Big companies can dominate small markets. Not so in Saskatchewan. The Canadian province made its name in 2010 when mining company BHP Billiton's bid for PotashCorp was blocked. This week it emerged that commodity trader Glencore, in conjunction with Canadian agricultural groups Agrium and Richardson, are winning the fight for grain group Viterra -- at a price of about $5.5-billion -- while the world's four dominant agricultural dealers, ADM, Bunge, Cargill, and Louis Dreyfus (ABCD) look on.
This is perhaps expected.
The ABCD group controls up to 90 per cent of the world's grain trade. The problems of dragging competition authorities across the line (not to mention the negative exposure as lobby groups accuse them of pushing up world food prices) is something none of the companies needs.
And although Glencore is the world's biggest commodities trader by sales, it has very little presence in both Canada, and agriculture globally. Indeed, it generated just $17-billion worth of sales from its entire agricultural products division (less than a tenth of its top line) last year. Viterra's revenue from grain handling and marketing - which is derived only in Canada and Australia - would add half as much again to Glencore.
So far so good. But the hitch could be an unusual back-to-back deal structure. If Glencore sells on Viterra's 260 farm supply stores to Agrium, then added to Agrium's own 75 stores, the producer of farm products would have a stranglehold on the market in some regions that many farmers will object to. In spite of that, the consortium will almost certainly find a way to complete the deal. After nationalistic fervour killed BHP's attempt at Potash, Canada's politicians are under pressure to remind the world that the country is open for business. It now has the chance to do so without involving the grain world's big dogs.