FNA reaction to CWB – G3 privatization announcement
SASKATOON, Apr. 20, 2015 – Farmers of North America (FNA) today gave farmers credit for provisions in the recently announced CWB sale that promise to provide a major equity interest to the grain producers who built the CWB.
“The leadership of farmers who committed capital to the farmer-driven offer from Genesis Grain & Fertilizer generated a competitive environment that resulted in a higher valuation of the CWB (the Farmer Trust) than many anticipated,” said James Mann, FNA CEO.
Mann believes that the participation farmers demonstrated in Genesis and the resulting offer made to the CWB on October 17th helped achieve the 49.9% ownership in the Trust and the valuation of $250 million. Mann believes that a limited partnership is a far better business structure for equity participation by farmers in value chain ventures.
“Having said that, we know the CWB business is still worth far more than $250 million, and the new majority owner is receiving an exceptional deal to access Canadian farmers’ grain with the ability to earn upstream margins on that grain,” Mann said.
While FNA does believe it is good strategy to have equity partners from food importing countries, it is problematic when Canadian farmers are not allowed to raise the capital to get majority interest as the major stakeholder, allowing instead foreign strategic partners to be in a majority position in both governance and in the distribution of the majority of profits to owners outside Canada.
“To be clear,” Mann said, “we can welcome foreign strategic partners under certain conditions. It’s regrettable that Canadian farmers did not have a better opportunity to be the majority owners.”
“It is reasonable to consider that, given the amount of capital farmers were able to commit within the narrow time frame during harvest, they would have invested the full $300 million in a reasonable time, and certainly before the date of the acquisition agreement announcement. The FNA offer would have given farmers a total equity position in the CWB of $600 million.”
When reviewing the announced privatization deal, Mann said there are a number of substantive questions to be answered:
- Will this deal earn equal or better margins for farmers from the upstream value chain as would have been the case with majority farmer ownership?
- While the new company has said it intends to operate on a commercial basis, what provisions exist to ensure farmer interests are not compromised by favoured-buyer transactions?
- What provision is being made to ensure farmers who do not have access to a CWB delivery point can still re-earn their share of the farmer equity?
- With existing delivery points in Eastern Canada, will those farmers earn equity on their deliveries?
- Will farmers have enough influence on dividend/distribution policy to get timely returns from their equity?
- Given the seven-year one-way right to buy out the Farmer Trust, and given that farmers will have to deliver seven million tonnes of grain per year for the seven year period of equity allocation, does the CWB have any analysis suggesting this is a realistic scenario, both in terms of the capacity of the new company to receive deliveries and the reasonableness of such a large shift in market share? Will this analysis be made public?
- In the event that the new CWB is unable to reach the unprecedented market share shift in the seven year time frame, what happens to the unallocated equity in the Farmer Trust?
- Will the Farmer Trust have real influence over the growth policy of the business? Will that growth policy ensure that farmers are able to benefit from growth, including, where required, having the ability to invest additional farmer capital to fund growth without diluting farmer equity?
- Considering that creating competition is a key goal for farmers said to be shared by the new CWB, is there assurance that the growth strategy will not involve mergers and acquisitions that actually reduce competition?
- Will the new business seek to work with farmer interests to achieve efficiencies and synergies where possible, thus maximizing farmer capital as well as facilitating the reach of the business?
With ten very important questions, Mann said in answering them the parties will demonstrate transparency from the start, a factor that can build confidence among farmers.
“While ten questions may not seem that much, the significance of the answers to these questions is large for farmers,” Mann said.
FNA does not believe the deal in its current form, by adding another competitor with relatively short term farmer ownership and limited access to delivery points, will have the ability to prevent now or in the long term the extraordinarily high basis levels amounting to billions of dollars each year being charged to farmers by grain companies.
“FNA has been in the business of building competitive solutions for farmers for two decades. We genuinely welcome new competition. But we also have an obligation to those farmers who had the foresight and sound financial judgement to pursue a farmer-majority owned CWB,” Mann said. “Majority farmer ownership is the only lasting solution to competition problems in grain handling and marketing.”
FNA marks as milestones breaking the monopoly on glyphosate pricing, driving the price of grassy weed herbicide down by $60 million per year, opening the Port of Churchill to fertilizer imports, and a continually growing list of competitive products and services for farmers. It is currently in the process of building Genesis Grain & Fertilizer to provide a complete fertilizer distribution and service business, and is well advanced in its “ProjectN” that will see the construction of a $2 billion nitrogen fertilizer plant at Belle Plaine, Saskatchewan.
Mann said these successes carry with them responsibilities, and in the context of the current announcement that responsibility may be to facilitate work between the new CWB and Genesis, particularly given the Genesis model of state of the art loop tracks, shuttle trains and on farm inventory and call forward systems, at Supercentre locations across Canada.
“With both Genesis and G3 close to having shovels in the ground, it would be positive to explore possible cooperation sooner rather than later, to take most advantage of any mutual opportunities and to achieve the best efficiency of use of farmer capital,” Mann concluded.
Farmers of North America is a member based farm business alliance with the single mission of “Maximizing Farm Profitability.”
Bob Friesen, VP Government Relations
Tel: (613) 230-2222 | Cell: (613) 852-9711 | email@example.com
James Mann, President & CEO
Tel: (778) 968-9569