Canada: Strategic Alliances of Saskatchewan Wheat Pool (1995)

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   This document has been made available in electronic format
           by the International Co-operative Alliance.
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Presentation to the ICA Regional Conference for the Americas
          San Jos, Costa Rica, December, 1995


                 STRATEGIC ALLIANCES  
    Mr. W.E. Hunt (Sackatchewan Wheat Pool, Canada)


It is indeed a pleasure to represent Saskatchewan Wheat Pool at
this Regional Conference of the International Co-operative
Alliance. I want to begin by bringing greetings to fellow
co-operators and all those attending this conference on behalf
of our members and our President, Mr. Leroy Larsen. A very busy
schedule prevented his attendance.  We all live in an
ever-shrinking world so I welcome the opportunity to meet and
share ideas, experiences and opportunities with other
co-operatives from other countries. I have been asked to discuss
our experiences at Saskatchewan Wheat Pool in forming strategic
alliances, joint ventures and partnerships. Before doing that,
I want to describe our province and then our co-operative so you
know who we are and get a feeling for our culture and values
system. This is important because it influenced our thinking and
approach as we developed working relationships with other
co-operatives, private and public companies.

1.   Saskatchewan is one of Canada's ten provinces. We have 48
million acres or 20 million hectares of cultivated land. The
population is one million people with 130,000 deriving their
living on farms. The main elements of the economy are
agriculture, mining (potash), oil, manufacturing and service
industries. Our major crops are hard red spring wheat, used for
bread, durum wheat used for semolina and pasta, barley for animal
feed or malting and canola, a high quality oilseed.  We also
produce peas, lentils, flax, oats and mustard. Precipitation 
ranges from 12 to 16 inches (30 to 40 cm) and production of all
crops averages about 22 million tonnes per year. Eighty percent
of our production is exported, the majority in unprocessed
condition which presents a transportation challenge since we are
1,500 km from tidewater. Our grains and oilseeds are sold
worldwide.

The province has 1.1 million beef cows which are raised on native
prairie and other land not suitable for crop production. The
calves go into feedlots for finishing. We produce one million
hogs per year. The main meat markets are domestic, the United
States and Pacific Rim countries.

2.   Saskatchewan Wheat Pool was formed in 1924 and we now have
60,000 members. To become a member, you must be a farmer in the
Province of Saskatchewan. The organization was established to
provide farmers strength and leverage in marketing their grain
and to act as a voice for farmers, advocating policies favorable
to the needs of agriculture and the primary producer. Initially,
the organizationbs only commercial involvement was in grain
handling and marketing through a network of country elevators
and export terminals. The Pool is governed by a delegate--Board
structure based on the principle of one member--one  vote. The
Board of Directors set policies, directions and hires the  Chief
Executive Officer.

3.   Mission: Saskatchewan Wheat Pool's corporate mission states
that we are an agricultural co-operative dedicated to improving
the well-being of members through leadership and excellence in
meeting customers' needs. The key words in that statement are
co-operative, which defines our  ownership control and purpose;
members-our key stockholders, and customers, without whom no
commercial business can exist. In our case, we have members who
are customers and we have processors, importers and  consumers
who are customers.

4.   Today, Saskatchewan Wheat Pool is a vertically integrated
diversified agri-food co-operative that maintains a strong role
in advancing public policy. Our core business remains that of
marketing grains, oilseeds, special corps and livestock. We have
and are continuing to diversify into value-added activities which
are based on our core business. The company's sales last year
were $2 billion U.S. If we include our associated companies, our
sales were $2.7 billion U.S.

In our last fiscal year, Saskatchewan Wheat Pool and our
affiliated companies processed two million tonnes of grains,
oilseeds and special  crops.

Our business includes:

*    Grain gathering system-400 country elevator in Saskatchewan
     that handle over 10 millions tonnes of grains, oilseeds and
     special crops per year. We handle 58% of the Saskatchewan
     crop each year.

*    Farm supplies--sales of over $220 million U.S. representing
     30-35% of  inputs used by farmers--fertilizers, pesticides,
     and seed.

*    Grain terminals on navigable water for exports.

*    Heartland Livestock Services--operates 10 markets where
     cattle are sold by public auction, handling over 800,000
     head of cattle per year.

*    CanAmera foods-oilseed crushing, refining, processing and
     packaging. Crushes 1.2 million tonnes of canola and
     500,000 tonnes of soybeans per  year.

*    Prairie Malt Limited - produces 180,000 tonnes of malt per
     year.

*    CSP-flour milling consumes over 100,000 tonnes of wheat to
     produce flour and bakery mixes.

*    Dawn Foods Canada--manufactures wet goods--icings,
     fondants, fillings, peanut butter for the bakery and food
     services market.

*    Robins Foods Inc.-ownership of a chain of donut stores

*    Pund-Maker Adventures-integrated ethanol plant and cattle
     feedlot. Produces 12.5 million litters of ethanol and feeds
     45,000 head of cattle per year.

*    Western Co-operative Fertilizer-fertilizer manufacturing
     and distribution

*    Philom Bios - a biotechnology company

*    Pool Insurance - an insurance agency and self insurance

*    Western Producer Publications - publishes a weekly farm
     newspaper, providing a wide range of information to our
     96,000 subscribers, 80% of whom are farmers.

*    XCAN Grain Pool Ltd.- an exporting company that marketed
     over six million tonnes of grain domestically and around
     the world.

5.   These business activities are organized in various ways:

     1.   Operating divisions of Saskatchewan Wheat Pool. The
     country elevator network and farm supply business, most of
     the exports terminals, the flour mill and the Western
     Producer are all operating divisions of Saskatchewan Wheat
     Pool.

     2.  Partnerships and joint ventures with other
     co-operatives. XCAN Grain Pool Ltda, Heartland Livestock
     Services, Western Producer are all operating divisions of
     Saskatchewan Wheat Pool.

     3.  Partnerships and joint ventures with public and private
     companies and groups of farmers.

     - CanAmerica-Saskatchewan Wheat Pool/Manitoba Pool
     Elevators and Central Soya Canada Ltda.

     - Prairie Malt-Saskatchewan Wheat Pool and a private
     U.S.-based malting company.

     - Robin's-Saskatchewan Wheat Pool and four businessmen
     investors who also manage the company.

     - Pund-Maker-Saskatchewan Wheat Pool, an oil company and
     200 local farmers.

     - Regina Seed Processors-Saskatchewan Wheat Pool and a
     group of farmers who are also Pool members.

6.   While we have a variety of ownership structures we work very
hard to operate all commercial activities on a strong business
basis. We must be profitable. The Pool was organized for economic
reasons and we can only succeed now and in the future by
operating in accordance with good business practices. We compete
in the marketplace with public and private companies. We cannot
be less efficient or effective. We cannot offer a lower level of
customer service or extract a higher price from the market. We
must compete everyday for business. We are different in that we
work on behalf of members and we turn our profits back to our
members but we must earn member's support and patronage every
day.

In our early days, we only formed joint ownership arrangements
with other coops. Saskatchewan Wheat Pool's approach was to
either own 100% or find a coop partner. The concern was that we
needed control and that there were philosophical reasons we could
not partner with private enterprises. Partnering with other
co-ops was a confortable arrangements.

We knew that the Pool needed to diversify and become increasingly
involved in value-added activities. We recognized the need to
find partners who could help us achieve our goals.

Over time our attitude towards potential partners changed.
Perhaps we gained confidence that we could hold our own, compete
and even partner with private business. Perhaps we matured,
realizing there were good business reasons, with benefits for our
members, inpartnering with private business. Perhaps we became
pragmatic and recognized we needed things private business could
bring that other co-operatives could not. Whatever the reasons,
we now have a number of very successful joint ventures, strategic
alliances and partnerships with public and private companies.

While we had to develop a comfort level with private business,
they likewise had to understand that the Pool was a solid,
viable, well-managed business that focused on earnings and
understood we were not a social club interested only in
short-term returns for members.

The critical elements and principles that nurture a successful
business relation are the same regardless who you select as a
partner. No matter if you are establishing a strategic alliance
to strengthen a supply or marketing relationship or if you are
setting up a legal partnership or joint venture these elements
are necessary.

7.   Let me identify the key elements and why we, at Saskatchewan
Wheat Pool, believe they are critical.

     1.  A shared and common vision of what the business
     relationship can achieve now and what the expectations are
     for the future. It is critical that the parties are walking
     together and walking in step. They must have complementary
     and common goals. A good understanding of the business and
     common expectation of the results.

     2.  Complementary strengths - Successful business ventures
     need capital, management, marketing, technical knowledge
     and many other skills and resources. Paterners who bring
     diverse but complementary strengths and abilities can
     create a strong relationship. It is an ideal way for each
     partner to acquire resources and skills they do not have
     today. It can be a classic case of hybrid vigor. A way to
     make one plus one equal three.

     3. Compatible values systems and business ethics-While
     co-ops believe in distributing profits in a different
     manner than private enterprise, both can share values such
     as honesty and integrity in business. A commitment to
     quality and customer service, a common philosophy on
     managing staff. If you value system does not match, you
     will have problems down the road.

     4. Mutual knowledge and respect of your partners-Invest the
     time, up front, to know who you are dealing with. Invest
     the time to understand their strengths and weaknesses,
     abilities, limitations, values and expectations. Invest the
     time to develop a comfort level and trust. This is
     critical. Time invested up from will save endless problems
     and even failure later on.

     5. Sign strong and comprehensive partnership or joint
     venture agreements that clearly define the rights and
     responsibilities of the parties. These documents are the
     foundation that define the relationship. Well prepared
     agreements are very important. While it is hard, time
     consuming work which may involve some tough discussions
     with you prospective partner, investing the time and money
     up front can save time, dissatisfaction and money while
     protecting the partnership in the future.

     6. Creating a critical mass to compete. One beneficial
     outcome of a joint venture is to create a business entity
     with sufficient size and strength to competing the
     marketplace. As customers and competitors get larger, we
     find that size becomes increasingly important. Partnering
     can be one way to achieve substantial growth in a
     short-time frame. In these situations, a competitor may
     become a partner. This will lessen competition, and allow
     the larger business enterprise to survive where two small
     units were failing.

     7. These elements are not new and not revolutionary. In
     many ways, they are common sense. Like most achievements,
     the creation of these partnerships, requires leadership.
     Someone must champion the project, overcome the critics,
     convince the decision makers, grind through the details and
     see the project to a successful conclusion. We have
     utilized teams including operating, marketing, financial
     and legal expertise to bring our joint ventures together.
     Ge all the necessary disciplines involved early in the
     process. Be sure they all understand the objectives to be
     achieved in the venture and pay attention to detail. Think
     short and long-term, consider all aspects, all synergism,
     all detractions that will affect current and future
     operations. Be very sure of what you sign.

     8. If leadership is the spark to create alliance then
     communication is the glue that holds them together.
     Regardless of the structure, good open, honest two-way
     communication is absolutely essential. Maintaining the
     relationship requires an on-going investment of time and
     talent. You can not and should not take the relationship
     for granted. Differences, which will develop, must be
     addressed in an open, honest and timely fashion. Keep
     discussions professional and avoid personality conflicts as
     much as possible. Be sure planning and reporting processes
     are an integral part of the operation. It will minimize
     surprises and build comfort for all parties. Ensure you
     partner has access to the same information as you.
     Remember, your partner has a stake, has accepted risk and
     has a right to know how the business is performing and
     where it is going.

Let me share with you Saskatchewan Wheat Pool's experience with
strategic alliances and partnerships:

     A strategic alliance - Saskatchewan Wheat Pool is involved
     with Alberta Wheat Pool and Manitoba Pool Elevators in plan
     breeding. One of our programs is developing improved barley
     varieties for malting. We signed an agreement with a major
     U.S. Maltster to test their varieties in Canada. A variety,
     acceptable for malting, was developed. Saskatchewan Wheat
     Pool now multiplies the seed, contracts with farmers to
     produce this variety which is handled through our elevator
     system and sold to the maltster.

The benefits:

     The maltster gets the quantity of barley they need.

     Saskatchewan Wheat Pool gets the sale of seed and
     production inputs plus handling and marketing the barley.

     The farmer is assured of a market if his barley production
     meets the quality standards.

     A limited partnership-Six years ago, a malt plant which had
     been built by the government of the Province of
     Saskatchewan became available. It produced 80,000 tonnes of
     malt per year. We formed a partnership with a private,
     family owned, U.S. malt company. In the negotiations, the
     government of the day insisted that the employees be
     offered an equity position in this new company now called
     Prairie Malt Limited.

     Today, Prairie Malt Limited is a profitable 180 000 tonnes
     per year malt plant, exporting 90% of its production. It is
     owned 51% by our U.S. partner, 43% by Saskatchewan Wheat
     Pool and 6% by a group of Prairie Malt employees.

How did this come about?

     Saskatchewan Wheat Pool had determined that we must become
     involved in value-added processing. Malt production was an
     area of interest. 

     The government wanted to sell and Saskatchewan Wheat Pool
     was a very credible, local investor which facilitated the
     deal. We knew very little about the malt production
     although we had always handled large volumes of malt
     barley.

     The U.S. maltster came to understand the business expertise
     and strength resident in Saskatchewan Wheat Pool. A mutual
     respect was established between the Chief Executive
     Officers of the two companies-the U.S. maltster and the
     Pool.

     The U.S. partner contributed expertise and a detailed
     understanding of malt production and marketing.

     Saskatchewan Wheat Pool contributed a strong capability to
     source high quality malt barley.

     The employees brought experience and dedication in
     operating the plant.  The U.S. partner became the managing
     partner and to their credit, they have always ensured the
     Pool and the employees are provided input at the Board
     level and receive monthly financial statements. We plan
     together and openly share results.

     We are proud of the success story at Prairie Malt Limited.

     An amalgamation and acquisition - Saskatchewan Wheat Pool
     and Manitoba Pool Elevators owned and operated three
     crushing plants, two refinerieswith some processing and
     packaging capacity all in western Canada. Canola was the
     main crop being crushed. While profitable through the
     1970s, this business fell on very hard times in the 1980s.
     All of the crushers in Canada were losing money. We
     concluded that to survive we needed to become bigger. In
     what was a bold stroke, we amalgamated our assets with
     those of Central Soya Canada Ltda, who had a single
     crushing plant in eastern Canada. At the same time, the new
     partnership acquired the assets of the Edible Oil Division
     of Canada Packers adding another crushing plant plus
     refining, packaging and processing.

     We formed a new company, CanAmerica Foods, now the largest
     crusher, refiner, processor and package of oilseeds in
     Canada.

     CanAmerica has been very successful in the three years
     since it was established. Owned 33% of Saskatchewan Wheat
     Pool, 17% by Manitoba Pool Elevators and 50% by Central
     Soya Canada who in turn are part of the multinational,
     Ferruzzi, of Italy.

     CanAmera worked because it consolidated three competing
     operations into a single unit providing the critical mass
     to compete worldwide. Both parties contributed plants,
     markets and expertise. Central Soya provided a world
     perspective from their international holdings. Saskatchewan
     Wheat Pool provided a consistent source of canola.

     Partnerships - on a smaller scale - Recently Saskatchewan
     Wheat Pool formed a joint venture with a group of 20
     farmers to establish a seed cleaning plant to process peas
     and lentils. Small by comparison to some of our activities,
     it is based on the same principles.

     The farmers, who are also Pool members, provide local
     commitment to supply the peas and lentils. The Pool
     provides market access, additional supplies of seed to
     ensure critical volumes are met.

Again, both parties win.

These are examples of successful relationships with various
partners. We have had an experience when the relationship was
less successful. In that instance, there was not a common
understanding as to how the business would function and our
partner did not understand his responsibility to the partnership.
What happened--inadequate communication and a lack of due 
diligence going into the partnership. The end result may be the
dissolution of this company.

At the present time, Saskatchewan Wheat Pool is in the midst of
major financial restructuring. If the restructuring is carried
through to completion, and there are some critical decision
points yet to be passed, our members' equity will be converted
into two types of shares. This Class A share carriers voting
rights and can only be held by a farmer in Saskatchewan. The
balance of the equity will be converted to Class B shares,
non-voting shares which will be eligible for dividends. Class B
shares will be traded on the Toronto Stock Exchange.

Saskatchewan Wheat Pool will then be a co-operative with publicly
traded shares. Democratic control remains with the Class A
shareholders who, by definition must be farmers. Class B
shareholders have no vote. This conversion will provide the Pool
with permanent equity. The obligation to repay member equity is
removed and transferred to the open market. Saskatchewan Wheat
Pool concluded that this restructuring is essential to allow for
long-term growth. Our co-operative will have a solid base of
permanent equity and will have a much greater ability to raise
capital for the renewal of existing facilities and to invest in
value-added activities. We will be in a much stronger financial
position to participate in alliances
and joint ventures.

At Saskatchewan Wheat Pool developing strategic alliances,
partnerships and joint ventures has enabled our co-operative to
grow and diversify. It has allowed us to capture opportunities;
to gain expertise and experience. It has been a very successful
strategy that has assisted us in adding value to the production
of members' farms. The organization has become stronger and our
members have been better served.