United Grain Growers Limited (UGG) is the third-largest grain handler and distributor of crop inputs (seed, fertilizers, herbicides, and pesticides) in Canada. UGG was formed in 1906 and, until 1993, operated as a farmer-owned cooperative whose primary business and income came from grain handling in western Canada. Western Canada has more than 100,000 farms, and in 1997, farm expenditures on crop inputs and feed totaled approximately C$4 billion. In the late 1990s, Canada’s share of world wheat trade was 22 percent, virtually all produced in western Canada.
UGG fulfills a key role in the “seed-to-supermarket” food system. It provides a reliable supply channel, with on-time delivery to exacting specifications. Canadian law requires that all wheat and barley destined for human consumption be sold through the Canadian Wheat Board (CWB). These are known as “Board grains,” for which UGG is paid a preestablished handling tariff per tonne. UGG also buys “non-Board grains” (e. g. , canola, flax, linola, peas, feed barley, and other grains not subject to the CWB monopoly) and markets them domestically and internationally.
UGG earns a margin on non-Board grains based on the efficiency with which it markets and manages inventory and hedges its positions on world futures markets. UGG serves as the link between the CWB and the farmer for handling Board grains, and between the farmer and the market for non-Board grains. UGG delivers Board grains, purchased on behalf of the CWB, to meet CWB sales contracted on domestic and international wheat and barley markets. UGG sells non-Board grains, purchased directly from farmers, on its own account in domestic and international markets.
United Grain Growers Ltd. (UGG), a Canadian grain distributor, audited its exposure to a number of key risks, especially the impact of weather on grain volumes and operating income. Understanding these risks was crucial because the company was in the midst of a major modernization and diversification program. But although UGG already managed traditional risks through a variety of control processes, it was still faced with the problem of how to deal with the biggest risk; the weather.