For Montana, how appealing is a new pea fractionation plant?

0

We have grown fond of noting that Montana is the largest pea and lentil growing state in the nation. Following years of production growth, many suggest the next step in the development of the pulse crop industry is the construction of more processing facilities in the state.

It’s no secret that state and local agencies in Montana are trying to facilitate and incentivize the construction of new processing facilities. One type of pulse processing facility seen as a good fit for Montana is a pea fractionation plant. A fractionation plant processes dry yellow peas into their component parts, namely protein, starch, and fiber, to be used as ingredients in other food products. For example, pea protein is commonly used to add protein to nutrition bars, beverages, and other products. Pea flour used as a substitute starch in gluten-free baked goods.

Pea processing as economic development

The rationale for building a pea fractionation plant in Montana is typical of most economic development schemes: the construction of a plant would boost demand for Montana-grown peas, create jobs for Montana residents, spur additional nearby business activity and generate new tax revenue. But how far should business, state and local governments, and other entities go to attract such a plant?

This question crossed my mind last week when I saw that the French company Roquette announced plans to build the world’s largest pea fractionation plant in Portage la Prairie, Manitoba, Canada. (Incidentally, the proposed site is about 40 minutes drive from where my dad and brother farm.) The company already has a similar plant in France, but the proposed plant would be its first in North America. At first glance, the location seems less than obvious: Manitoba only raised 169,000 acres of dry peas in 2016, compared to 580,000 in Montana, 640,000 in North Dakota, and 2.3 million acres in Saskatchewan.

What to do to attract new plants?

One might wonder if Montana has failed here? Shouldn’t we hope the approximately US$300 million investment to be made by Roquette would have happened here instead of than elsewhere? Given the current rhetoric on economics and trade in the United States, it may be easy for some to see this story and suggest that Manitoba’s win must be Montana’s loss. I disagree with such claims for at least two reasons:

  1. To the extent that this plant represents new demand for dry peas, Montana producers (and indeed all pea producers) will benefit from higher prices. Pea markets are generally closely integrated across the Canada-US border. When pea prices go up in Canada, pea buyers in the US must also raise their bids. If not, growers have the option to ship their peas north to take advantage of higher prices there.
  2. Differences in production costs and government incentives provided to the firm may be a better reason than proximity to pea production for a firm to locate in a particular location.
    • Roquette also cited low electricity rates were as a reason for locating Manitoba. While Montana generally has low electricity prices relative to nearly all US states, average industrial electricity prices are currently higher than rates in Manitoba. Any incentives offered by Montana would have to overcome such differences in costs of pea processing.
    • No jurisdiction – country, state, county, or city can afford to spend infinitely to attract private business. Reports suggest that governments in Manitoba offered C$9.3 million (US$7 million) in incentives to Roquette to locate their plant there. While this isn’t an exorbitant amount by the standards of many government incentive packages for private business, it’s not a trivial sum either. (Subsidies to professional sports teams usually take the cake in this regard.)

Rather than bemoan the appearance of pulse processing capacity elsewhere, Montana farmers should cheer the expansion of North American pulse crop processing capacity. It’s a sign that the underlying economics of pulse production on the northern great plains are sound and that expanding pulse crop production is a durable trend, not a flash in the pan.

As for incentivizing investments in Montana to add value to the state’s agricultural production, I’ll only say that there are limits to how far Montana should go and how much should be spent. What do you think Montana should do, in terms of providing financial or other incentives, to attract new agricultural processing capacity?

 

4.00 avg. rating (86% score) - 1 vote
Share.

About Author

Joseph Janzen

Joseph Janzen is an assistant professor in the Department of Agricultural Economics and Economics at Montana State University. His research addresses price and trading dynamics in agricultural commodity markets. Some of his recent projects include commodity price shock identification, commodity futures market microstructure and the location of price discovery in world wheat markets, and the influence of international food aid procurement in pulse crop markets. Joe received his Ph.D. in Agricultural and Resource Economics from the University of California, Davis in 2013. He also holds M.Sc. and B.Sc. degrees in Agribusiness and Agricultural Economics from the University of Manitoba. Prior to his doctoral studies, he farmed with his father and brother, growing wheat, canola, oats, and soybeans at St Francois Xavier, Manitoba, Canada.

Leave A Reply