Monday, September 26, 2011

The Next Ten Months

We need a smooth transition to entrepreneurial and marketing freedom.  Lost in the chatter about transition issues is the fact that prior to Aug 1, 2012 there is a great deal of commercial business to take care of and the CWB holds most of the cards. 

Consider this; at certain times of the year, the CWB may be marketing grain for two crop years.  For example, in March of any year, the CWB will be selling grain for the crop year it is in - ending July 31 of that year - plus it will have begun selling grain for the following crop year which starts on Aug 1.

This year the CWB is expected to maintain its role as single desk marketer until the close of business on July 31, 2012.  After that, the CWB will no longer have a mandate.  However, the CWB is still the single desk marketer of Western Canadian wheat and barley until then and has the obligation to fulfill its mandate to the best of its ability.

However, the CWB isn’t providing any certainty that it will fulfill its mandate through the transition.  For example, although sign-up for 2011-12 Series A delivery contracts is underway, the CWB says given the uncertainty surrounding it’s future, the offering of Series B and C contracts is “currently under review”, giving the impression that it may not market grain effectively toward the end of their mandate. 

The CWB has an obligation – and the power – to ensure there is no uncertainty.  When it makes statements like "future challenges ... will be met with the spirit of our Farmer First initiative" and "…a focus on farmer service in everything we do", farmers expect them to act accordingly.  So why the uncertainty?  It’s not at all difficult; the key is to ensure commercial activity continues uninterrupted.

And then there’s the issue of marketing 2012-13 wheat and barley between now and Aug 1, as the CWB ordinarily would.  As it stands, it could technically make the sales, but it wouldn’t be able to execute them after Aug 1.  So who does this business if and when it arises?  Since few in the trade will take the risk of doing new crop business until the Act has been repealed, then without the new CWB in place there is no one to take care of this business as it arises.

I mentioned it before (Sept 11th) but I make no apology for repeating myself as this bears repeating; the CWB could easily facilitate any early trade in 2012-13 wheat and barley by issuing no-cost export licenses to anyone requesting them.  

Doing this would show that it stands behind its “farmer first” slogan and could give the CWB a boost of popular support.  What is clear is that if it does nothing to facilitate this business, it will lose support.  The market needs both clarity and the opportunity to transact business; right now the CWB is an impediment on both points.

The CWB must do a number of things fast.

It must publicly and clearly advise farmers and customers that it will be there to market grain for the full crop year ending July 31, 2012.  The CWB can – and should – market grain right to the end of this crop year and, if presented with the opportunity, even make sales for shipment after Aug 1 (grain that was delivered on this crop year’s permit books prior to July 31st).  If CWB management and board members see it differently, they need to say so publicly and explain why.

The CWB must facilitate new crop business, giving confidence to anyone trading new crop wheat and barley that it will not impose penalties in the event that the transition process is delayed.  (There is nothing to suggest that it could be delayed, but many farmers and other people in the grain business aren't about to enter into contracts without assurances; we’ve all been there before).  Providing no-cost export licenses is just one (simple) way; there may be others.

The government has options regarding the marketing agency that will replace (in some respects) the CWB.  First, there is no reason it needs to be established on Aug 1st.  In fact, since there seems to be an impasse on what that agency will be able to do, the establishment of it could wait until sometime after Aug 1 - maybe some time in 2013.  Alternatively, if it was up and running before Aug 1 - say Jan 1, 2012 – it could operate concurrently with the CWB for the last half of this crop year, focusing on new crop while the CWB completed the old crop.  But, as long as a business plan for a successor agency is not developed, pressure builds for the CWB to facilitate new crop trade any way it can.

There is absolutely no good argument for the CWB to not facilitate ongoing grain business for the balance of the crop year.  If it was true to its slogan "Farmer First", it would be removing all ambiguity and creating clarity and opportunity in the market for this crop year and next.

Monday, September 19, 2011

Contorting the intent and language of the CWB Act

The group called Friends of the CWB are preparing for their upcoming day in court fighting the Government of Canada over the future of the CWB.  Their goal is to have the courts force the Government to hold a binding plebiscite prior to repealing the CWB Act.  This is one more distraction creating even more uncertainty through the transition to an open market.

It all has to do with Section 47.1 of the Canadian Wheat Board Act, which says the Minister shall not introduce in Parliament a bill that would exclude wheat or barley from the single desk, or extend the single desk power to any other grains, unless he holds a binding plebiscite first.

The Friends of the CWB have their own interpretation.  They say:  "The provision in the Canadian Wheat Board Act, Section 47.1 says the Minister shall not introduce into Parliament any legislation altering the mandate of the Canadian Wheat Board without having held a plebiscite of farmers approving the change".

Truth is, this isn't what Section 47.1 states.  The Friends are trying to convince a Federal Court judge that “excluding wheat or barley” or “adding grains” to the provisions of the single desk is "altering the mandate" of the CWB.  The next step in this mind game is to convince the judge that even repealing the Act is "altering the mandate" of the CWB, and therefore requires a producer vote.

According to Anders Bruun, lawyer for the Friends of the CWB, "The Minister has said he's not changing the Wheat Board's mandate, he's repealing the Act as a whole. What that does is change the Wheat Board's mandate..."

This is how the Friends of the CWB have contorted the intent and language of the Act in order to thwart the will of Parliament. 

How can ending the life of an organization be seriously seen as changing its mandate?  A changed mandate means there is still a mandate.  But how can there be a mandate if there is no longer an organization to execute it?

Imagine there's a regulation that says you can't castrate a bull without approval of others through a vote.  You have a bull that will not satisfy your needs, so you plan to end its life.  There is no need to call for a vote because you’re not changing the mandate of the bull (by castration); you’re ending its life.  Would it be right for a small group of dissenters to get a judge to order you to hold a vote because they feel what you are planning doesn't comply with their interpretation of the rules?  Would a judge reasonably think that killing your bull is the same as castrating it? (One ends its mandate while the other only alters its mandate)?

Minister Ritz has made it clear that he is not castrating the CWB.  He is ending its life as the only bull in the herd.

A different angle

If the Friends win this case, it would mean the Act has effectively made the voice of some farmers more powerful than Parliament itself.  It would force the government of the day to ask farmers for permission before it could be effective in its job as government.  I doubt that is what Ralph Goodale and the Liberal government of the day had in mind.

Imagine what would happen at WTO negotiations.

WTO:  “All parties agree that Canada must give up the single desk of the Canadian Wheat Board in fulfillment of its commitments to these negotiated agreements.  Canada – any comments?”

Canada:  “We agree in principle.  However, before we can comply, we are required to hold a vote of Western Canadian farmers to get their approval.  If they don’t agree with repealing the Act, I’m afraid we can’t go any further with these negotiations.”

Clearly, that would be absurd.

Revisiting the logic of voting

The CWB's idea of a vote is based on a very suspect voter's list of CWB Permit Book holders.  The apparent logic is that Permit Book holders have a vested interest in the CWB. But the flip side of that argument says those without Permit Books don't have a vested interest in the CWB.

Really?  Alberta farmers who grow barley for the local feeding industry don’t count, simply because they don’t take out a CWB Permit Book?  What about the people that work in the value added industry, like those that were laid off recently at Prairie Malt? Do they not have a stake in this industry? What about all the local employees of the grain companies?  What about fuel and fertilizer dealers? Implement manufacturers and dealers?  The list goes on; shouldn't they all get to vote on issues that impact their livelihood, such as the CWB?

The CWB Act gives farmers the right to vote on whether a commodity is included or excluded from the single desk.  I get that.  But when it comes to the CWB and its impact on the whole Western Canadian rural economy, farmers aren’t the only ones with a stake in it.  We elected a federal government that has the responsibility to ensure the health of the economy for the sake of all stakeholders (citizens).  That's why Minister Ritz's plan to end the life of the current CWB without a plebiscite is the right thing to do.

Hopefully, the Federal Court judge hearing the Friends' case can see the difference between castration and ending a life, even through the wool that’s been pulled over his eyes.

Sunday, September 11, 2011

All this uncertainty could cost a lot of money

Fortunately or unfortunately - regardless of how you look at it – the federal government is moving ahead with legislation that will repeal the CWB Act.  Although that sounds clear and certain, recent events have clouded things over.

First, last June the Friends of the CWB applied for a judicial hearing about how the Government is handling the reform of the CWB.  Yesterday was the Government’s chance to explain to a federal judge why there was no case – but it failed.  Now the “Friends” will have its day in court as it tries to stop the Government from removing the CWB.

Then there's the CWB's plebiscite.  It will be a shock if this ill-conceived survey doesn’t show support for the single desk.  With that result, the board of directors of the CWB (more specifically, eight of them) plan to carpet-bomb the country with its pro-monopoly rhetoric in an attempt to sway public opinion as a “Hail Mary” play to get the government to reconsider.  According to Allen Oberg, Chairman of the CWB board, even taking legal action against the Government is not out of the question.

These two events provide a generous dose of uncertainty over the next few weeks.  While the CWB directors and their “Friends” are muddying the waters with attempts to stop the inevitable, the business of marketing grain goes on.

For example, by this time in the crop year, the CWB has usually offered pricing options to price next year's crop.  But not this year.  The CWB has announced that it will not offer the futures portion of the 2012-13 Basis Price Contract, and will not be offering the Wheat Storage Program or Churchill Storage Program for 2012-13, all due to the “uncertainty surrounding the CWB's future”. 

This leaves a gaping hole in grain marketing opportunities

I was talking to a senior trader with a grain company earlier this week when he said, "You would not believe how much canola we are buying already for next year." With historically high prices, farmers are locking in prices much sooner than they usually do.  I figure if farmers had the opportunity to forward price wheat right now, they would.

A friend called yesterday from his combine and told me he usually starts to look at pricing next year's crop right around now.  He has used the CWB programs in the past and is now in a quandary; he asked me “what can I do to lock in prices on wheat?”

Winter wheat growers need some price signals right away since they’ll be seeding soon and malt barley buyers tend to lock in supplies early in the crop year.  But it appears they’ll see nothing from the CWB.

If the "uncertain future" is keeping it from making commitments to farmers it follows that it shouldn’t make commitments to buyers either.  But it should allow the private trade to market next year’s crop now.

So what about the private trade?  Why can’t they offer Canadian wheat?  Many of us have been through this before – the 1993 Continental Barley and Minister Strahl's "almost open market" of 2007-08.  Still licking their wounds from those two nightmares, the trade is waiting until they are certain that an open market is really going to happen before they do anything.  Sure, they’re hiring additional staff (even leasing more office space), getting financing in place and revamping computer systems, but trade grain?  Nope, not yet.

So, thanks solely to the CWB and its “Friends”, we have a huge gap in western Canadian wheat commerce where nothing is happening due to the uncertain transition from single desk to open market.  A gap that will be filled by other wheat exporters like Australia, Argentina, the US and the EU.  If the gap is left too long, we could have a pile of wheat to move next year when all the buyers will be partially covered by the time we get our act together.  I can easily paint a scenario where movement and prices next year will be jeopardized because of uncertainty now.

Cynics will say that is what the CWB wants.  They would enjoy a scenario where the new market without the single desk has low prices, poor movement and lost opportunities. They think it will allow them to say “I told you so”.

I would ordinarily find it hard to believe that those that support the CWB because of the market stability they believe it provides, are the ones that are causing so much uncertainty in the markets right now.  But anything is possible, I guess.

The solution is easy - yet hard

To solve this, the CWB could voluntarily provide zero-cost export licenses on any business done for 2012-13 between now and the end of this crop year.  It would have to state clearly and unambiguously that, regardless of how we transition to an open market, the CWB will not interfere with any trade that occurred this crop year with these export licenses (unlike past experiences).

It would be as easy as writing a news release announcing this as an “interim program”.  Yet hard – perhaps impossible – for the ideologically entrenched eight board members who apparently would rather see disorder and turmoil than resolution and compromise.

And really, they wouldn’t be giving up anything.  The CWB isn’t about to do the business so there is nothing to lose by letting someone else do it (without the potential of retribution).  The CWB and its “Friends” could continue with their campaign to save the single desk.  Actually, facilitating the market during the transition period and assuring there will be no retribution, would even earn the CWB a shipload of respect – an asset going forward as a voluntary enterprise.

If the CWB board doesn’t see it that way, perhaps the Minister could instruct the CWB to provide zero-cost licenses.  And while he’s at it, he could relieve the current board of directors of their duties as soon as possible. 

For no other reason than for the sake of a healthy market and a smooth transition.

Friday, September 9, 2011

The Friends of the CWB vs the Government of Canada

In June of this year a lawyer representing Friends of the Canadian Wheat Board (FCWB) applied to have a motion heard before The Federal Court of Canada.  The application was for:

“...a judicial review in respect of the decision of the Minister of Agriculture in his capacity as Minister Responsible for the Canadian Wheat Board (the "Minister") made on or about June 20, 2011 that he will not consult with the board of directors (the “Board”) of the Canadian Wheat Board (“CWB”) and conduct a vote of wheat and barley producers, in contravention of his statutory duty to do so under the Canadian Wheat Board Act, R.S.C. 1985, c. c-24 (the “Act”), including section 47.1 thereof.”

In plain English, the FCWB are saying that the Minister said he wasn’t going to hold a plebiscite and the Act states he must.  So they are asking the Federal Court of Canada to instruct the Minister to hold a plebiscite.

The application for the review was heard by a judge this morning at a special public sitting of the Federal Court of Canada. The result that would make the FCWB happy is the granting of a court date; they got their wish.

I found it interesting that the FCWB (the Applicant) didn’t present anything; I assume the judge had read the application beforehand.  The lawyer for the Government (the Respondent) argued on behalf of the Government for about 45 minutes.  It seemed fairly informal, with the judge asking the odd question, or making a brief comment along the way; even so, it was the Government’s time to explain why it felt there were no grounds for this application and it should be dismissed.

The whole FCWB argument is based on one comment made by Minister Ritz.  Shortly after the federal election in May, Minister Ritz was asked by a reporter if he was going to hold a plebiscite.  His response was “we already did.  It was the general election.”  Based on this alone, the FCWB argues that the Minister is not adhering to the regulations in Section 47.1 of the CWB Act which stipulates that the Minister must hold a plebiscite if he is going to add or remove any commodities from the single desk provisions of the CWB.

The fact that the Minister does not intend to “add or remove” anything from the single desk, rather he intends to repeal the Act completely, seems to have been overlooked.  Even by the government’s lawyer.

I listened to the government’s lawyer argue for the dismissal of this application by repeatedly explaining that the government hadn’t done anything yet (no bill has been introduced) to warrant such an application by the FCWB, and therefore there is no case.  After all, he argued, the Minister has done nothing except talk about what he might do or not do.  Surely you can’t take judicial action simply on comments he may have made.  He repeatedly argued that there are many, many ways the Minister might act on this issue and we have no way of knowing in detail what it is he is planning – nor does the Applicant (FCWB).  Therefore, there is no way to know whether the Minister will be required to follow the provisions of Section 47.1 of the Act (that is, hold a plebiscite).

I was very disappointed in this argument.

If it were me, I would have stated unambiguously and categorically, that the Minister does not need to call a plebiscite because he has made it quite clear – many times over – that he has no intention of removing or adding any commodities to the single desk.  His intent is to repeal the Act, which is substantially different.  In fact, in many media comments and articles, the argument is around whether the Minister should be able to repeal the Act without a plebiscite (which, even the CWB has acknowledged that he has the authority to do without a plebiscite).

In my view, the argument that “we don’t know what the Minister might do” and “there’s many ways he might do it” is very weak.  In a way, it left the door open to the suggestion that the FCWB might just be right. 
To the lawyer’s credit, he did say at one point, however in a “cute” sort of way, that “the Minister is not removing anything from the single desk, nor is he placing anything on the single desk”; rather, he is removing the single desk completely.  As good an argument that that is, it seems it was lost on the judge as the resounding argument heard over and over was “the Minister hasn’t done anything yet” and “we just don’t know what the Minister might do”.

In the end, the judge said he saw no reason to “strike” this application and agreed to a full hearing of the arguments.  In other words, the FCWB will get their day in court, which is what they were asking for.
Although a date was not set, this judicial process will not stop the legislative process in Ottawa.  The lawyers for the FCWB and the CWB suggested an earlier date would be preferred as the government is expected to introduce legislation in early to mid October – and once that happens they will be in a more difficult position.  The judge did not seem to be concerned; although they did talk about selecting the court location that had the earliest court opening.

This is unfortunate.  The grain trade – here in Canada as well as buyers overseas – are looking for clarity and certainty.  Unfortunately they didn’t get it today.  As long as this black cloud hangs over the industry, it will make a smooth transition to an open market harder to achieve.  We all lost today – they may not know it but even the members of the Friends of the CWB.

So stay tuned.   Unfortunately, this bit of theatre still has some life yet.

Thursday, September 1, 2011

Can the CWB honour the plebisicte results?

Something just doesn't add up.

On the one hand, Allen Oberg, Chairman of the CWB board, has said that it is the fiduciary responsibility of the CWB board of directors to act in the interest of the current CWB in its current state.  At a CWB meeting in Camrose on Aug 16th, Mr. Oberg stated:

“On the task force that Deputy Minister John Knubley has commissioned; originally, we were asked to co-chair that task force.  That’s something we didn’t think was appropriate. ...
As directors, whether elected or appointed, our fiduciary responsibility is to the current organization.  And we must always act in this organization’s best interests, and as the single desk is the Canadian Wheat Board’s most valuable asset, it’s our duty to protect that asset.”

And it’s not just Mr. Oberg.  At the CWB meeting in Medicine Hat, Jeff Nielsen, CWB director – and an open market supporter – declined to express his opinion, saying he was bound by his fiduciary duty as board member not to do anything that would damage the current CWB’s interests.

Therefore, they’re saying they can't work on the development of the CWB’s replacement organization, or even the transition to that new organization.  

On the other hand, Mr. Oberg has said many times that the CWB board has agreed to abide by the results of the plebiscite.  In a recent letter to the editor (probably in many papers, but I found it in the Winkler Times) Mr. Oberg says:

“The CWB's board of directors will respect the results of this plebiscite. If a majority of farmers wants to end the single desk for barley or wheat, we will actively support the transition to an open market.”
It’s not clear what he means by “actively support” but it certainly sounds like it means they will work with the government with the transition from the current CWB and in developing its successor.

As far as I can tell, the results of a non-binding plebiscite can't remove the fiduciary responsibility of the board.  If it truly is the board's legal responsibility to act in the current CWB’s best interests before the results of a non-binding plebiscite, it certainly is afterward as well.  They can't change horses mid-stream and arbitrarily decide to dismantle the CWB.  Don’t forget, this plebiscite is non-binding because it is non-compliant with the CWB Act.  Therefore, it is an arbitrary action and the board’s reaction to it will also be arbitrary. 

Even so, let’s go with it for a minute.  This whole story is of particular interest to the barley market.  If the plebiscite result on barley is anything like the CWB's own surveys (and why wouldn't it be?), then the CWB board will be facing a situation where, to be true to their word, they will have to give up the fight on barley and “actively support the transition to an open market”.  

It also quite likely that the plebiscite results will show a majority of farmers voting to keep the CWB intact on wheat.  So what does the CWB do?  Do they “actively support the transition to an open market” in barley and yet "spend all available resources" to keep and protect the single desk on wheat?

Even board member Jeff Nielsen, when asked in an interview with Shaun Haney of Real Agriculture, couldn't say exactly what the board will do in that situation.  Mr. Nielsen didn't say that the board wouldn't follow through on barley; rather, he said that the CWB survey results have consistently shown a majority of farmers want marketing freedom on barley, and in light of the fact the board has never done anything to satisfy them, to ask how can we be confident they will this time, is "a good question".  To be fair, there are a number of ways the board can respond to the plebiscite and Mr. Nielsen can’t be expected to answer for the rest of the board, particularly when you consider he is among the minority on the subject.

I can't say I agree with this fight for survival in any case; I certainly don’t agree with the plebiscite.  Even if you ignore the plebiscite as an inconsequential and arbitrary act, the right thing to do is to give up barley (12 years of surveys should stand for something) and to make the case early and clearly.  On Sept 9th, immediately following the public release of the plebiscite results, they could announce that effective immediately, zero-cost export licences on barley will be made available to anyone who requests one.  

If the plebiscite supports an open market on barley, keeping barley under the single desk until it is pried from the CWB’s hands at end of the crop year will do nothing to support their cause.  I suspect they will be looking for any support they can get as they fight for their wheat life.  They don’t need barley to keep the CWB and keeping barley will not win any friends.

But if the plebiscite results support the single desk on barley, we’ll know just how badly flawed the plebiscite really was.