Spending other people's money

It seems that two factors involved with the removal of the CWB single desk are on a collision course.

I'm hearing more and more from producers who are saying they plan on storing this year's wheat crop until they can sell it without going through the CWB.  One said he plans on contracting his 2011 crop as soon as he can for delivery in August 2012.  Others are saying they will only sell wheat for feed or ethanol (around the CWB). Clearly most producers can't store grain for a year - they need the cash flow - but I know that some can, and likely will.

Also, the board of directors of the CWB has made it clear that they will use all resources at their disposal to fight to keep the single desk.  Basically, that means money in the pool accounts or the Contingency Fund, and they don’t seem to be shy about spending it on the plebiscite, the conference call with producers, the advertising campaign, and the seven producer rallies (so far).

On his blog, about the plebiscite, Allen Oberg has said:

“We would ask the federal government to also respect the plebiscite results - if they do, there really isn't a question of spending any additional funds.”

I think what he’s saying is if the plebiscite results show support for the single desk (which it is skewed to do) and the federal government ignores the results (which they have said they will), then the CWB will continue to spend producers’ money fighting it. (Probably best to count on it.)

Now put these two issues together; if the pools are smaller due to some producers boycotting them, those remaining in the pool will each be burdened with an even greater share of the growing cost of this campaign.

This could be considered by some to be appropriate since CWB supporters will remain in the pool and pay for their portion of the campaign based on their deliveries to the pool.  But, many who don’t support the CWB, the single desk, or the campaign, will have no choice but to deliver to the CWB and will have no choice but to pay for a share of the campaign that is completely contrary to their interests.  The smaller the pool and the longer the campaign, the more each producer in the pool will pay.

The CWB is using money from all producers delivering to the CWB whether they support the single desk or not; whether they support the “save the single desk” campaign or not.  This is true whether producers hold back this year’s crop or not.  How can the CWB logically – or morally – take money from producers for a campaign to undermine their interests, knowing full well that they would never agree to it if they were asked?

It reminds me of that old Bill Cosby stand-up routine where he told the story of when he would get into trouble and his father would say, “Go get me your belt so I can beat you.”  That was funny; this isn’t.

Allen Oberg has said on his blog (aimed at Minister Ritz):

“Maybe it is time to move beyond the sound bites and start listening to farmers – all farmers, including those who have different views...”

This is hypocrisy at its finest.  Mr. Oberg, as representative of the CWB board of directors should take his own advice.  The CWB needs to stop playing politics with the bottom lines of producers that have “a different view” than eight of the board of directors and don’t support its efforts, whether marketing efforts or quasi -political “save the single desk” efforts. 

A good start would be to allow producers to decide whether they want to pay for the campaign.

It would be a very easy task for the CWB to allow farmers to indicate that they either approve of the campaign and wish to contribute to it, or that the campaign is fighting against their interests and therefore they don’t want to contribute to it.  At the end of the year, the CWB will know the damage to the pool accounts from the campaign and, those that chose to support it could have their fair share of the cost apportioned to their final payment.  Those that didn’t support it would have their final payment left intact without the extra deduction for the campaign.

Alternatively, the CWB could leave the pool accounts alone and use only money in the Contingency Fund (which they say isn't producers' money.  I disagree.)  That would be a tough one though, since they seem to see the Contingency Fund as the nest egg for the “New Generation CWB”, the organization they are fighting to avoid.

Either way - allowing producers to opt out of paying for the campaign, or using Contingency Fund money - seems fair to me.  If the CWB forces all producers to finance the campaign, not only is it hypocritical, it is a blatant abuse of power.

Allen Oberg's blog

Now the pollster has it dead wrong

On Aug 13th, I issued a commentary I called “How to vote for a voluntary CWB”.  It now sits on my blog where anybody can offer their own comments.

This particular piece attracted the attention of none other than David Herle (or someone saying he’s David Herle), the Principal Partner of the Gandalf Group – the firm hired by the CWB to conduct its producer surveys.  And it’s my comments about the survey results that caught his attention.

The gist of my comment was that the recent CWB producer survey shows 45% of farmers support a dual market in wheat (a voluntary CWB).  This compares with 40% supporting the single desk on the same question. Those supporting an open market, (13%) obviously also support the removal of the single desk.  All tolled, around 60% opt for the removal of the single desk in one form or another.

Mr. Herle’s comment, in part, (which is also on my blog) is as follows:

"The CWB has always maintained that a dual market is a logical impossibility. In that regard, the results you cite are interesting in that they point out that only 13% of farmers want the position you advocate - a wheat market without the CWB as they know it."

The CWB – and therefore Mr. Herle – is wrong.  The CWB is not listening to farmers – or anyone who opposes the single desk, for that matter.  And Mr. Herle, taking the CWB's view as irrefutable fact is not being objective, which is unfortunate for a pollster.

Mr. Herle states the CWB position that a “dual market is a logical impossibility” and then postulates on that basis that only 13% (those choosing the "open market") want “a wheat market without the CWB as they know it”.  The only way he could come to that conclusion is to assume that, as ludicrous as it sounds, the CWB maintains the single desk in a dual market.  Is this what the CWB told him was the "logical impossibility?"

If Mr. Herle’s understanding of the CWB’s "logical impossibility" of a dual market is one where the single desk competes in an open market, then he would get no argument from me - that would indeed be impossible.  But, no one is talking about that “logical impossibility”.

Let’s put this one behind us once and for all – a dual market means the next generation CWB operates without the single desk or monopoly.  How it operates, and what value it offers, has yet to be determined.  But we know for certain – it won’t have the single desk in a dual market.

In the survey question, the only response where the CWB is assumed to be “as we know it” is Answer A – "Solely CWB”, logging in with 40% of the vote.  The other two answers assume either a different CWB or no CWB at all; either way, no single desk.  Any way you look at it, these two options are votes for, as Herle put it, “a wheat market without the CWB as they know it”.

Perhaps I need to be clearer.

Answer C - the “open market” - is simple enough.  It’s just an open market (no CWB).

Answer B – the dual market – is where farmers could sell to anyone, including the CWB if they chose (which makes it voluntary, not mandatory as it is now).  This means the CWB is not as we know it, because it wouldn't have the single desk.  This is not your father’s wheat board.

Mr. Herle’s own survey shows farmers understood, why doesn't he?  In the survey, those that said they support dual marketing for wheat were also asked:

“Why do you support dual marketing instead of the single desk (for wheat marketing)?”

Responses (with my comments in brackets):

·         59% said “more options/choice to sell independently or to the CWB”. (You see, farmers get it.  They understand that in a dual market, the CWB would operate without a monopoly; not "the CWB as they know it.")
·         21% said “competition is good”.  (Again – they get it.  You can’t have competition when one player has a monopoly.)
·         13% said “could lead to higher prices / better market”.  (How would that happen?  Perhaps through competition – no monopoly.)
·         11% said “like the freedom / sell to whom I want”.  (Need I say it?)
·         9 % said “eliminates any form of a monopoly”. (What can I say?)
·         8% said “forces the CWB to be accountable” (I assume through competition, the CWB would need to provide value - with no monopoly.)

How is it that Mr. Herle cannot see that a dual market means a different CWB when his own survey shows that farmers understand it? Is he telling the 45% that voted for the dual market that they don’t understand what a dual market is (and the CWB does)?

What is a supposedly independent pollster doing taking what appears to be a biased position on the results of his own survey?  Especially when his conclusion requires that he accept his client’s narrow and "logically impossible" view of one option.

Why do I get the impression that Mr. Herle is taking sides on this debate and would really like us to support the CWB and its fight to keep the single desk?

Bottom line- farmers understand a dual market means no single desk. And more than half would support a market like that.

How to vote for a voluntary CWB

If you look at the CWB website, it will tell you – to the second – how much time you have left to submit your plebiscite ballot.  As I write this it says 11 days, 11 hours, 39 minutes and 12 seconds.  So those farmers that have yet to decide what to do, there's still time.

The plebiscite question is quite straight forward - pick A or B:

A) I wish to maintain the ability to market all wheat, with the continuing exception of feed wheat sold domestically, through the CWB single-desk system.

B) I wish to remove the single-desk marketing system from the CWB and sell all wheat through an open market system.

There are the same options on barley.

Unfortunately, these two options don't explicitly include a voluntary CWB option. Even so, the CWB's own annual producer survey includes a question that offers a voluntary CWB as an option.  In the most recent survey released this spring, the CWB asked the question (with results in brackets):

"If you had to choose between three different approaches to marketing wheat, which of the following would you prefer?"

A     Solely CWB       (40%)

B     Dual marketing (45%)

C     Open market    (13%)

On barley, the results were similar:

"If you had to choose between three different approaches to marketing barley, which of the following would you prefer?"

A     Solely CWB       (29%)

B     Dual marketing (40%)

C     Open market    (22%)

Anyone I've talked to about this understands “dual marketing” means you can sell your grain to anyone you like, including to the CWB.  It's obvious that this means that the CWB would be an option - a voluntary option.  It does not mean – as the CWB suggests – that the CWB has its single desk in a completely open market.  I agree with them when they say that that's impossible (quite ridiculous to even suggest it, actually); but an open market with a voluntary CWB is clearly possible – and that is what most people understand to be a “dual market”, regardless of what the CWB says.

The CWB survey shows 45% of farmers support a dual market in wheat and 40% in barley; in other words, they support a voluntary CWB.  These are not insignificant numbers.  A very large proportion of farmers support the removal of the single desk if the CWB (or whatever it becomes) is voluntary.  This compares with 40% and 29% for wheat and barley respectively supporting the single desk when a voluntary CWB is an option. (Those supporting Option C, an open market, (13% and 22% respectively) also support the removal of the single desk.  All in all, when presented with reasonable and realistic options, around 60% opt for the removal of the single desk.)

So what gives with the plebiscite question that doesn't give that option, even though the CWB knows that so many farmers would support it?  It's simple; those running the CWB don't like the idea of a voluntary CWB and are doing everything they can to discredit the idea.  But since it's pretty clear that that is the direction we are going, it would make sense to gauge farmer's real interest.

How do I vote if I support a voluntary CWB?

Although I've said that it's a waste of time because it's non-binding, I have received emails and calls from people saying "I really feel like I should vote – but I don't like the options – CWB or no CWB."

If you really think you should vote but prefer to see a "voluntary CWB", vote for the only one of the two options that would allow that; a voluntary CWB fits in an open market because it would not have a single desk.

So if you feel compelled to vote, choose:

B)      I wish to remove the single-desk marketing system from the CWB and sell all wheat (and barley) through an open market system.

You still have 11 days – or thereabouts.

Of course you could still not vote or send your ballot to your MP or to Minister Ritz.  There are many ways to express your position against the single desk.

The CWB Alliance has it dead wrong

Many of you know by now that the Canadian Wheat Board Alliance has produced and released a new YouTube video about the CWB plebiscite.  It's a very well done, professional music video with the lyrics of the song written just for the CWB's survey / plebiscite-wannabe.  And it's those lyrics with which I have an issue.

The song is about the plebiscite being farmers' last chance to have their say.  For the Alliance and what they stand for, this is a not at all unexpected.  

But it refers to a "tide of evil that is sweeping 'cross our land".  It calls those in Ottawa "bandits" and it calls "strangers that want to mess" with the CWB, "thievin' bastards that can "go to hell".

"A tide of evil"?  Really?!

Bandits and bastards?!  You cannot be serious.

"Go to hell"?!  It's pretty hard to respect someone who shows so little respect for others they don't even know - just based on a difference of opinion.

And here's the difference of opinion:

The Alliance believes in the single desk but doesn't think they need to rely on real facts to support their view.  They are blinded by their passion for the idea of single desk market power that they refuse to acknowledge facts that refute their position; instead, like the NFU, to support their position, they use unsubstantiated numbers like $1.5 billion in annual benefit from the CWB, based on flawed analysis. I've seen the detail and it is fraught with errors and misconceptions.

My position - as a "thievin' bastard" - is that sound decisions should be based on facts, not passion.  If there was true value in the single desk, it would show up in real data, but it doesn't.  And those of us in the marketing freedom camp believe that this is fundamentally a personal property issue; farmers should not have their business decisions made by other farmers.

To give an idea of how wide this chasm between views is, consider the time I told a CWB supporter the fact that the CWB's reported marketing costs are higher than the premiums they report (for a net cost).  His response; "I don't believe you."  I give facts provided by the CWB itself and he doesn't believe it, I can only assume because it doesn't support what he wants desperately to be true.

Back to the video;  I believe in artistic license as much as anyone but just like I tell my kids, if you can find a way to make a point powerfully without being disrespectful, you gain more credibility.  I'm sure they really don't care what I think, but from my perspective, with that video, the Alliance just lost a whole dose of credibility.

And ironically, this video came out on the heels of Allen Oberg's recent blog where he says the debate is getting strident and we should "keep the lines of communication open" and "keep it real and keep it civil."

Oberg has it right.  The Alliance has it dead wrong.

Who writes this stuff?

Two letters to the editor in this week’s edition of the Western Producer look very similar.   

Vic Althouse from Kelvington, SK, apparently wrote, in part:

Under the open market ... producers will price their grain through possibly one of three companies and in some areas only one company.

Kyle Korneychuk, from Pelly, SK (and also a CWB director), apparently wrote, in part:

Under the open market, they won’t be marketing their grain, but essentially only pricing it through possibly one of three companies and in some areas only one.

Coincidence?  I don’t think so.  Perhaps Vic wrote his and shared it with Kyle, allowing Kyle to copy bits of it.  Or, the other way around.  More likely though, the CWB has ramped up its rhetoric machine to the point of writing letters for others to submit.  I can see the CWB’s PR department writing for one of its directors (although even that is a bit shady when he doesn’t identify himself as a director), but it seems they could be writing for others who submit the letter as if it’s their own – which, if true, is really shady.

When you submit a letter to the Western Producer, they call to confirm that it was indeed you who wrote and submitted the letter.  I wonder what Vic and Kyle said when asked “did you write and submit this letter”?  Makes you wonder how many of these letters in support of the single desk were really written by those that submitted them and how many were “edited” by someone else.

Not only is the CWB spending farmers money on a useless plebiscite, on “town hall conference calls”, regional meetings, and an ad campaign, it now seems to be using its salaried employees to write letters for others to submit as their own.

In this week’s edition of the Producer, there are only five letters to the editor; one from David Anderson, MP, in support of the removal of the single desk and four others – all arguing against the government plan.  And even though the Producer has told me they print everything they receive, I know of at least one letter (mine) that would be in support of the government’s plan, still not printed after two weeks.  It becomes hard to see the media as taking a balanced approach on the CWB when they print two very similar letters and don’t print a clearly different viewpoint.

Welcome to the CWB debate, where much from the CWB is not as it appears and voices of dissention are muffled by a media that gets spoon-fed by the CWB and has the appearance of favouring one side of the debate.  To see the main stakeholders (farmers) of an industry that is reliant on sound, timely information, treated like mushrooms by the very institution meant to serve them, is disheartening to say the least.   The irony is that the CWB does such a good job at it, many farmers continue to fight blindly to allow it to continue to mislead them.

Pooling can work if you want it

Allen Oberg, chairman of the CWB, stated recently that a voluntary CWB would not likely offer pooling because “farmers aren’t likely to be interested”.  He added: “...you’re never sure of how much grain is going to be contracted to that voluntary pool and that makes it difficult to make sales.”

I think Mr. Oberg is wrong on both accounts.  The CWB’s producer survey showed 45% of wheat producers favoured the “dual market” (a voluntary CWB) and 41% preferred the single desk.  The CWB has stated many times that pooling is fundamental to the value proposition of the CWB as it is a fundamental risk management tool for farmers.  If that’s true, it stands that many producers would expect to see the CWB offer some form of risk management in the form of a pool (or pools) once it loses its single desk and becomes voluntary.

Also, Mr. Oberg is repeating the old CWB position that a voluntary pool won’t work, based on the assumption that it will have a fixed price or value (like an Initial Payment or PRO).  They say farmers will opt out when the “open market” price moves higher and, in a falling market, farmers will want in or those farmers that are in the pool will suddenly find that they had astounding yields and want to deliver more than the CWB anticipated.  So in a rising market, the pool gets starved and in a falling market, the pool gets overwhelmed with high priced grain.  The thing is, none of this needs to happen.

A successful voluntary pool – right in our backyard

Although Mr. Oberg suggests that there are many reasons why there are not pools in other crops like canola, oats, peas or lentils, he is mistaken to believe that there are none.  A very successful pool is operated by Viterra out of Bow Island, AB.  This pool has been successfully managing risk for, I’m told, about 100 edible bean producers in the area since it was run by Alberta Wheat Pool.  I’m also told that even though there are times when the open market price climbs above the pool price, the pool is very successful at retaining members.  They see it as a long term prospect, and over the years, they’ve done very well.  They also know that if they were to opt out, there are five more waiting to take their spot.  Once out, it would take a long time to get back in – so guess what?  They don’t leave.

Pools don’t have to be “one size fits all”

Pools could be developed with different focuses:

·         A specific class or variety of wheat

·         Grain from a specific region or with specific quality parameters

·         Grain going to a singular buyer (a good example would be something like the Warburtons program). 

·         A few years ago, a colleague suggested a separate pool for high quality wheat destined for Japan.

·         A select group – producer car loaders on a short line share a common goal to reduce costs and make their investment work.  They could easily market their grain together and pool all the returns; a voluntary CWB could provide marketing and pooling administration.

·         Unpriced pools – there is nothing magic about the CWB when it comes to timing of pricings (selling futures).  A pool could be offered that gives its members a fixed basis as its only price guarantee.  Pricing would be at the option of the producer, or he could choose the option of having his portion of the pool professionally managed (priced).  Pools could compete on the strengths of the pool managers’ track record, much like a mutual fund.

When I acted as a consultant to Prairie Pasta Producers (PPP), the CWB rejected the idea of PPP, a co-op of about 600 farmers, processing their own durum without going through the CWB and its pool.  To the CWB, it would mean PPP members were “cherry picking” the high valued domestic market.  I suggested that every durum farmer in Western Canada should be encouraged to join and support the coop; that way, every durum farmer would benefit from selling directly to their own processing plant.  Further, I suggested that the CWB could also enable and support it by offering a separate “pasta pool” for those involved; this way every participating durum farmer would get the same return from their sale to their processing plant.  All other deliveries would go through the conventional durum pool.  Obviously the idea never went anywhere.

There are also some developments in electronic trading that enables the development of averaging indexes that represent the average pricing of a commodity over a selected period.  The index would be based on a specific cash market; the electronic trading system would be set up to generate the index based on trades going through the system.  Although used extensively in energy markets, it could be applied to agriculture quite easily.  Grain companies (and the new CWB) could offer pools on the basis of these indexes, which could average the price over any predetermined period –from weekly to annually.  So to get the average price over a pool period is easier than ever.

When it comes to pooling, why just the CWB

 All this talk of different pools begs the question: once the CWB no longer has the single desk, government guarantees or enabling legislation, what is it?  CWB supporters have said, perhaps rightly, “the CWB will not be anything more than a broker or another grain company.”  This is especially true if the new CWB doesn’t offer pooling, as Mr. Oberg is suggesting.

The federal government is committed to enabling a voluntary CWB.  If the CWB becomes just another grain company, and anyone can pool, perhaps the federal government should look at new legislation that would provide the new CWB – or any other entity – with the appropriate tools to compete in the pooling and risk management arena.

More transition issues - the red herring files

There are a number of issues presented as problems with the removal of the CWB single desk.  They are presented as reasons why the government should re-think its position on the single desk because of the expected negative impacts.  From my perspective, these are nothing more than red herrings.

The CWB provides funding for various industry groups, supporting research, market development and education.  How will these groups be funded without the CWB?

First, let’s look at what the CWB does directly.  The CWB supports both the Canadian International Grains Institute (CIGI) and the Canadian Malting Barley Technical Centre (CMBTC) with direct payments (they both receive funding from other sources as well).  In 2009-10, the CWB provided a total of $2.3 million in financial support to these two organizations.  This works out to $0.11/tonne of wheat and durum and $0.17/tonne on barley that farmers paid through the pool accounts. 

Second, the Western Grain Research Foundation (WGRF) receives funding from producers via a check off by the CWB.  The WGRF wheat and barley check-offs of $0.30/tonne and $0.50/tonne respectively are collected on the final producer payments made by the CWB.  This approach, deducting the check-off from CWB final payments was adopted due to cost effectiveness but it is by no means the only way to collect funds of this nature.

Funding for all these groups – CIGI, CMBTC and WGRF – that has been provided either directly from the CWB (on behalf of producers) or from producers via a check off administered by the CWB, could easily be collected from producers through a check-off mechanism.

There are many check-offs already established, and on most crops.  Currently, nine producer organizations collect check-offs through the services of Levy Central and the Agriculture Council of Saskatchewan, representing canola, flax, mustard, canaryseed, oats, and winter cereals.  Others administer their programs independently, supported by front line buyers (grain companies) who make the deductions and forward the money collected to the organizations involved.  Wheat and barley check-offs could easily be added to this group.

Even without the single desk, farmer-contributions to various organizations via the CWB will continue to support various research and market development efforts, as long as the need and the intent is evident.  The loss of the single desk will not change any of that except the vehicle for collecting the money from farmers.

The vast majority of producer cars are loaded with CWB grains.  With the loss of the single desk, will there be fewer producer cars loaded?  Also, what will that mean to producer-owned short lines that are dependent on producer loaded cars?

In 2008-09, producers shipped 12,706 cars of CWB grains and 537 cars of non-CWB grains.  Of the non-CWB grains, most notable were 416 cars of oats. 

Producers load their own cars to avoid the cost of going through an elevator.  The most recent report by the federally appointed Grain Monitor shows the average wheat elevation is $13.00 per tonne; on a 90 tonne car, this works out to about $1,200 per car.  However, competition in non-CWB crops such as canola has driven elevation margins (costs to farmers) much lower.  Avoiding non-CWB elevations does not provide as much incentive for producers to load their own cars, hence, fewer non-CWB producer cars.

Short line railroads are often closely associated with producer car loaders; in fact, the farmer-owners of many short lines are also the major shippers on the line, shipping producer cars.  With the loss of the single desk, we will likely see fewer producer cars of wheat loaded as competition is expected to tighten elevator costs, reducing the potential savings and incentives to load cars.  But there will also be opportunities that we have not seen yet; producer car loaders and short line operators would be well advised to develop relationships with potential marketing partners, terminal operators (such as Mission Terminal in Thunder Bay, currently the largest producer car receiver) and even end users, both domestically and in the US.

It’s important to also remember that the CWB has yet to determine its role in the new environment.  Recently, the CWB has indicated that it is looking at different business models but it is not yet clear if it will play a role in producer cars and short lines.  Depending on its structure and strategy, the new CWB could be very well positioned to present itself as a marketing partner for producer car loaders and short line operators.  Considering its public stance on producer cars, it would be surprising if producer cars were not included in a significant way in its strategy; it has working relationships with all the buyers and operational relationships with terminals such as Mission Terminal, known to be the largest producer car receiver.

In a new market environment, as the single desk leaves and more competitors enter, the traditional flow of grain may change.  Many companies not yet active in Western Canada are looking at entering this market and because they may not have an infrastructure to employ, any one of them could see an opportunity to originate grain through producer cars and short line railroads.

Take oats for example.  Over the space of the last five reported years, total oat producer cars have trended higher, moving from 32 cars shipped to 416 cars.  It appears that someone has found a market they can service with producer cars.  With the removal of the single desk and with new players, there is no reason to think that this is not possible with wheat, or even other non-CWB crops.