REGINA — The head of Federated Co-operatives Ltd. acknowledges that its plans to build a canola crush facility in Regina is taking the organization in a different direction, but that wasn’t the intent of the decision.
Canada’s largest co-op has dabbled in grain/oilseed processing in the past. It has been in the feed manufacturing business for a long time and it recently acquired the Terra Grain Fuels ethanol plant near Belle Plaine, Sask., that processes wheat and other grains.
But it has never been in the crop processing business on the scale being proposed, where it will be buying 1.1 million tonnes of canola annually and converting it into oil and meal along with its business partner, AGT Food and Ingredients.
“It is a bit of a departure,” said FCL chief executive officer Scott Banda.
He said there was no discussion or debate around the board table about the 94-year-old co-operative suddenly getting into the grain/oilseed processing business in a big way.
The $360 million investment appears to put FCL toe-to-toe with the big players in the grain industry.
Banda downplayed that rivalry. He noted that all the canola oil produced by the crush plant will be consumed by FCL’s integrated renewable diesel production facility located next door.
“I don’t really see that as competing with anybody because it is dedicated to our facility,” he said.
The real debate at the FCL board table surrounded the larger investment in the renewable diesel plant.
“The big decision for the organization was whether we ride out fossil fuel and end up with a bunch of stranded assets and ultimately start to starve our local co-ops from profits from fuel or we get into renewable fuel,” said Banda.
The co-op had already taken a step down that road with the 2019 purchase of the Terra Grain Fuel ethanol plant. But it needed to do something on the diesel side of the business.
Banda emphasized that FCL is “first and foremost” in the transportation fuel business. That segment generated $4.33 billion in sales in 2020, which was more than double the revenue from the food segment.
But fossil fuel sales at the Regina refinery are on the decline and something had to be done.
The decision to build a renewable diesel plant in turn led to talk about owning and controlling the renewable diesel feedstock, which is the canola oil.
“It was very much the last step and not the first step,” said Banda.
Murray Fulton, a professor in the University of Saskatchewan’s Johnson Shoyama Graduate School of Public Policy, said FCL has historically steered clear of being in the grain handling/processing business because it would have required competition with its sister co-ops, the prairie wheat pools.
“Most of the farmers that were members of the pools were also members of the co-ops,” he said.
They didn’t want to be in competition with themselves.
So, for the most part, FCL has avoided that side of the agriculture business, although it is a major player in selling crop inputs.
“Even this (crush plant) does not move them into being a grain company,” said Fulton.
FCL will not be handling grains and oilseeds, finding export markets and transporting product to those markets.
He said this could be a backdoor way of eventually getting into the grain-handling business in a big way but he doesn’t consider it to be that kind of a play so far.
Fulton said FCL is primarily a fuel-based co-operative. That is the product that generates the vast majority of its profits.
But he noted that despite Banda’s efforts to downplay the rivalry with grain companies, there will be stiff competition on the canola procurement side of the business because Cargill and Viterra are both building large crush facilities in Regina as well.
Banda doesn’t see the co-operative investing more capital in the grain/oilseed processing sector anytime soon. “I think this will occupy us for the better part of the next decade bringing all this to life,” he said.
