Hanam Canada Corporation

Food exports 

Total Canadian crop exports are about 30 million tonnes per year as shown in Exhibit 1. About half of these exports are to Asia. The 20 million hectare Prairie crop growing region has 337 rail delivery points serving 75,000 farmers. Three quarters of the crops are delivered less than 80 km from the farm to a railhead. CP has 191 delivery points; CN has 146. There are 23 delivery points with both CP and CN Rail.

Exhibit 1        Canadian agricultural crop exports

The Canadian Wheat Board has exclusive jurisdiction over the purchase and sale of wheat, durum wheat and barley grown in Western Canada for human consumption, about 60% of the overall export crops. Grain companies purchase grain on behalf of the Canadian Wheat Board when farmers deliver the grain to their elevators. There are numerous types of grain and within each type, many different grades, protein levels, and other specifications. The board allocates orders to grain companies and accounts for the differing specifications in allocating rail cars, transporting the grain, storing and loading it at the port.

The grain companies compete against each other for farmers’ business using service incentives such as paying for the cost of trucking to their elevator or lowering the cost of inputs. The Canadian Wheat Board sets an initial price at the elevator which is adjusted during the crop year with a final adjustment after the crop year has ended. The grain companies are paid for the grain once it is delivered to the port. The peak shipping period is October through March.

About 2.1 million tonnes of crops are exported in containers from Vancouver and Delta. This is 13% of the total crops exported from Vancouver, Delta and Prince Rupert and half of exports outside the control of the Canadian Wheat Board. If half of all crop exports were containerized this would be an increase from 90,000 to 330,000 TEUs per year, about equal to the number of empty containers per year leaving the Port of Vancouver.

The US has a significant lead over Canada in direct marketing of agricultural products by private companies that load containers close to the farm. Containerized agricultural exports from Seattle and Tacoma are about double those from Vancouver. Containerized shipments of grain to Asia from the US have increased to 400,000 TEUs.

There are approximately 21,000 special crop producers in the three prairie provinces- 14,000 in Saskatchewan, 4,500 in Alberta and 2,500 in Manitoba. The major special crops grown in Western Canada include: peas, lentils, beans, mustard seed, canary seed and sunflower seed. Peas are the fastest growing segment of the market. Specialty crops exports from Canada are valued at $1.0 billion per year and are growing at a rate of 7% per year with stable prices Specialty crops are about a fifth of Canada’s grain and oilseeds exports of $4.5 billion.

With the advance of information and communication technologies crop buyers increasingly want to trace the source of their purchases.  They want shorter purchase agreements, typically 90 days, smaller 5 to 20 rail car lots, and fast deliveries. With bulk shipments highest quality products are blended with lower quality ones taking away buyer choice. With container shipping, buyers gain a competitive advantage with quality and product attributes such as the origin of the product, organic certification, genetic purity, specific protein content, or baking quality. Canadian agri-business provides packaging, seals, single point loading, cleaning, weighing and grading. However customers complain seeds, peas and lentils crops have often deteriorated during transport.

Pulse Canada, an industry association for food suppliers to customers in Asia, considers improved transportation as critical to meeting customer quality needs. Source loading maintains quality by speeding deliveries, avoiding double handling, and reducing the cost of bulk shipping. The shipping time for wheat to off-shore customers is about 21 days in containers compared to 97 days for bulk shipments including waiting time at the grain elevators. Due to customer demand and decreasing costs containerized exports of traditional bulk agricultural commodities has continued to increase.

In Canada most containers are filled near the port. Exhibit 2 lists the nine terminals in the Vancouver area each with sidings for about 10 hopper cars and a conveying system to transfer peas, lentils and grains into silos or directly into containers.  There are also some smaller operators. Twenty foot containers are tilted upwards and filled from the end. They are then vibrated to ensure they are packed tightly before the door is closed. The containers are then transported with minimum storage time to Deltaport, Vanterm or Centerm for export. Correct transfer timing is critical to profitability because CP and CN Rail allow only two days before charging demurrage and if a car stays an extra day the operation may become unprofitable.

Exhibit 2        Crop exports  

The average loaded hopper car rail transit time for crops is 16 days with a standard deviation of 8 days. This variability makes it difficult for crop exporters to synchronize their rail shipments with bookings on container ships and can cause financial penalties. The Canadian Government owns about 12,000 cars, Saskatchewan and Alberta about 1,000 each, and the Canadian Wheat Board about 2,000. During peak periods 25,000 cars are used. About half are managed by CN and half by CP. About 70% of the hopper cars are booked in advance.

CN Rail carries some 5.1 million tonnes per year to Prince Rupert Grain, jointly owned by Viterra, Richardson, and Cargill. Viterra, formed in 2007, includes the former Alberta, Saskatchewan and Manitoba wheat pools and United Grain Growers.  Richardson is based in Winnipeg and Cargill is headquartered in Minneapolis, MN. CN carries about 5.0 million tonnes per year of grain and canola to Cargill and Richardson elevators in North Vancouver.

CP Rail carries about 4.0 million tonnes per year of grain to Viterra’s Cascadia elevators in Vancouver and to Alliance Grain in Vancouver. Viterra’s Cascadia elevator also handles canola and their Pacific elevator handles barley, canola, flax, peas, malt and alfalfa pellets. Kinder Morgan’s Vancouver Wharves’ bulk terminal started up in 2000 to handle similar specialty crops but could not gain sufficient customers and is changing to other bulk products.

US grain exports are about 5 times Canada’s. However, more than half of US grain exports travel by barge down the Mississippi River.  US bulk crop exports from the Seattle and Tacoma are mainly corn. Louis Dreyfus exports 5.9 million tonnes/year of corn from its elevator in Seattle and Cargill exports the same amount from its elevator in Tacoma. Containerized crop exports from Seattle and Tacoma are almost equal to bulk exports. Conagra and Cenex Harvest operate elevators in Kalama and Vancouver, Wa, for corn, wheat and soy beans.  Wheat and barley is handled at several elevators in Portland, OR. Soy meal is exported from a terminal in Grays Harbour, WA.

In the US, use of containers to transport grain has grown from 1% of total exports to 6%. US soybean and soy meal exports to Asia in containers have grown from almost zero to 83,000 TEUs/y. BNSF expects containerized crop exports through Seattle and Tacoma to double again in two years because of the trend towards identity preserved and organic crops. None of the BNSF crop containers are from Canada except during system breakdowns. 

The rail rate for agricultural exports in 20 foot containers loaded to 24 tonnes is about $1,100/TEU ($46/tonne) from Regina and Saskatoon and $400/TEU ($17/tonne) from Edmonton. In Canada, the maximum revenues for the movement of Western Canadian grain by rail in both hopper cars and containers are regulated by the Canada Transportation Act. The rail revenue cap provides a disincentive for railways to move grain by container. If railways move full grain containers they get no extra revenue and lose their present revenue from moving empty containers.

The revenue caps apply to wheat, barley, canola, oats, rye and flax, a total of 25 million export tonnes. About 15 million tonnes is transported west based on Port of Prince Rupert and Port of Vancouver statistics. The balance, 10 million tonnes, is transported east and south.  Under the price controls, the average rail revenue is equivalent to a rate of about $40 per tonne to the west and $25/tonne to the east.

In the US, rail prices are set by the market although the Surface Transportation Board may intervene if markups are more than double variable costs. The published BNSF grain rate from Williston, ND, due south of Regina, to Vancouver, WA, is $3,075 per car or about $34 per tonne. CN Rail can freely set its rates for crops brought from the US Midwest to the new Prince Rupert container terminal. But CN’s revenue from transporting Canadian grain is capped by the Canadian Transportation Agency.

The top three containerized crop exporters from the Port of Vancouver are Cargill, Canada Malting and Parrish and Heimbecker. Cargill Inc, part owners of Prairie Malting, exports through the Columbia Container terminal. Canada Malting, Calgary, owned by Castle Harlan Investment Group, New York, and CHAMP Private Equity of Australia owns Coastal Containers’ transload terminal. The two transload terminals are located close together on private waterfront land near the marine container terminals and are served by CP Rail.

Parish & Heimbecker, based in Winnipeg has customers in Vietnam, China, and other parts of Asia.  They have a container transload facility in Surrey for canola and canola meal and have begun container loading at their Alliance Terminal in the Port of Vancouver. Parrish and Heimbecker, Paterson Global Foods, also of Winnipeg, and four Saskatchewan grain terminals purchased the Alliance Terminal in 2007 for $40 million after Viterra (formerly called Saskatchewan Wheat Pool) was forced to sell it by Canada’s Commissioner of Competition.

About 46,000 TEUs per year of peas, lentils and beans are shipped from Vancouver making these “pulse” crops Canada’s leading containerized agricultural export. There are about 40 processing plants large enough to ship peas and lentils by rail. Most are located in Saskatchewan with a few in Manitoba and Alberta. The largest exporting company is Alliance Pulse Processors Inc., Regina, (formerly Saskcan Pulse and Agtech). The company has four processing plants in Saskatchewan and one in North Dakota with a total capacity of 200,000 t/y. Viterra Inc., is the next largest with plants in Regina, Lethbridge and Medicine Hat. Parrish and Heimbecker, Winnipeg and Lethbridge, is another major processor. All three companies use both CN and CP Rail.

Other major pea exporters on CN Rail are Western Grain, Saskatoon, Sunrise Foods, Saskatoon, Walker Seeds, Tisdale, SK, and Great Western Grain, Lloydminster. Major peas exporters on CP Rail are Simpson Seeds, Moose Jaw, Weyburn Inland Terminal, Weyburn, Bean & Company and Lily and Rose, Regina. Container shipments are economic from Saskatoon and Regina but the plants in smaller towns are usually served by hopper cars that are transloaded in Vancouver.

Malt barley is the second leading containerized agricultural export from Vancouver. This product must be handled delicately to reduce damage to the kernel that can come from handling the grain. About 33,000 TEUs per year of malt barley is exported mainly from two malt plants in Alberta, one in Saskatchewan and one in Manitoba. Exporters bring 80 tonne hopper cars to transload facilities in Vancouver or Surrey. Malt-grade containers are readily available in Vancouver evenly split between 20 and 40-foot containers.

Westnav, located in Surrey, is the largest crop transload terminal in Vancouver. It has an 8,000 square meter warehouse and 3 hectares of paved yard. Their main throughput is peas but they also handle barley and some wheat for a broker working for the Canadian Wheat Board. Westnav also offers custom bagging of bulk materials.

EBN Grainco, Richmond, loads peas and lentils from CN or CP hopper cars into containers. About two thirds of the containers are human food grade 20-foot long containers.  The peas are exported mainly to China where starch is extracted to make noodles and the lentils are exported mainly to India.  In Surrey, Global Agriculture transloads peas, lentils, chick peas, flax seed, and canary seed from hopper cars into containers. They have bagging equipment for part of their product.

Columbia Container, privately owed and located on the waterfront in the Port of Vancouver, is the second largest export crop transload terminal in the Vancouver area. Columbia’s main business is peas, lentils, and barley but they also are starting to handle some wheat for the Canadian Wheat Board. Columbia unloads mainly CN rail cars into silos and then fills them into 20-foot containers. It seems part of the success of this business depends on the exporters supplying their own containers purchased or leased from the container manufacturer Triton International. The other containers used by Columbia are from Hanjin, Cosco, China Shipping, and K-Line.