How does the port authority support the grain and agriculture sectors?
As a Canada Port Authority, we have a federal mandate established under the Canada Marine Act, to enable Canada’s trade through the Port of Vancouver, while protecting the environment and considering local communities. It is a complex mandate that requires balancing the opposing interests of a broad range of stakeholders, ultimately having to make decisions in the best interests of Canadians.
Fulfilling our federal mandate means we must ensure port infrastructure is in place to handle growing international trade. For more than a decade, there has been an incredible amount of investment in the port and the surrounding gateway to the benefit of all terminals, with much of that investment directly benefitting the grain sector.
For example, the Low Level Road project benefitted the coal, potash, grain terminals and others on the north shore of the port by increasing rail capacity. Since then, many of those terminals have made substantial investments to add terminal capacity and grow their operations and the new G3 grain terminal was built. Over the last decade, the port authority has reviewed and permitted about $1 billion in major investments by port grain terminals.
As a result of this investment, we have seen record grain cargo through the port in recent years. Grain, specialty crops, and feed cargo was 35 million metric tonnes (MMT) of the total 145 MMT of cargo through the Port of Vancouver in 2020, which is about 100% more than in 2011, and growth is expected to continue. The estimated value of that cargo has also doubled in that decade, from about $5.7 billion in 2011 to just over $11.3 billion in 2020.
When planning for future infrastructure investment, we consider independent forecasts and consult with industry. Looking at our current forecasts, we see growth in many sectors, including in grain, other agriculture products, and containers, and are taking steps to plan for all of that growth.
There are a number of projects underway beyond the port and in the gateway to further increase rail capacity to the grain terminals. Generally speaking, for every dollar in gateway infrastructure spending, about one-third is contributed by the federal government, a third is contributed by partners such as railways and municipalities, and the port authority pre-funds the rest. The port authority recovers most of our investment over several decades through a fee charged to terminals in the trade areas that will benefit most from the projects. We aim to be very transparent in how those fees are calculated, and we consult with the terminal operators on the formula for the fee years before it is implemented. In the case of our latest fee, which will be implemented in 2022, we have been consulting with affected terminal operators since 2015. Some of the current infrastructure projects within the port are specifically to build capacity for the bulk grain sector, and others will address the increasing demand for container trade. Currently, about 5.2 MMT of grain, or 15% of grain throughput, is shipped through the port in containers. Grain shippers will therefore directly benefit from container capacity projects.
Preparing for future trade growth
One of the ways we are planning for the growth in container trade is by expanding the footprint of one of our existing container terminals in order to increase capacity. Another is by proposing to build over 100 hectares of new port land because we cannot find suitable waterfront space anywhere else in the gateway, or even on the West Coast, as the region is rapidly running out of trade-enabling industrial land. If approved by the federal government, this project would be funded by the port authority, commercial borrowing, and private investment, and then recovered through future revenue from the proceeds of the long-term lease with the terminal operator and terminal user fees.
Another way we support the agricultural sector in the port is to ensure our lease rates are reasonable. We model our rents after general market trends in order to ensure fairness across all tenants, encourage efficient use of our limited trade-enabling industrial land, and avoid subsidizing private businesses. Those rents are renegotiated about every three years. As a point of reference, our rents are below the average for industrial land in the Vancouver area. Over the last 20 years, overall grain terminal rents have increased on average between 3-4% per year. In recent years, we have had to impose a rent increase on a couple of our tenants that was higher than normal to reflect changing market conditions and maintain relative parity among our tenants.
Grain terminal leases are long term, and the last major lease was renewed some nine years ago. No grain terminal lease is due for renewal in less than six years, and renewal discussions typically take place within a few years of expiry or earlier if terminal operators are planning major capital expenditures. Our lease agreements also have the right of the tenant to seek the engagement of an independent third party arbitrator in the event of a disagreement about rent increases or other matters throughout the term of the lease, which is a common appeal mechanism in many commercial lease arrangements.
When it comes to lease renewal, we must sometimes make difficult decisions that are best for Canadians generally, but may not suit certain stakeholders. Sometimes, for various reasons we cannot renew a lease, but this happens very rarely and we give current tenants many years notice of our plans. At present, there is one grain terminal tenant whose lease is structured to allow for possible repurposing of the land, something the terminal operator understood and agreed to when the terminal operator purchased the terminal.
Canada’s farmers and the agriculture industry play a critical role in helping provide a safe and continuous supply of food to consumers in Canada and globally. We recognize this and will continue to support the growth of this industry in the Port of Vancouver, as we have for many years, and the port will remain Canada’s gateway for agricultural exports to the world.