Managing Access to a Voluntary Pool

According to single desk advocates, a problem with a voluntary pool is access.  They fear farmers would try to opt in and out all the time, depending on the price spread to the open market price.

The Initial Basis concept I described in my last commentary goes a long way to solve that issue.  Since the final price of the pool would be variable (like any basis contract), it would remain close to the open market price, providing less incentive to opt in or out.

Beyond that though, all contracts with the CWB should be considered just that – a contract.  Just like with any other grain, pulse or oilseed buyer, sales to the CWB should be considered a firm obligation to deliver.  With the Initial Basis idea, the CWB should treat any defaults like any other buyer would.

For instance, if you wanted to deliver at or near harvest, the CWB could offer a pool with an Initial Basis based on the December futures contract.  For deliveries later in the year, the later pool would have an Initial Basis based on one of March, May or July futures, depending on the delivery period.  This would provide financial incentives to farmers to hold wheat for delivery later.

The different prices of different futures months reflect the relative value of holding grain or moving it.  Farmers are not seeing the benefits of these market signals since they are not used by the CWB in any way right now to manage the flow of grain into the system.  But they could be.

Operating a CWB Pool in a voluntary market

Proponents of the single desk often say that the CWB could never succeed as a voluntary option in an open market.  In fact, this is the basis of the argument that a dual market could never work.

The main reason often indicated is that voluntary pooling can’t work.  It’s not pooling that’s the problem, it’s the Initial Payment.  In an uptrending market, the Initial Payment (which if fixed) would become increasingly unattractive.  Even the Pool Return Outlook (PRO) lags behind the market and doesn’t show the current value of the grain.  So, in an uptrending market, the price signals from the pool would fail to attract deliveries as farmers opted for higher open market prices.

The opposite would occur in a down trending market.  As the spot open market price drops, the PRO would become increasingly attractive.  In fact, the Initial Payment might become too high.  In this situation, the CWB argues, it would be swamped with grain deliveries that it would end up selling at a loss.

There are two factors that need to be addressed.  Access to the CWB program in an open market and  pricing.

Let’s start with pricing.  This is how it could work:

All farm contracts with the CWB would begin as a basis contract.  The basis would be guaranteed.  There would be no guaranteed Initial Payment.

I’ve often wondered why the CWB guarantees a flat price with the Initial Payment when it only has control over the basis.  The CWB takes on the risk that the market price will move against the Initial Payment.  For this reason, the CWB sets the Initial at something like 60-65% of the expected final – just in case.

Guaranteeing only the basis would mean less risk to the CWB. A typical basis (on CWB sales) to the appropriate futures market could be identified and the potential range of that basis calculated.  The CWB could advise as early as seeding time what the basis would be for all classes and grades of wheat and barley.  Because the CWB would be guaranteeing only a basis, the risk to the CWB would be greatly reduced.

Just like the current Initial Payment, the Initial Basis would be guaranteed, meaning it would never go down.  And there could be final payments (based solely on the difference in the basis sold when compared to the initial basis).

Farmers would sign up deferred delivery basis contracts with the CWB at the beginning of the year – just like they do with grain companies on canola.  And just like the non-CWB market, the contract would be priced at a time of the producer’s choosing (not at the CWB's discretion).

Beyond offering a competitive and meaningful price in an open market (and one that changes as the underlying market prices change), there are other benefits: 

• It could be voluntary. 

• Farmers could get paid on delivery a higher proportion of the final sale value, helping with cash flow considerations.

• The CWB would have much less risk making it easier for the CWB to manage its risk (therefore it would cost less).  

• There would be no need for complicated PPOs.

• The CWB could offer shorter pooling periods.

• Farmers could opt into the pool at any time.

• The CWB could offer pricing off the different futures contracts which would allow for better price signals for deliveries.  For example, if there was a price advantage to deliver in the spring instead of the fall, the price would provide that incentive.

• Farmers that want just a flat price initial could get that from the CWB too.

• Better price discovery and transparency.

Why does the CWB want to take on risk that it must then manage?

Next, I’ll cover how the CWB can manage access to the CWB program in an open market.

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.

http://www.cwb.ca/public/en/about/investor/annual/

http://www.grainscanada.gc.ca/statistics-statistiques/tariff-tarif/pp/pp-pp-eng.htm

http://www.cwbelection.com/candidate-info/candidate-profiles

More on Price Discrimination – sometimes it has more to do with the buyer than the seller

You can’t really talk about price discrimination – or differential pricing – without talking about why some buyers will pay premiums for some sources and not others. 

Often it just comes down to consistency and quality.

A good example is the Japanese feed barley market where we’ve seen different prices paid for grain from different origins – the buyers are the ones doing the price discriminating.  Over the years, Japan has paid a premium for Australian feed barley over Canadian or US feed barley.  In Japan, it’s referred to as the “Australian Premium”.  The reason for the premium is mostly quality.  

Barley from Australia comes from different regions, mainly Western Australia, New South Wales and Victoria.  Barley from each of these regions gets shipped out of regional ports, keeping the barley from these different regions separate which keeps the quality consistent and identifiable.  Growing conditions can be quite different between these regions but within each region, the conditions are much more consistent.  Japanese buyers don’t just buy Australian barley, they buy New South Wales barley, or Victoria barley, or Western Australian barley and will know upfront that the quality they get is quite consistent – and often quite different between the regions.

On the other hand, barley from Canada is originated from many regions within Western Canada and is commingled in the process of moving it from various origination points to Vancouver.  Therefore, the barley that Canada sends to Japan does not have as consistent a quality as Australia. 

Another factor plays into the quality of the feed barley we send to Japan.  Because the dominant market in Western Canada is the domestic feed market, the CWB must compete for barley for export.  And as we all know, most often the PRO is below the domestic price which makes originating feed barley problematic most years.  (The fact that the PRO doesn’t respond effectively to changes in market values also makes it difficult to attract barley.  The CWB will be the first to admit this.)

With no realistic competition from the CWB, domestic buyers will buy the best quality barley available to them first.  Feed barley is bought on the basis of bushel weight – if 52 to 56 pound barley is available, it will be snapped up by buyers, leaving the 44 to 48 lb barley.  This leaves the lesser barley looking for a home. Often farmers will have barley that technically grades a 1CW feed but is comparatively lightweight.  This is the barley that gets sold to the CWB.  And so this is the barley that gets sent to the quality conscious buyers of Japan.  It’s no wonder Australia gets a premium over Canadian barley.

A friend recently told me a story of when he had Japanese buyers visit his farm.  When his guests saw a pail of barley that my friend had kept for samples, they asked what it was.  They did not believe it was Canadian barley – it was nothing like they had ever seen in Japan from Canada. 

We could match or exceed Australian quality in export markets.  Over the years, the CWB has been approached various times to allow “selected” feed barley to be handled from the farm right through to the buyer.  So far it has failed to capitalize on these opportunities to market high quality feed barley which would provide barley producers with another outlet for their barley.

When some director candidates talk about meaningful changes to the CWB, becoming more responsive to farmers needs, this is the kind of thing that they’re talking about. 

The CWB remain mostly impotent when it comes to feed barley.  We need a CWB that is responsive to market opportunities that will benefit farmers.  We need directors that will pursue these opportunities – not be threatened by new ideas just because it doesn’t fit with the prime directive of keeping the single desk model.  If the single desk is in the way, then perhaps the single desk needs to be moved into another room.

One more thing to think about:  when the CWB says it discriminates on price, is it really?  Or is the buyer just paying for Canadian quality?

Price Discrimination - Is this really single desk power?

The CWB and single desk supporters often cite “price discrimination” as the foundation of single desk market power.  Price discrimination is the ability to sell into different markets at different prices at the same time.  Supposedly, the CWB has this ability through the single desk.  A search of the CWB website for the phrase “price discrimination” ironically provides only one reference (in a description of a 1997 barley study):

“The key difference between the CWB system and a multiple-seller system is the ability to price discriminate.” 

http://www.cwb.ca/public/en/library/publications/popups/farmers_barleymarketing.jsp

In theory, competing multiple sellers offer the price lower in the high priced markets until they equate to the prices in the lower priced markets.  The CWB refers to this as the Law of One Price.

But the CWB competes in the global market which is a “multiple seller” market.  So, according to the CWB’s theory of the Law of One Price, the various markets within the global market should be all at one price.  And yet, they are not.  The CWB mentions premium markets in the 2008-09 CWB Annual Report (page 33):

“The global market for wheat, durum and barley is highly competitive.  …all competitors are seeking ways to sustain and expand their share of the global market, particularly in premium markets.”

Why have “premium markets” kept their premiums, even with multiple sellers competing?

There are many reasons why different buyers will pay different prices on the same day.  In fact, the same buyer may pay two different prices on the same day from two different suppliers.  Mostly it comes down to buyers have different needs (quality, risk diversification, political or strategic needs) and sellers have different offerings (quality, consistency, timing, available freight). 

CWB Studies

The CWB has studied price discrimination in barley markets.  The studies looked at all the CWB sales over a period of time and categorized them by destination country.  They showed that, on average, Japan paid more than the US market, and the US market paid more than the rest of the world (ROW).  This was perceived to show that the CWB was able to price discriminate into the Japanese premium market without pressing its price lower.

But the Japanese buy barley from Australia too, making Japan a multiple seller market.  Using the CWB’s logic about multiple sellers, we would expect to see the price in Japan pushed lower to equate to prices in non-premium countries.  But we don’t.

Now consider the canola market.  Japan buys Canadian canola year round, through all the peaks and valleys in price.  Other markets like China, Mexico and Bangladesh typically buy Canadian canola only if the price moves low enough to generate interest.  In fact, open market traders will sell to these other markets at a lower price than they will sell to Japan – on the same day.  (I want to keep these commentaries short; if you want a more detailed explanation as to why they would do this, drop me a line at cwb@depape.ca )

In just about any year, Japan’s average purchase price for Canadian canola will, on average, be higher than other destinations.  However, this occurs in a multiple-seller environment and does not mean any marketer discriminated on price.

Can the CWB price discriminate?  Sure – but so does the private trade.  Grain markets may be "commodity" markets, but in reality, they often trade on the basis of the "product" being offered which includes, service, quality, timing, and other aspects of the offering. And the CWB does not have a monopoly on those.

Current Feed Wheat Situation

Did you know?

Farmers are struggling with feed wheat cash flows.

Let’s look at the numbers (these are all $/bushel to a farmer in central Sask):

• The Pool Return Outlook (PRO) for CW Feed Wheat is $4.63/bu.

• The Initial Payment for feed wheat is $0.49/bu. 

• There is an interim (or adjustment) payment in the works, reportedly in the $50 to $70/tonne range ($1.36 - $1.90/bu) but we don’t know when it will be available; once it is, the Initial will go up to about $2.12/bu.

Delivery and pricing options:

• Pool account:  As of Nov 2^nd, there is a Series A 25% contract call on feed wheat.  (Assuming the CWB will accept 100% of what is offered, this means farmers can deliver 25% of what they offered.)

• Guaranteed Delivery Contracts (GDCs:  Similar to the GDCs on feed barley, these are based on company-specific tenders, provide 100% acceptance and delivery in a defined time frame.  The tonnage is limited but not made public.  Also, the price is not set until the delivery date.

• FlexPro:  If you signed up on a FlexPro contract (sign up deadline was July 30, 2010) you can apply feed wheat on your contract but at the prevailing spread to feed wheat from the reference grade on the day of delivery.

• BPC/FPC: If you signed up for a Basis Price Contract (BPC) or a Fixed Price Contract (FPC), you can apply feed wheat on these contracts too.  Here too, the discount for feed wheat is the prevailing spread on the delivery date.

• Feed discount: currently $0.55/bu.  It changes periodically; it has been as low as $0.35/bu and as high as $0.57/bu.

Cash flow implications:

• Assuming a yield of 40 bu/acre, the most you will be paid right now delivering on the Series A contract call is roughly equal to about $4.90/acre.  On a quarter section that works out to about $780 in total. 

• Including the pending interim payment, the price on delivery moves up to about $2.12/bu.  This works out to $21.20/acre, or about $3,400 per quarter

• FlexPro, BPC or FPC:  the price you will receive is based on your contract price and the feed discount on the day of delivery.

• FlexPro: the contract high is $6.88/bu.  With a 25% call, this works out to $68.80/acre or about $11,000 per quarter.

• FPC: the contract high is $6.70/bu.  This works out to $67/acre or just under $11,000 per quarter.

• To put this in perspective, a rough estimate of cost of production is $32,000 per quarter.

In terms of delivery, GDCs give the best opportunity to deliver – if you can get one.  (Even the CWB advises that Series A is a better deal for farmers than the GDCs since not all farmers can participate in the GDCs.)  In addition, you don’t know the price until you deliver.

In terms of price, the FlexPro appears to be the best option – but you had to sign up early and delivery is limited to delivery contracts (contract calls).

I can understand why the feed discount moves – the CWB sold milling wheat and now has feed wheat being delivered to it and the spread between milling and feed wheat is variable.  What doesn’t make sense is that the CWB will only set the price on the day of delivery.  There is no difference to the CWB in terms of risk when pricing feed wheat – they can do it before delivery by the farmer as well as on the day of delivery.  In fact, pricing ahead of delivery takes a lot of guess work and risk out of the equation for farmers, particularly when they can sell feed wheat into the non-CWB market.

 

Is the CWB managing risk to the CWB or risk to the farmer?

Possible solutions include opening up delivery with better premiums for deferred delivery.   Some farmers have the financial ability to hold grain in storage and, if appropriately compensated for storing, they will.  This will open the door for those that need the cash flow to deliver more wheat without overwhelming the system.  This would also mean less canola would need to be sold for cash flow, having a positive impact on canola basis levels.

Regardless of whether you want the status quo, get rid of the single desk or even the whole CWB, the CWB needs to change to put farmers and their business needs front and centre, starting with cash flow.  In any language, these programs don’t cut it. 

Initial Payments

Pool Return Outlooks

Feed Wheat GDCs

Series A Delivery Contract Announcement for Feed Wheat

Interim Payment Announcement

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 cwb@monitor.ca.

• 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.

Despatch at the CWB: Not What You Think

A friend was telling me about a conversation he had recently with Allen Oberg, Chairman of the board of directors of the CWB.  Frustrated by seeing durum vessels on demurrage, my friend suggested that the senior staff should pay for the demurrage out of their own pockets. According to my friend, Oberg responded by asking "should we give them the despatch as well?"

I doubt Mr. Oberg knows what he's suggesting.

Demurrage is a penalty paid by the shipper to the vessel owner for taking longer to load a vessel than you had negotiated.  Despatch is a payment from the vessel owner to the shipper for loading faster than negotiated.

The CWB gets both in a typical year - demurrage on some vessels, despatch on others.  The CWB reports these two income/cost related factors in the annual report as a net figure - one subtracted from the other.  So, in 08-09, when the CWB racked up $7.6 million in demurrage charges and $15 million in despatch "earnings", it reported a "net despatch" figure of $7.4 million despatch.  In other words, the CWB reported only that its despatch "earnings" were greater than the demurrage charges by $7.4 million.  It looks like, on balance, it was a positive year when it came to loading vessels.

But the CWB leaves out an important factor, and I'm guess Mr. Oberg doesn't realize it or is looking the other way on purpose.

To earn despatch, the CWB takes less time to load a vessel that it negotiated for.  But despatch doesn't cover the cost of the loading time that the CWB negotiated for in the first place.  When you say you need 6 days to load, the effective ocean rate you get factors those 6 days into the total costs. The more time you negotiate for, the higher the cost.

SO - when you say you need 6 days to load, guess what? You PAY for six days.

And when you use only 4 days to load, you get despatch for the two days you didn't use (but you still pay for them).

ALSO - despatch is only a PARTIAL REBATE of the charges for those days not used. Typically it's half the freight rate (or less).

Here's the thing that Mr. Oberg doesn't understand: when you get paid despatch, it has actually cost you.

When the CWB reports despatch payments without considering the full expenses , it gives an incomplete picture.  

SHIPPERS SEE DESPATCH AS A LOSS.  NO ONE SETS OUT AHEAD OF TIME TO EARN DESPATCH, BECAUSE ITS SO COSTLY. CERTAINLY NO ONE ELSE SETS OUT EARNING DESPATCH AS A CORPORATE GOAL LIKE THE CWB DOES.

For the CWB to "earn" $15 million in despatch in 08-09, its safe to estimate that this represents excess loading days that cost the CWB in excess of $35 million.  After getting the despatch payments, the CWB paid out $20 million for loading time they didn't need.

For 08-09, add the demurrage charges to the actual depatch costs and the situation was likely over $40 million in losses.

Over the last five years, demurrage and despatch (including the freight cost) would likely total more than $250 million in LOSSES. Because the CWB does not report the total despatch situation, it reported a net demurrage and despatch of $26.7 million gain.

With all due respect to Mr. Oberg, I doubt he understands the true nature of despatch. I wonder if others on the board do either. If they did, why would they set a goal to earn $4.5 million in despatch each year? Clearly they don't know that in reality, what they have set is a goal to lose at least $10 million a year and likely much more.

I guess it just looks better than demurrage.

I have written a detailed report on how the CWB manages demurrage and despatch and how they could improve farmers bottom lines by making changes.  Drop me an email if you want to receive a copy.

Current Durum Situation

Did you know?

• The CWB is scrambling for high quality durum right now.   Partly because of the late fall and partly because of the poor quality crop.  In addition, there may be less of last year’s higher quality crop available than the CWB was counting on as much of it was sold by farmers into the domestic feed market to satisfy cash flow needs.

• Terms on sales to Japan include a high protein content, something the CWB is struggling to satisfy right now.  I’m told that the terms will be adjusted for the new crop but the new terms won’t kick in until Jan 1, 2011.  This is just one more problem for the CWB this fall. 

• These struggles are showing up in Vancouver.  On a vessel that the CWB shared with Cargill, the CWB loaded 10,800 tonnes of durum and Cargill loaded 14,700 tonnes of canola.  Cargill loaded the canola in about two days and the CWB took another 21 days to load the durum.  The CWB (farmers) will pay the demurrage bill on the whole vessel.

• Another durum vessel (60,500 tonnes) has been in port since Sept 19 and has yet to finish.  I’m told it’ll be another week before it’s loaded.  It’s been in port long enough for a hefty demurrage bill.  This will be the first time in a very long time that a vessel arrived in September and didn’t leave until November. 

• There is a rumour that the CWB has shipped high grade durum against a sale of feed wheat to South Korea.  The CWB is indeed shipping durum on this sale, but its #4 and #5 durum, which is applicable on most feed wheat sales. 

• Delivery calls on Nos. 1 and 2 CWAD are now in place and the CWB will terminate the first 25% call effective Nov. 29, 2010.  (This is a signal from the CWB to get farmers to deliver; it’s thought that the prospect of losing the delivery opportunity will get guys to deliver.)

• In addition, a Guaranteed Delivery Contract (GDC) with 100% acceptance has been announced for Nos. 1 and 2 CWAD. 

• But there’s another factor.  I’m hearing many producers are angry and frustrated with the poor movement and poor prices on durum; many have said that they believe the CWB dropped the ball on the very high prices we saw a year or two ago.  Whether they did or not is a topic for another debate; in frustration, these growers are saying they refuse to deliver any high quality durum to the CWB until they see a full (and attractive price). 

• Whereas I understand the frustration, holding grain back will not solve the problem.  The CWB will either find the durum somewhere else, or adjust contract terms and possibly pay penalties.  In the process they are already paying demurrage.  But when I say the CWB will pay, it really means durum farmers will pay.  It could also mean the loss of confidence in Canada as a supplier and the loss of future sales to our competitors (remember, the US has a lot of durum right now).  It may be satisfying to hold back to send a message to the CWB, but it will come at a hefty cost to you.  Ironically, it’s your choice.

• The CWB recently released a commentary where they say "recent negative commentary has been circulated to farmers painting a highly misleading picture of the realities of international durum marketing and the decisions made by the CWB as Prairie farmers' durum marketer."  Obviously I thought they were referring to my commentary "Is this the deal you want?"  Reviewing that commentary, I saw that it only spoke of the realities of poor cash flow from durum under the CWB system and what that means to farmers.  I guess there must be some other "negative commentary" out there that I'm not aware of.

• From a farmer's perspective, the durum situation is definitely in a shambles.  But there is good movement available right now and all durum producers should take advantage of it.   

•  The best place right now to send a message is in the director’s election.

The CWB Doesn't Need the Single Desk to be a Producer Advocate

Single desk supporters often that the CWB and its single desk need to be protected at all costs because it is such an important and effective lobbyist on behalf of farmers.

For example, Allen Oberg, director candidate for District 5, says “Building on the strength of the single desk, the CWB is speaking out more and more for farmers.”  He gives examples of issues where CWB is acting on behalf of farmers: a railway costing review, producer cars, WTO, branding of Canadian wheat and terminal agreements and tendering.  His message is, if you lose the single desk, you’ll lose your voice on these matters. 

I disagree that the CWB needs the single desk to be a producer advocate.  Take a minute and look at the Canola Council of Canada and what it does for the canola industry (including producers), without being involved in selling canola or its products.

The Canola Council of Canada is a national, non-profit association with a mission to enhance the industry’s ability to profitably produce and supply seed, oil and meal products that offer superior value to customers throughout the world.  And it does a darn good job of it.  Members include canola growers, crop input suppliers, grain handling companies, exporters, processors, food and feed manufacturers and governments.  It’s a good model to consider for the CWB.

The Council has a number of policy positions similar to the CWB:

-          Equitable grading standards

-          Accountable, open, competitive and commercial system of grain transportation

-          Equitable treatment and level playing field under WTO

-          Domestic and North American harmonization of pesticide regulations

-          Canadian variety registration system and maintenance of high quality standards in that system.  

-          Mandatory labelling guidelines

In addition, the Council has successfully branded Canadian canola products; in fact the name “canola” indicates a Canadian identity.

Even without the single desk, the CWB could continue to play an activist or advocacy role for wheat and barley producers, much like the Canola Council does for the canola industry. 

The Canola Council’s average annual budget of $5 million is funded by:

-          a voluntary levy paid by processors and exporters;

-          program grants received from corporate and grower organization members for specific activities (the largest sources being the canola grower check-off commissions in each of the Prairie provinces);

-          government programs, both federal and provincial; and

-          funds raised by Council program areas such as the Council's Annual Convention and the sale of publications.

Looking at the CWB, assuming annual exports and domestic use of 20 million tonnes of wheat, durum and barley, the CWB could generate twice as much as the Canola Council's budget with a grower check-off of only $0.50/tonne.  This compares quite favourably to the current (2008-09) cost of the CWB of about $3.26/tonne, paid by farmers.

CWB supporters like Allen Oberg will use the fear of losing the advocacy of the CWB if it lost the single desk as a way to garner support for the status quo.  Mr. Oberg isn’t alone in this thinking.  Other candidates that echo this same message include:

-          Dan Gauthier, District 1

-          Stewart Wells, District 3

-          Lynn Jacobson, District 3

-          Kyle Korneychuk, District 5

-          Garry Draper, District 9

-          John Sandborn, District 9

As I’ve shown already, the single desk is costing farmers millions.  Don't embrace it just to protect the CWB's advocacy role; it's just not worth it.  Judge it on its own.

Ask your director-candidates to explain why they think the CWB needs the single desk to be your advocate and to promote wheat. And ask them how they think the Canola Council can do it so well without one.

Candidate Profiles 

Canola Council of Canada