Viterra-Bunge merger could have far-reaching effects

Opinion

News releases are often notable because of what they don’t say. Yet, sometimes they unintentionally speak volumes.

For example, consider the official statements coming from Glencore, one of the world’s five biggest grain traders, related to its role in the continuing consolidation and concentration of grain handling in Canada.

In 2012, when Glencore announced it was acquiring Viterra, the last remnant of the once-mighty Prairie grain co-operatives, it offered these reassuring words to farmers.

“Glencore is confident the acquisition of Viterra will deliver significant overall benefits to grain farmers,” the release states. “The transaction will give farmers access to Glencore’s unparalleled global distribution channels and increase their ability to export their product into international grain and oilseeds markets.

Fast forward to June 2023 and Glencore’s announcement Viterra, now 50 per cent owned by Glencore with the remaining ownership held by Canada Pension Plan Investment Board and British Columbia Investment Management Corp., is be merged with Bunge, another one of the so-called Big Five global grain companies.

Conspicuously absent in the wording of that news release is any assurances to farmers. “The merger of Viterra with Bunge is expected to realize significant value for Glencore,” it says.

For its part, Bunge’s release does suggest the deal will benefit farmers as well as end users, but farm organizations were quick to raise doubts.

A few weeks ago, Canada’s Competition Bureau and a separate analysis by University of Saskatchewan agricultural economists Richard Gray, James Nolan and Peter Slade, sided with the farmers.

As the Competition Bureau noted, the proposed transaction would combine the company with the most oilseed-crushing facilities in Canada (Bunge) with the company that has the most primary grain elevators in Western Canada (Viterra).

It also further reduces port competition at Vancouver. “The BV (Bunge-Viterra) merger of two firms that collectively control over 45 per cent bulk grain export capacity at this critical port would increase the price charged for export services by over 15 per cent,” the economists say.

Further market concentration in canola crushing would increase canola crush margins by 10 per cent at the expense of farmers. The proposed merger also casts doubt on Viterra’s plans to build the world’s largest canola-crushing facility in Regina.

The combined impacts would reduce producer income by approximately $770 million annually.

Both reviews flagged the 25 per cent ownership stake Bunge holds in the parent company of G3 Canada Ltd., the company that emerged out of the wind-down of the Canadian Wheat Board.

G3 currently competes aggressively for farmers’ grain against Viterra, a pattern analysts say is unlikely to continue post-merger.

A partial solution is to require Bunge to divest its port terminal interest in G3 Ltd. However, the economists’ report could find no easy remedy for the impacts of further consolidation in canola crushing, especially if the Regina plant is shelved.

“This creates a worst-case scenario of a concentrated industry with limited capacity,” the report says. “If there was to be a requirement for merged BV to build the Regina facility, the Regina facility would give BV a 37 per cent market share, which would in turn still increase crush margins by about 10 per cent.”

“Both outcomes are undesirable and would come at a large cost to Canadian canola producers.”

After more than a century where farmers and Canadian interests called the shots in grain handling and oilseed processing, these sectors have undergone a rapid transformation in the past decade.

While farmers have celebrated the growth in domestic canola crushing capacity as a competitive balance against their dependence on exports, the reality is that many of the companies on both sides of that equation have the same owners.

Barriers to entry are high in these businesses and continued consolidation reduces incentives to further invest.

It remains to be seen what government regulators might do, but it’s clear that the anti-competitive tentacles of this deal reach much deeper than consolidating two competitors into one. This is about who will shape the future of grain handling and oilseed processing in Western Canada.

Laura Rance is executive editor, production content lead for Glacier FarmMedia. She can be reached at lrance@farmmedia.com