Saturday, September 3, 2011

Canadian Wheat Board War

Let it be said that I am a fan of free markets.  I may even locate one someday.  The reality is that capital will always work to impose a pricing monopoly that inevitably taxes the market.

Three shipping companies are already a deadly monopoly that has been countered by the Canadian Wheat Board and their supply monopoly.  After all they can cut off an abusive shipper which is what produced the board in the first place.

The reality is that most farmers are actually price takers because they access one shipping point.  The Wheat board checkmates that.

More importantly, the wheat board is not able to use capital to speculate and must move product which makes it highly responsive to the market.

The arguments as noted on the canola trade will wither the moment there is a huge surplus to work off and price cutting runs amok.

100,000 farmers are never dealing directly with 100,000,000 consumers in the form of a friendly exchange of trade.  One wheat board is dealing with three shipping concerns and perhaps a few hundred wholesale buyers who would just as soon keep it that way unless they can get a ten percent discount by doing it through the back door.

Industrial agriculture has concentrated production to such an extent that markets are no longer working effectively anyway and it is high time to think out a set of working rules that blocks simple capital concentration from calling a particular market to its own particular advantage.

Canada once had a well protected awful wine industry.  Free trade ended that.  However, governments then created a tightly regulated craft wine (and craft beer industry) which has been happily driving the plonk out of the market while massively employing a huge number of people.

The wheat board was a solution.  Before it is removed, and it has problems, make sure that a new regime is put in place that serves everybody better.

I would love to see craft beef ranching, craft dairy, craft animal husbandry, craft chickens all designed to produce a profitable business and healthy customers.


At the heart of the wheat wars

GORDON PITTS - The Globe and Mail

For decades, Western Canadian farmers have been polarized by a galvanizing issue – the monopoly role of the Canadian Wheat Board, which is the single marketing agency for their wheat and barley. The federal government says it will strip the board of its exclusive status in August, 2012 – a prospect that delights farmers chafing under the system’s restraints, even as it troubles those who value the CWB’s role.

Board chair Allen Oberg, an Alberta farmer, has been a key player in recent producer forums held across the Prairies, as he champions a plebiscite of growers which is approaching its Aug. 24 ballot-return deadline. The results of the vote, which the government dismisses as a costly, irrelevant distraction, will be released Sept. 9.

What’s the biggest thing you’ve learned in these producer meetings?

The federal government was hoping the farmers would not care about the board and the meetings would be poorly attended. It’s the exact opposite. At every one of the first six [of seven] meetings, we’ve had to put out more chairs than expected – even though, in some areas, harvests are already under way.

Didn’t you get aggravation from free marketers in your home province?

I wouldn’t say there are more detractors in Alberta than at any of the other producer meetings. Maybe those people who don’t agree with the board just think it’s a done deal and stayed home. I’d say we had 85-per-cent support for the board at the Camrose, Alta., meeting.

We’ve put the clear question to farmers: Do you want a Canadian Wheat Board for wheat? Do you want it for barley? This is a vote with 68,000 ballots. So when Agriculture Minister [Gerry] Ritz calls it just an expensive survey, it is clearly not that – it is a plebiscite among all farmers.

I will take my direction and lead from what the majority of farmers say. I’d advise the minister to do exactly the same.

Hasn’t he said your plebiscite is irrelevant?

The Minister can say what he wants, but I don’t believe the views of farmers are irrelevant. I don’t think as Minister of Agriculture he should take that view either.

Our surveys show that on the wheat side, 65 per cent to 68 per cent of growers support the single [marketing] desk. And nearly 80 per cent say they should be the ones making this decision. So when the minister says that his mind is already made up and this plebiscite doesn’t matter, the farmers do think it matters. They fund the entire cost of the CWB operations, so why shouldn’t they have a direct say in deciding its future?

Surely you are impressed by the strong returns from canola in an open-market system.

Why not support the same market for wheat?

It’s too simple an analogy to say that because canola is under the free market, that’s why there’s such a good price. I could make a similar comment when prices of oats are in the tank – that it’s just because of the open market.

The main reason that canola prices have stayed high is the huge increase in demand for [vegetable] oil in general. For example, 15 years ago, the Chinese weren’t importing any soybeans and they will import 60 million tonnes this year. Meanwhile, world wheat trade has been relatively static at about 100-to-120 million tonnes a year.

Can the board survive without its exclusive buying and selling power?

No. Without the single desk, it will be wound down – there isn’t too much argument about that. The CWB has never been a grain company; it has just been a marketing agency, a seller on farmers’ behalf, and it has never retained any earnings On July 31 of every year, everything is paid back to farmers and we start all over again. That is why it has never acquired any assets and it has no capital base. To suggest that without the single desk, the CWB could become a grain company and compete with people who have been in the business for 75 years is a bit naive.

To continue, it would need federal assistance on the financial side to develop a capital base and some regulations to have access to facilities, both in the country and, more important, at the ports.

If the board goes, what will be the impact in five to 10 years?

The odd thing is, most people who would vote to remove the single desk do it because they would like more choices. I believe the opposite will be true. We will see more consolidation in the industry among grain companies.

Many of the smaller players rely on the CWB for [railway] car allocation and access to ports. With the wheat board gone, they will have two choices: to amalgamate among themselves or hook up with one of the dominant three players [Cargill, Richardson International and Viterra]. Once the wheat board goes, those companies with port facilities will be in the driver’s seat.

Aren’t you standing in the way of farmers with initiative?

I see the CWB as being like a patent for farmers. When corporations have a unique product, they seek patent protection so they can be the only seller – and that’s what the CWB is.

I meet farmers who say the wheat board doesn’t have any value and I put it to them this way: “What would a private company be willing to pay for the exclusive right to export all wheat and barley out of Western Canada? And to be the only seller to domestic mills and maltsters?” That’s what farmers have, and that’s what’s being taken away.

Some farmers say this has come down to personal ill will between you and Mr. Ritz.

Obviously we have a different view on the single desk, but my personal views are not what’s important. The important thing is what the majority of farmers want. I’ve said if this plebiscite goes the other way, and the farmers want change, I’m willing to support that. I don’t think it’s unreasonable for me to ask the minister to do exactly the same.

What would the end of the wheat board mean to your business?

Where I farm, we’re shipping a large number of producer cars [farmer-ordered railway cars which bypass the primary elevator system]. The CWB provides us with the port access and the sale. We’ve been saving $1,000 to $1,300 a car. For my own farm, I ship about 30 producer cars a year, and so the savings would be $35,000 to $40,000.

In my part of Alberta, we have a local railway short line; there are also eight or nine short-line railway operators in Saskatchewan. They rely on producer-car movements and if that traffic dwindles, their operations are in jeopardy. With this short line running close to where I farm, I’m an investor and I’m concerned about my investment.

Yet the CWB is portrayed as a dinosaur – the last big agricultural monopoly in the world.
That may be true but the reasons for having a CWB now are stronger than when it was created in 1935. The players out there are so much bigger and stronger. From a farmer perspective, that’s the great thing about the board. It has been a great leveller in the industry, in that it takes the long-term view.

It’s reflected in how we’ve tried to keep smaller players in the business by the way we allocate cars. Take domestic flour milling. We have an equity-pricing model so that a very small mill buys its wheat at the same price as a large mill. That levels the playing field and allows the small guys to stay in business. With the CWB gone, the larger mills would demand volume discounts and they would get them.

Will this end up in the courts?

There already is one legal challenge [by the wheat board]. It really depends on the result of this plebiscite. If the farmers vote no, we’re not going to oppose any changes that come forward. But if they vote yes, we will use every available resource to see that this single-desk advantage is retained. And that may include legal avenues.

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