Wednesday, November 10, 2010

CWB Single Desk vs Grain Companies

A current argument in support of the single desk compares the CWB to grain companies.  Allen Oberg, director-candidate in District 5 says “Unlike private grain companies who work on margins, the CWB’s price premiums are returned directly to farmers”. 

One thing that never seems to come up in this argument is the fact that with the CWB system farmers actually pay both the CWB overhead and the grain companies their tariffs for handling.  It’s a double whammy.

Last year, the CWB overhead cost worked out to $3.27/tonne.  In addition, on behalf of farmers the CWB paid grain companies $8.34/tonne for terminal handling and $3.83/tonne for storage.  (All these figures are in the Annual Report.)  On top of that, farmers paid grain companies (through cash ticket deductions) elevation and cleaning fees in the neighbourhood of $14.00 and $5.00 respectively. 
So under the CWB system, CWB costs are in addition to the grain company charges for handling.  On non-CWB crops like canola, obviously farmers don’t pay the CWB.  And, as I’ve shown before, the handling charges are much less on non-CWB grains due to competition – both export and domestic.

Here’s another way to look at it.  Grain companies bid on CWB tenders for railcars by discounting their tariffs that would apply to CWB grains.  Often the bids show handling fee reductions in excess of $20/tonne.  Think about it – how could a company discount their fees by $20/tonne unless they were making more than that in the first place?  Also, why would they discount at all?  The answer is they are competing for extra shipping of CWB wheat.  Clearly, when grain companies compete for grain, the fees they charge go down – your costs go down.

Let’s say for argument sake that in a competitive marketplace (like we would have with a voluntary CWB) total grain handling costs would go down $10.00/tonne (or about half of the discounts we see on tenders – it would likely be more, but this is enough to make the argument).

The CWB reported it was able to get premiums of $6.65/tonne on all wheat sold last year.  After covering overhead, that works out to $3.38/tonne net for the farmers’ benefit.  Now factor in the excess grain handling cost because we don’t have competition for CWB grains – (remember the $10.00/tonne).  

Now the single desk “benefit” to farmers is a net loss of $6.62/tonne.

That is, of course, if you believe the CWB gets premiums in the first place.

Now factor in all the other costs that you pay through the CWB system but aren’t reported directly – like demurrage.  It only gets worse.

There are a few director candidates in the CWB election that say the single desk gets better prices.  If you get a chance, ask them to explain how that works when the CWB’s own financial figures don’t support that conclusion.

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