An account on the CWB’s books meant to
back-stop the Producer Pricing Options (PPOs) has become a political football.
To offer farmers the Producer Pricing
Options (PPOs), the CWB needs the ability to weather some risk. The contingency fund is a separate internal
account of the CWB where gains and losses in these programs are accounted for separately
so they don’t impact on the pool accounts.
According to the CWB, “Surplus earnings from risk-hedging activities are
deposited into the fund. This becomes a
cushion against potential hedging losses in other years.”
However, the contingency fund has limitations;
at each year end, it cannot exceed a pre-set maximum balance. In the event that non-pool activities of the
CWB – things like PPOs, cash trading, and so on – leads to a greater year-end balance
than the maximum, the CWB must distribute the excess funds to farmers – either those
participating in the PPOs or the pool accounts.
This has only happened once; in 2005, income from the PPO programs (after
paying farmers what they had contracted for) would have put the contingency fund
over the $50 million limit. That year,
to comply with the limit, the CWB moved over $5 million to PPO participants and
$7.5 million to the pool accounts, taking the balance down to $48.6 million,
just under the $50 million limit. Following
that event, the Fund limit was raised to $60 million – until recently.
In March of this year the CWB board asked
Ottawa to raise the limit once again; the PPO program was quite large and the
market has been quite volatile, leading CWB management to take a larger risk discount
from the prices paid to farmers than usual (making prices to farmers lower than
they otherwise would be), which, in turn has led to a growing forecast of the balance
in the contingency fund. Ottawa agreed
and in early November raised the limit to $100 million. Since then, it’s reported the limit will be
raised to $200 million.
And this is where the mayhem begins.
In the Globe and Mail, Stewart Wells, a
farmer-elected CWB director, said “They are expropriating money from farmers to
use to float the grain company that Gerry Ritz is creating”, he said. (Is it just me, or does it seem hypocritical for
the CWB board to request increases in the limit and then criticize the
government for increasing the limit - for giving them what they asked for?)
Messrs. Goodale and Easter took the argument
to Twitter where I had the following “conversation” with them (not all dialogue
shown):
De
Pape: Why don’t you guys mention that it was the
CWB directors that asked to increase the Fund limit?
Goodale:
They asked months ago for $100M, not $200M, and for mkt security
reasons, not to pay for killing the single desk.
Easter:
Not to $200 million. Ritz did
that all on his own. He loves playing
with farmers money to protect his friends.
De
Pape: What makes you think the 2nd $100M
is to kill it?
Goodale:
Actually, government hiked the amount by 100pct, took control over the
fund and thus diverted farmers money to fund killing the single desk.
De
Pape: CWB asks for $100 limit, but needs even hier
limit – Ritz makes it $200. What’s the
right nbr?
Easter: Farmer
elected directors abiding by oath have a responsibility to farmers. Who is Ritz working for?
De
Pape: Stop being a politician for a moment – don’t
change the subject. What should Ritz
have done? What’s the right nbr?
Goodale:
There is no “right number”. CWB’s
contingency fund should not be misappropriated to pay for killing the single
desk.
De
Pape: “Misappropriate” is the same as “steal”. Ritz retracted. Will you?
(At this point, Mr. Goodale stopped “conversing”.)
Easter:
In my view, none of the CF (contingency fund) should be transferred (to
the new CWB). Was set up under the old
board for new options. Old system should
pay out.
De
Pape: Who do you pay it out to then? Fund was established to provide value to all
farmers – should continue to provide value to all farmers.
Easter:
Should be paid out across the pool accounts that were at risk.
De
Pape: Pool accounts were never at risk. The Fund was set up so gains & losses in
PPOs wouldn’t impact on the pool accounts.
Try again.
Easter: I
recognize that but pay it across the pool accounts.
De
Pape: What would you suggest if the Fund was in
deficit? Should losses be covered by pool
accounts?
Easter:
It’s great we don’t need to worry about that because the current wheat
board did such a great job.
De
Pape: 3 yrs running (06 to 08) CF (contingency
fund) had yr end deficits. Bad enough
that $25 million was “borrowed” from the pools.
Net on (PPO) operations by 2008 was $100 million loss.
Easter:
Your figures don’t make sense.
De
Pape: My figures come
straight from CWB annual reports.
And that was it (so far). Goodale’s “misappropriation” shot at Minister
Ritz is still out there – unretracted – and Mr. Easter has yet to make sense of
the actual PPO results.
Additionally, Mr. Goodale’s blog states: “Rather than distributing that money to
farmers, where it belongs, the Conservatives quietly passed regulations this
fall giving themselves effective control over that cash.”
I called Minister Ritz’s office to see
if I missed this new regulation. Turns
out Mr. Goodale is wrong; there was no regulation passed this fall regarding
the contingency fund. Perhaps he was
thinking about the Oct 18th Order In Council which directs the CWB
to ensure profits or gains from non-pool activities are credited to the
contingency fund. Although Mr. Goodale
suggest this gives the government control over the funds, in reality it just removes
any discretion the board may have had over the funds.
Now put that together with Minister Ritz’s
comments in Question Period: “Mr. Oberg continues to waste millions of dollars
of farmers’ money on his own personal political agenda. Since it is unclear what additional liabilities
he will leave behind with his scorched earth policy, we have taken this prudent
step.”
It seems Mr. Ritz is concerned how the
board of directors is spending farmers’ money.
Reality check
In March, the board of directors asked
for an increase to the fund’s upper limit; a prudent move. In October, the government issues a directive
to the CWB to ensure the money that should go to the contingency fund actually
goes there. They follow that with an
increase to the upper limit of the fund beyond what was requested to
effectively “make room” for the money being generated. The eight elected directors realize that
means they don’t have full discretion over the loose change of the CWB anymore
and screams injustice.
Why the liberals are opposing this is no
mystery. To them this is just politics. If they can make the government of the day
look suspect and dangerous, it serves their purposes much more than it serves
farmers. And that’s a shame.
Regardless of what you think the ultimate
distribution of the funds should be, it is clear that the government acted prudently
to reign in the current board of directors, which has stated that it will use “all
resources at its disposal” to stop the government. Looking at what they’ve spent already, there’s
no telling what they would have done with access to the contingency fund money.
The dollars being argued about – the $100
million or the $200 million - are just the upper limits of the contingency
fund. Even though the liberals talk as
though they are hard numbers – real cash - the actual balance at the end of
July 2012 could be much smaller (even a deficit, although I highly doubt it).
The CWB board asked for an increase to
the upper limit, and then changed their minds.
We need to ask why.
If the board wanted any excess income in
the contingency fund to go to farmers (as they are saying), they wouldn’t need
to increase the limit. They only need to
increase the limit to keep the money in the contingency fund. Why did they change their minds?
