A venerable grain operator bids wheat board adieu

There will be "blood on the streets" when the Canadian Wheat Board disappears as the exclusive marketing agency for the West's grain.

It's a dire prediction from the owner of Paterson GlobalFoods Inc., a Winnipeg-based grain-handler whose terminals have been iconic sentinels across Middle Canada for a century.

But Andrew Paterson isn't worried about his own business.

When Ottawa removes the 76-year-old stranglehold the board has held on sales of Western wheat and barley, small independent terminals will be at risk of becoming marginalized. And a scramble in the industry to fill the void left by the wheat board will lead to some companies losing money as they enter, and possibly retreat from, new businesses.

The big integrated grain handlers – such as Viterra Inc., Richardson International, and Cargill Inc. – are expected to capture efficiencies as they move bigger volumes through their pipelines.

"We'll do better than we do now," says Mr. Paterson, 50, whose family firm has climbed to more than $1-billion in annual revenues. "Our best years were in the time before the wheat board," and that pattern should reassert itself, he says.

Paterson GlobalFoods is one of those institutions that have long dominated agribusiness in the West – along with the Richardson family, Viterra (the former Saskatchewan Wheat Pool), and the wheat board itself. And it has been planning for the end of wheat board era for more than five years – since the election that carried federal Conservatives to power with plans to eliminate the board, giving farmers the freedom to make their own grain sales. Recently emboldened by a majority government, the Conservatives say it will make the transition by Aug. 1, 2012.

"We knew that some day this would happen," Mr. Paterson said, describing how he commissioned a report to find out where the wheat board's grain was being sold in the world.

The Paterson company, whose products are sold in 118 countries, met with most of the board's customers and developed relationships. It strengthened its marketing staff in Canada and the United States. It built key facilities in locations that could service this expanded traffic, and over the past two years, has spent $100-million in capital projects.

In Gleichen, Alta., it has built a rail terminal with a revolutionary loop track that allows the company to load 130-car trains without unhooking locomotives. Another new terminal handles fertilizers and crop micronutrients in Winnipeg. It has joined five other independent grain companies in buying the Alliance terminal at the Port of Vancouver.

But it also owns weathered wooden elevators in places like Prelate, Sask., where it has maintained service for local farmers in an era otherwise known for long-haul shipping and $30-million concrete terminals.

What's more, Mr. Paterson argues his business model is ideally suited to a post-board era, when private operators will buy from farmers and sell to end customers without the intermediation of the producer agency. More than 65 per cent of Paterson GlobalFoods' business is in commodities unrelated to the wheat board.

It operates as a trader, rather than just the owner of a transportation pipeline. It owns every kernel in its inventory, which requires a strong financing capability, he says. Some rivals will have to tap new bank credit to take ownership positions in wheat and barley, and it will mean additional costs for them, he says Mr. Paterson knows something about the grain trade. He is walking in the footsteps of great-grandfather Hugh Patterson, who was a grain merchant in Oshawa, Ont., before heading to Manitoba in the 1870s. Hugh's son Norman bought a carload of grain at Thunder Bay in 1908, planting the seeds of a grain-handling empire.

The Patersons built a cargo fleet and, when the Second World War broke out, provided ships for Atlantic convoys and the D-Day invasion. The company was dealt a heavy blow when it lost 15 ships and 58 men during the hostilities.

Norman Paterson was a prominent Canadian senator who lived to 100. He left a business with two arms – one in Thunder Bay that handled marine operations, and another in Winnipeg that focused on inland distribution. In 2001, Andrew emerged as the leader of the fourth generation, and the sole owner, buying out his Thunder Bay cousins.

With Thunder Bay ceding a lot of its port business to Vancouver and other venues, he sold the shipping division to Canada Steamship Lines, controlled by the family of former prime minister Paul Martin. Mr. Paterson focused on Western operations in the production, storage, transport and sale of farm commodities.

He has pulled off what many multi-generation family companies cannot achieve – to consolidate ownership in one person, avoiding the conflicts of a broad family consortium.

He is adamant that every successful business needs an owner-operator at the top. "A company without a leader who operates and understands the business, who lives and breathes it, is in trouble."

He adds that "a family business, once it goes past three generations, has to come back to one person." Otherwise, he says, the company gets a mass of shareholders more interested in dividends than operations.

And Mr. Paterson is clearly committed to operations. Contacted by phone, he was travelling south of Moose Jaw, inspecting this year's harvests. While rain has battered big areas of Manitoba and Saskatchewan, the region is yielding good crops.

"I love what I do," he says, "and I love the fact I have a great franchise."