy,” and thus unacceptable under GATT rules.

The impact of these pressures is already apparent in Saskatchewan’s landscape. Over the past 23 years, as the grain handling system has contracted due to better efficiencies, the number of Saskatchewan Wheat Pool elevators has dwindled to 563 from 1,158. As well, with diminishing government support, prairie farmers are rapidly diversifying into other, more lucrative crops. Last year, wheat acreage declined by 16 per cent in Saskatchewan and, this year, the market value of 6.65 million acres of canola, a grain used to make cooking oil, is expected to exceed the more than 11 million acres planted in wheat. Such specialty crops as peas, lentils and mustard are also booming.

Within Saskatchewan, the pool’s economic influence has historically been matched by its political clout. But those who oppose the share offering argue that farmers will now

lose control of the pool when outside investors are allowed to buy equity.

Sensitive to such criticisms, the pool’s plan calls for the issue of voting and non-voting shares. Before it can proceed with this plan, it must get the Saskatchewan Wheat Pool Act of 1924 amended, a process expected to

begin this fall. Then, only those farmers who are pool members will be able to hold Class A voting shares, and only the Class B nonvoting shares will trade on the stock exchange. Says Larsen: “All we are changing is the way we finance the operation. The control will stay with the membership, who own the Class A shares.”

The plan is to convert $286 million in existing members’ equity in the co-operative into Class B shares, which members can then hold or turn into cash. In the future, a new issue of Class B shares will be made to investors on the stock exchange. Initially, the benefit to the pool will be that it will not face the cost of paying out as much equity immediately to farmers when they retire. With an aging farm population, the pool has faced ever-increasing financial demands as older farmers leave the land and cash in their pool equity, worth about $300 million.

In some respects, the Pool is following the lead of Winnipeg-based United Grains Growers (UGG), a grain co-operative that completed a share issue last year. UGG president Ted Allen says that within the past year, UGG raised $32 million in shares and warrants convertible to shares. ‘We’ve had evolutionary changes in farming before, but now they are revolutionary,” says Allen. Similarly, drastic change is now exerting pressure on the Saskatchewan Wheat Pool debate.

DALE EISLER in Regina