Getting on with business

With the passage of events this week, we can now focus with confidence on the markets as we transition to a full and complete open market.  Bill C-18 is now law.  Although the new CWB dropped its case, the deposed farmer-elected directors continued unassisted by the CWB; however, their request for an injunction to stop the implementation of the bill was denied by the judge.  All that remains on the legal front is a Jan 17^th court date, set by Judge Shane Perlmutter, to decide whether to suspend the law while he decides on the broader question of whether to strike the law down. There’s not much he can do though as he is a Manitoba provincial court judge (not Federal); apparently he has already indicated that the most he could do is stop the bill from taking effect in Manitoba.  Most opinions I am hearing now is that this doesn’t have much of a chance for success.

As it stands right now, everyone is able to trade whatever they want – to whoever they want – for delivery after Aug 1, 2012.  However, any wheat, durum or malt barley sold for delivery before Aug 1^st still must go through the CWB – and that creates a dynamic that the new CWB needs to address.

First let’s look at wheat 

Although Aug 1, 2012 has often been seen as some sort of discreet “starting line” as the beginning of a new era in grain marketing, there is no getting around the fact that new crop market mechanisms will reach into the old crop as well.  This creates a problem for the new CWB; that’s probably why they have yet to offer Series B and C contracts.  

The Pool Return Outlook (PRO) for #1CWRS 13.5 is $6.63/bu in SK.  The CWB’s Fixed Price Contract (FPC) is $6.19/bu as of Friday.  But on Friday, the first business day following Royal Assent, I’m told that Viterra was bidding $7.40/bu for new crop delivery in SK.  I didn’t hear of any other bids, by other grain companies or by the new CWB.

Farmers now have a choice – even for old crop.  Any wheat they don’t have contracted to the CWB can either be sold to the CWB using whatever mechanism is available (Series contract, FPC, or GDC, etc) or sold to whomever they like for delivery after Aug 1^st.  On Friday, Dec 16^th, the price that Viterra offered gives a large incentive to sell old crop wheat into a new crop position; instead of selling into the 2011-12 pool, farmers can pick up an estimated $0.77/bu by selling for delivery in the new crop.  (I say “estimated” because the PRO is just an estimate and the final pool return could end up higher or lower than where the PRO is right now.)  Comparing the 2011-12 FPC and the 2012 new crop bid, it’s a “no-brainer” – sell your 2011 crop on an FPC and you’ll give up an additional $1.21/bu that you’d get by selling it for delivery in fall of 2012.  Now that’s what I call a carrying charge!  

With many farmers angry about the legal costs piled up in the 2011-12 pool, you can be certain that they’ll be looking at selling what’s not yet committed of their 2011 crop into the 2012 crop year.  If enough of them do, this could create difficulty meeting the demand in the latter part of this crop year as well as creating a burdensome demand on the grain handling system early in the next crop year.  Both these will have an impact on price as well and the new CWB would do well to prepare for this by being as effective as it possibly can.

The new CWB needs to start acting like a voluntary organization – and the sooner the better.  It can start by doing a number of things:

1. Open up the feed barley market immediately.  According to the CWB, “Weaker values in the export market will make further international feed barley sales unlikely”.  And since the CWB has been selling feed barley only on the basis of GDCs, it can be assumed it has no open sales and no inventory of feed barley.  Therefore, there is no risk to the CWB to open up feed barley completely and immediately.  It can do this via a number of different mechanisms – all of them simple. 
2. Open up the malt barley market immediately.  The CWB could ensure it has coverage for all its malt barley sales and then open the market.  But in its most recent PRO release, the CWB said; “Prices will remain under pressure as Australia and Argentina ramp up their export programs and the world moves towards a larger world barley crop in 2012-13.”  If the CWB is short (i.e. it has sold malt barley but haven’t ensured 100% coverage), it will be able to remain very competitive in an open market for the balance of the crop year.  Also, with new crop 2-row prices rumoured to be around $7.00/bu, the old crop PRO at $5.28/bu in SK will not be able to compete, creating the same scenario in malt barley as described for wheat above.  The CWB will be forced to use CashPlus and there will be limited value seen in that. 
3. Close the wheat and durum pools early.  Once the pools are closed, the CWB can either offer a short second pool until the end of the year or offer cash prices.  Either way, its prices would be more relevant to the current market and therefore more competitive.  They don’t necessarily need to open the market completely (although that would help too) but they will need to be showing the true value of the wheat and durum crops in the second half of 2011-12. 

Not only do farmers now have a choice – even on old crop – so does the new CWB.  It can choose to operate for the balance of this crop year on the basis of the status quo, which will almost certainly creates problems for itself and perpetuate market distortions that will affect everyone, or it can choose to start immediately to reflect open market dynamics, which will likely create more marketing opportunities for itself and those that choose to support it, as well as make the transition to the real open market much smoother than would occur otherwise.

Let’s hope they make the right choice.

“Every man has the power to choose, but no power to escape the necessity of choice.”

Ayn Rand

The courts aren't always right

By now we all know the results of the CWB court challenges and that Judge Douglas Campbell ruled in favour of the Friends of the CWB and the CWB.  Some of the comments in the ruling demand attention:

"...when advancing a significant change to an established management scheme, the failure to provide a meaningful opportunity for dissenting voices to be heard and accommodated, forces resort to legal means to have them heard.  Had a meaningful consultative process been engaged to find a solution which meets the concerns of the majority, the present legal action might not have been necessary."

To use the judge's own terminology, this is an absurdity.   He clearly has not been paying attention to the "CWB file" for the last 30 years or more.  That’s not a criticism, just a fact.  Those who have been paying attention know that there has been ample opportunity for dissenting voices to be heard on both sides of this issue.  And that they have exploited that opportunity at every turn.

Before you can "find a solution which meets the concerns of the majority", you have to determine who the majority is and what their concerns are.  The CWB's plebiscite results have been presented as a clear indication of the majority's wishes.  It is no such thing.  Neither the question asked nor the voters’ list fulfills the requirement of determining the interests of all stakeholders.  If Judge Campbell had been following the CWB issue, he would know like the rest of us that the idea of a plebiscite is nothing more than a red herring; you could never design a reasonable plebiscite that the CWB and its most fervent supporters would accept, let alone its results. 

 

When a list of CWB permit book holders is presented with the choice of a voluntary CWB (the dreaded dual market), only a clear minority supports the single desk.  Arguing that a voluntary CWB will fail or that farmers don’t understand the question doesn't cut it.  But, really, none of that matters anymore, because we’re no longer talking about farmers or grain marketing.

Do Precedents Matter?

All the discussion is around parliamentary process.  Even when we talk about plebiscites, it’s not about farmers anymore – it’s about political processes.  So, in that vein, we should take a look at another case, very similar to this CWB cases.  Here are some relevant facts of a case heard by the Ontario Supreme Court, between The Canadian Taxpayers Federation (CTF) and the government of Ontario:

In 1999, the Taxpayer Protection Act (TPA) was passed by the Ontario legislature, in which Section 2(1) reads:

o   A member of the Executive Council shall not include in a bill a provision that increases, or permits the increase of, a tax rate under a designated tax statute or that establishes a new tax unless,

a)       A referendum concerning the increase or the new tax is held under this Act before the bill is introduced in the Assembly; and

b)      The referendum authorizes the increase or the new tax.

(Sound familiar?)

In June 2004, the Ontario Minister of Finance introduced Bill 106 to amend the Income Tax Act.  Even though Sec. 2(1) of the TPA of 1999 required it, no referendum was called.  The CTF took it to court, seeking the courts to declare the Health Tax to be invalid because the government didn’t call for a referendum.  Paragraphs 47-49 of the ruling are relevant to the CWB case (paraphrased, emphasis is mine):

[47]       Nothing in the Act suggests that a referendum is required before the Act can be amended even if this amendment creates an exception to Section 2(1).

 

[48]       ... even if the TPA had contained a provision that no exception to the referendum requirement contained in Section 2(1) could be enacted without the holding of a referendum, this type of limit on a legislature’s sovereignty would not be binding.

[49]       The courts will give effect to limits imposed on the legislature’s ability to amend its own statutes only where they constitute “manner and form” requirements.  The Supreme Court of Canada in the reference Re Canada Assistance Plan set out what was necessary in order to impose an effective manner and form requirement.  Applied to the present case the following would be required:

a)       A clear statement of intent by the legislature that ... the legislature intended to bind itself or restrict the legislative powers of its members;

b)      It would be contained in a statute that is constitutional or quasi-constitutional; and

c)       The statute would specify the manner and form to be followed by the legislature itself to effect the amendments.  It would not remit the decision to an entity not forming part of the legislative structure.  

On “manner and form” requirements, it says the government would not give authority to change the Act to “an entity not forming part of the legislative structure” – in other words, not to farmers voting in a plebiscite.

But there’s more.  Section 13 of the Federal Interpretation Act sums it up quite nicely:

Every Act shall be construed as reserving to the Legislature the power of repealing or amending it, and of, revoking, restricting, or modifying any power, privilege or advantage thereby vested in or granted to any person or party, whenever the repeal, amendment, revocation, restriction or modification is considered by the Legislature to be required for the public good.

In other words, parliament has the ultimate power and authority to amend Acts.  And can revoke the power given to anyone else (like farmers through a plebiscite) when amending.

The last thing the grain markets need right now is more uncertainty.  Judge Campbell’s ruling, when viewed side by side with the CTF vs Ontario government ruling, and Section 13 of the Federal Interpretations Act, is ambiguous at best, or even worse, just plain wrong.  And the self-righteous chiding by the CWB supporting groups does nothing to make it more correct or decisive.  

Although the government is moving ahead as planned, all this legal wrangling is taking the focus away from what is right for the Western Canadian economy.  Instead of debating about court proceedings and parliamentary procedures, we should be spending our time on new opportunities in the grain markets. 

As suggested by Minister Ritz, we should assume the Marketing Freedom for Grain Farmers Act will be enacted as planned.  Let’s face it, if the appeal courts disagree with the government on this issue, we’ll have a much larger problem – an impotent Parliament.

Only in Canada, you say?  Pity.

Canadian Taxpayers Federation vs Ontario