Thursday, November 4, 2010

The NFU Wades into the CWB Debate

This week farmers received a one-pager from the NFU explaining what it sees as the benefits of the CWB for producers.  It requires a response; I will focus on the most glaring errors:
  • Concerning wheat and barley premiums, NFU says the CWB gets big premiums, referring to two studies – a 1996 study by Kraft, Furtan & Tyrchniewicz and a 1997 study on barley by Schmitz, Gray, Schmitz and Storey.  Long ago, the approaches used in both these studies were shown to be seriously flawed, as were the conclusions.  I’m happy to give more detail – just drop me an email to
  • Concerning interest earnings, beyond having their facts dead wrong, they also contradict themselves.  They say the net interest earnings were $104 million per year and the 5-year average is $29.8 million; can’t see that happening plus both these figures are wrong.  First, the net interest earnings have never been as high as $104 million.  Net interest earnings are currently around $2 million; the 5-year average is $26.4 million. 
  • So eager were they to update this sheet, they included this gem about the average interest earnings of $29.8 million (their number): “These earnings more than offset the cost of staffing and administrating the CWB.”  Staffing and administration costs last year were $79.1 million and the 5-year average is $72.3 million – a far cry from $29.8 million.
  • Concerning revenues from terminal rebates, the NFU didn’t even bother updating the figure from the last time they used this sheet two years ago.  Under the circumstances, I won’t comment on the figure.  But, I will say that it’s a stretch to give credit to the CWB for something the grain companies do.  Sure the CWB tenders to the grain companies for railcars of grain, but it’s the grain companies that respond with discounts to their typical charges.  This shows what competition would do to costs if the CWB system wasn’t in the way.
  • As for despatch, either the NFU doesn’t get it or they are intentionally misleading.  Please read my last commentary about despatch to see that it is a false-economy to pursue despatch like the CWB does.  Whereas the NFU suggests despatch is a gain, in actual fact it’s a substantial cost.
  • Concerning rail freight rates, the CWB was only one voice among many in the discussion.  To give credit to the CWB like the NFU does, unfairly trivializes all the work many others did on this issue.
  • Perhaps most glaring is that the NFU doesn’t consider everything that the CWB does and its impact on farmers:
1.       High cost of handling CWB grains compared to non-CWBs.  If they want to show how tendering provides revenues for the CWB, it’s necessary to also talk about the high cost levels to begin with.
2.       Affect on cash flow due to lack of full-cash-on-delivery options.  Durum is a perfect example this year.
3.       Affect on non-CWB crops like canola.  Prices are pressured as farmers sell these crops to pay for their bills from growing CWB crops.
4.       Affect on domestic feed grains.  Export prices aren’t transparent and so are not allowed to help raise domestic prices.

In general, with this flyer the NFU show gains where there really aren’t any and they don’t show where there are true losses, or drains on the farmer and farm economy.  I find it truly sad that the NFU went to all the trouble to put this together and all they showed was that they don’t understand the topic.  

Farmers are smarter than the NFU gives them credit for.  Presenting a document like this, expecting farmers to accept it as presented, is an insult to the collective intelligence of farmers.


  1. Wouldn't it be prudent to invite an elected director to address your rebutal to the NFU's statements, John? Perhaps ask two directors to address the issues, each from a different perspective so that farmers can follow along the reasoning.

    Surely at least two CWB directors will agree that the Web is an indispensible tool for giving everyday working farmers an oppotunity to read the responses, ... between choretimes. Pars

  2. I typed CWB election in Goggle and you got top result. even above the MNP and CWB site
    There are obviously many farmers looking at the site
    keep up the good work.

  3. I just read the NFU letter and needed to contribute a few thoughts. I was in the grain business for 25+ years and over that time period I saw a lot of things that brings me to the following conclusions:

    1&2) Wheat/Barley Premiums- No such thing. The CWB may be able to achieve a higher price than a one off spot deal by selling a number of cargoes at one time, but in doing so they are taking some price risk and providing the customer with price security that has value and needs to be rewarded. Canadian grain often receives a higher price than other origin due to its quality and the quality assurance provided by the CGC. This is as true of canola and oats as it is of wheat. As for price discrimination, as a seller the CWB can choose to sell at the market, below the market, or not at all. You cannot choose to sell above market price.

    3) Interest Earnings- Thank the Canadian Tax Payers not the CWB.

    4) Terminal Rebates, Tendering, Dispatch etc.- Collective negotiation that provides volume incentives can reduce costs and provide efficiencies for farmers, grain companies and railroads alike. This can result in a win, win, and win solution with the benefits being shared by all the participants. This type of agreement is not only sustainable but tends to grow into even greater benefits for all involved. The whole idea about collectivization is that you can extract efficiencies using critical mass. There are also win/lose negotiations the CWB has been the benefactor of. Theses tend to be unsustainable and ultimately lead to poorer service over the long run. Doing a lot of a bad thing is usually not sought after. Despatch by itself is not a true measurement of efficiency or money savings. It is one component of a cost pipeline that can easily be inflated by negotiating inefficient charter parties with vessel owners. I'm not suggesting that the CWB does this but just supporting my position that dispatch by itself is a deceiving measurement.

    5) Capped Freight Rates- If it is so rough for Montana and ND farmers how come they are not smuggling their Wheat into Canada?

    6) “Level of Service” complaint- CWB did a good job. Any group representing farmers and spending farmer’s money may have been able to formulate the same argument; the CWB is not uniquely qualified to do this although they are well positioned to do it. I’m not sure what it cost, sometimes the juice is not worth the squeeze, although sometimes you just have to do it out of principle.

    7) GM Wheat- No real opinion, although I do think that GM contributed positively to canola’s rise to become Canada’s most important crop.

    8) Terminal Blending- like despatch (see above) this is just one component in the pipeline that should not be separated for its own merit. If you think a $2.50/MT gain is good, think about how much it costs the system to maintain the dozens of grade separations required before the wheat gets to port; it is more than $2.50/MT.

    9) Thank the Government of Canada not the CWB.

    10) Other Benefits- Risk Management: price pooling is certainly a legitimate form of risk management and can be a good choice for some farmers to manage part or all of their price risk on wheat, barley, or any crop. Viterra runs a price pool for their bean plants in Southern Alberta that has been able to maintain about a 95% market share because of satisfied farmers not because of legislation.
    Market Development: the CWB does a good job. I think the Canola Council has been more successful.
    Support for Short Lines: using one farmers money to subsidise another farmers costs, but after all that is what pooling is.
    Fx Management- No big deal, hedging 101, anyone can do it.