An economic inquiry into blending rents at primary elevators in western Canada : a spatial approach

The grading system in use in Canada establishes a financial incentive that influences a rational elevator agent to ship out grain with a quality level situated along a minimum quality line. This enables the elevator manager to generate rents by blending grain, but how much of the rents the agent keeps and how much is passed back to the producer depends to a large extent on the competition in place at the elevator's location. Thus the central issue becomes one of reflection and of determining the conditions under which rents generated in the normal course of an elevator's daily operations are passed back to farmers. The issues that are examined in this study are as follows: (1) What is the nature of the competition that arises as elevating firms and farmers compete for rents? (2) Who ultimately captures these rents? (3) The spatial configuration (structure) of the grain market on the Prairies is changing rapidly. These changes will effect the competition between elevators and the well-being of farmers. By examining the nature of the competition in a cross-sectional setting, is it possible to draw some inference for the effects of this changing structure? The study used data of deliveries to and from 130 elevators located on the Prairie provinces of Canada. The results of the study found that elevator managers most likely use blending rents as a tool to draw grain deliveries to their elevators. The highly competitive nature of the industry suggests that non-competitive behaviour by elevator companies generally is not possible, except possibly in some remote areas where few elevators are present. This conclusion has obvious implications on the net returns to farmers as more elevators are being closed down to be replaced by fewer but larger elevators. No inferences could be drawn on whether or not elevators have an added ability to generate rents depending on the variability of the quality of the grain delivered to the elevator as too many unquantifiable variables play a part in this process. A strong inference could be drawn that High Throughput (HTP) elevators, in relation to other conventional elevators, have an effect on blending rent retention. This finding has obvious important implications for the future, since much of the grain elevation needs of Prairie farmers in the future will be met by HTP elevators. However, the fact that HTP elevators often provide farmers with alternate benefits such as trucking fees also needs to be taken into account. Any positive rents generated in these elevators must therefore be counter weighed by the other benefits that may flow to farmers. (Abstract shortened by UMI.