Buyers of Canadian wheat say quality lower than during board's monopoly

Buyers of Canadian wheat are increasingly complaining about quality ever since Ottawa changed how its biggest crop is sold and inspected, raising the risk the world's third largest exporter will lose sales to rivals like the United States.

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Problems include underweight shipments, lower-than-expected protein content and gluten strength in the wheat, and even the occasional mixture of wheat with other agricultural products.

In October, Singapore-based Prima Group found 850 kilograms of peas in a 25-tonne wheat shipment. A metric tonne is the equivalent of about 1,000 kilograms (2,200 pounds.)

"We don't know what's going on in the system here," said Prima advisor Derek Sliworsky in Winnipeg, who said that while not all Canadian wheat shipments suffer from poor quality, "we don't have these problems from other origins." Prima buys between 500,000 and 1 million tonnes of Canadian wheat a year to produce flour at its mills in Singapore, Sri Lanka and China.

Problems have grown since 2012, when Ottawa stripped the Canadian Wheat Board of its centralized role in marketing wheat, said Sliworsky, who used to work for the wheat board. The following year, Ottawa cut one-third of the workforce of the Canadian Grain Commission, the agency responsible for quality.

Randy Dennis, the commission's chief grain inspector, also said that since 2012, buyers have increasingly complained about the quality of wheat exports, especially about gluten properties.

Government inspection cut

Since late 2012, exporters have been able to have cargo certified on the basis of a composite vessel sample or from each incremental 2,000-tonne load. This change was poorly communicated to buyers such as Prima, Sliworsky said. In spring 2014 Prima was shipped wheat from Canada with lower protein than expected, reducing its value by up to $12 per tonne.

As of 2013, government weighing staff no longer monitor vessel loading at the elevator, but review information provided by the grain handler before certifying weight. This year, Prima received a shipment that was 375 tonnes light.

The government also no longer requires the grain commission to inspect and weigh rail cars unloading at port, instead allowing grain handlers or third parties to do it.

That change has led to less rigorous inspection, said Bob Kingston, president of the Agriculture Union, which represents commission workers.

"The fact that there are screw-ups - I would have been shocked if there wasn't," he said.

Formal complaints filed with the grain commission haven't become more common, said spokesman Remi Gosselin.

"It's not a question of who is to blame (for quality concerns) but how the grain sector adapts to change," he said.

Canada is renowned for the quality and consistency of its crops, said Canadian Agriculture Minister Gerry Ritz in an email. The grain commission "continues to ensure consistent grain quality exports that meet the expectations of buyers," he said.

Chinese quality concerns

Quality problems were confirmed by other buyers and traders, who spoke on condition of anonymity.

One Chinese flour mill reduced Canadian spring wheat purchases last year and through the first half of 2014, and bought more instead from the United States because of concerns about protein levels, weights and gluten, a mill executive said.

Last year, weak gluten strength in Canadian wheat also sparked concerns from China's COFCO Corp.

Australia has gained market share in Asia this year due to weather-related concerns about Canadian quality, including wheat with an unusual appearance after wet late-summer conditions, said a Melbourne-based trader, estimating that Australia had sold about 500,000 tonnes more than normal to Asia this year.

A European grain trader who supplies durum wheat to Morocco said buying Canadian wheat was less complicated under the wheat board, which sorted and tailored grain specifications to each buyer's requirements. The board also built loyalty by sometimes giving buyers better quality than they paid for, while exporters now deliver the bare minimum grade, the trader said.

Export share in decline

To be sure, several traders said there have been concerns about quality in other countries' shipments as well, including the United States and India. A Singapore flour mill manager and a spokesperson for Japan's Ministry of Agriculture, Forestry and Fisheries said separately that they have not seen Canadian wheat quality issues.

Cereals Canada President Cam Dahl, whose group includes grain handlers Richardson International, Viterra Inc and Cargill Ltd, said he had confidence in the commission's "science-based" quality assurance system.

Canada's share of global wheat exports has hovered around 14 percent for the current and past two years, up slightly from the final two years of Wheat Board control.

That share has declined from 17 percent in 2000 and 21 percent a decade before that, reflecting rising export competition.

To ensure Canada's place in the wheat world, "reputation really matters," said Neil Townsend, director of market research at grain marketing company CWB, the board's successor.

"It's a very competitive world out there."