Exit Decisions in the Canadian Grain Elevator Industry

Abstract

Grain elevators play a central role in the movement of grain to market and to rural economies in terms of employment and investment. Over the last three decades, the grain elevator industry in Canada has experienced a major decline in the number of elevators as older and technologically obsolete elevators have been replaced by larger and more technologically advanced elevators. We develop a model of exit in the Canadian grain elevation industry using data from 1999 to 2016 collected at the individual elevator level. Our specification explains elevator exit based on traditional variables used in the industrial organization literature such as capacity, multi-plant ownership, and vintage. But, we also include a measure of vertical linkage in the industry (i.e., elevator linkage to the freight transport sector) as well as spatial measures to account for local demand, supply and competition. The results provide strong evidence that exit in this key agricultural and trade industry is affected by whether an elevator is a recent entrant (vintage), its size, vertical linkages, local demand and supply conditions, and spatial competition.