CWB tendering works for farmers

[countryguy]

This new thread is in response to questions in the thread CWB tendering, does it work.

Tenders are based on the sales program, and what is required to meet sales in the given timeframe. It is not a tool geared for equal sharing of delivery opportunity. For the most part, the delivery call percentages are geared to do this.

One very important thing to remember in looking at what the bids currently are, is that the companies are bidding at that level on their own, for their own competitive reasons. The CWB can only evaluate the bids it receives. The winning bids are accepted. It's a commercial way to allocate the business.

Any benefit from a bid under the initial payment at port position gets distributed to the respective pool account - wheat, durum, feed barley or designated barley. The funds aren't specific to the grade or class of grain in that pool, but raises the value/tonne overall for all classes/grades in the pool.

There is greater accountability in this new environment, as both sides (grain co. and CWB) have to perform on the tender. Penalties are in place, for example, if the wrong grain is shipped. This will improve efficiency overall.

The other major change is the car awards program, which is new for this year. The car awards program gives farmers greater influence over which companies get the CWB's share of rail cars. Cars will be awarded on the basis of two components:
- Grain company receipts over the course of the previous 18 weeks
- The balance of farmer contracts yet to be delivered

The grain company's weekly share of the car allocation will be based on the market share they held overall in the last 18 weeks, and the proportionate share of the 'balance to be delivered' of the contracts of their most recent farmer-customer base.

As a farmer moves from one company to another, the proportion of the outstanding balance on delivery contracts follows that farmer to be credited to the new grain company.

An individual farmer therefore has influence on where cars go. This is influence that farmers can use as they seek the best terms for their crops.

In evaluating this process, compare it to what would happen with a pure bid system for cars direct with the railways. The company willing to pay the most for the cars would get them. Rather than having the funds going to farmers through the pool accounts, this money would be going to the railways. I think the level of bids to get cars shows that this is how it would play out.

Farmers should think very carefully about how long that the trucking incentives would continue to flow to farmers given the smaller crop, increased domestic percentage being used, and a shrunken handling system,etc.

The environment is very competitive for grain handlers, and these commercial mechanisms now replace the administered system of the past. At least farmers collectively are capturing the benefit.

Tom

[TOM4CWB]

thalpenny,

I really wonder how much the CWB is able to leverage from a grain-handling sector that is not considered to be profitable to begin with?

Do you not think that Canola, Flax, Pea and Lentil, Domestic feed barley and wheat grain producers will pay the price of CWB tactics?

What I am saying is that as long as we still have co-operative owned elevator companies, and they are not making money on handling grain, can you squeeze blood from a stone?

For instance the CWRS #1 high Protein shipment that was tendered to Thunder Bay at a $12.50/t discount, the total elevation that is normally charged, do you actually believe grain handlers can do your business for nothing?

Is it not more likely that the basis levels on non-CWB grains will increase so grain handlers can survive?

What about the CWB trick of over supplying cars after a tender has been awarded?

What do I mean?

I have 30 cars of a specific type and grade of wheat the CWB has left sitting in my elevator for 6 months, and I really think it is time to move it on out. Now I need another 20 cars to make a 50 car incentive rate with the railway, and with the contract openings I can likely attract the additional 20 cars, enough grain to fill the 50 car spot.

Now all along I have been asking the CWB for 30 cars to move this wheat, and the CWB has refused to allocate shipment for the last 6 months.

What happens?

I tender at say a $7/t discount to get movement, and the CWB accepts.

Not a week later after the CWB has issued the tender award to me, guess what?

Someone in the Winnipeg CWB now allocates the 30 cars I had been asking for all along for the last 6 months!!!

Now I have to dig up 50 cars of this same wheat, instead of 20, and the contracts are not open enough to allow it without trucking for huge distances!!!

I do not want to turn down these 30 cars, as turning down CWB allocation means I am perceived be a an unreliable CWB shipper!!! If I am an Alberta shipper, I will have to eat a higher freight rate if the tendered cars I now can’t handle go further east to fill the extra 30 cars I cannot access because the contract system won’t allow delivery efficiently to my elevator.

On shipping dates I understand if I tender today, and am awarded the tender, the CWB has the right to call the tendered wheat any time between the 20th of November and the 20th of December.

Now I do not know, and you will not tell me when the Contract calls will be opened, and you can plug my elevator for a month, with no storage, at my expense!!!

Is this efficiency and getting maximum usage of my elevator, and allowing me to logically plan ahead, deal with weather problems, grading issues ETC?

Haven’t all you done is restrict my operational flexibility by restricting deliveries through the contract call system, rammed cars at me when you knew I would not be able to source the grain, while penalizing me if I don’t deliver you the right grain at the terminal position?

Is this really the most constructive efficient way to smoothly turn cars and deliver the right product to our customers at the right time with the least work and storage and trucking costs within the grain handling system?

[chaffmeister]

For the most part, on this issue I agree with thalpenny. Good, clear explanation, Tom.

One thing I wonder about is your comment:
"Farmers should think very carefully about how long that the trucking incentives would continue to flow to farmers given the smaller crop, increased domestic percentage being used, and a shrunken handling system,etc."

It sounds like you think that the trucking premiums won't last but the scenario you paint are all things that contribute to intense competition which is driving the trucking premiums. I'm just not clear on what you are trying to say.


Sorry, TOM4CWB, not sure I know where you are coming from.

You question how much "the CWB is able to leverage from a grain-handling sector that is not considered to be profitable to begin with" but also indicate that the winning tenders are in excess of $10 per tonne below tariff. I think it is self-evident and you answered your own question.

Considering your idea that basis levels on non-CWB grains will worsen - I'm guessing you mean to compensate for losses incurred by handling tendered CWB grains - I'm afraid that simply is not how it works. If I'm a grain company blowing my toes off by tendering to the CWB at a loss, and I try to make it back by widening my basis on canola or feed barley, I'll simply lose even more money because I won't be competitive on canola or feed barley and therefore will not handle any.

Re your quesion:
"...the CWRS #1 high Protein shipment that was tendered to Thunder Bay at a $12.50/t discount, the total elevation that is normally charged, do you actually believe grain handlers can do your business for nothing?"

Although I believe these levels of discounts are not sustainable in the long run, you have to look at the total picture. I will assume that the company that is discounting so deep is an integrated company - operating both primary elevators and terminals. The full tariff on CWB grains is (off the top of my head) around $26 per tonne - $11.00 for primary elevation, $11.00 for terminal elevation, and about $4.00 per tonne to clean it. (I will stand corrected if I am a couple of dollars out.) So, for a company like say, SWP, to discount their tariff by $12.50 per tonne, they are still capturing $13.50 for the total throughput.

The grain handling business is about 90% fixed cost - costs that are there whether they ship a tonne of grain or not. If you are SWP looking to regain lost market share, dropping your price aggressively to get the additional movement is not such a dumb idea. And although giving up $12.50 per tonne may look like a give away program, about $13.00 of the $13.50 they are earning goes right to the bottom line because its grain they wouldn't handle otherwise.

Re your concern over CWB over supplying cars, I don't think I am equipped to comment on your scenario except to say that I think I would need more information - it seems like something's missing...

If you can attract the additional 20 carlots into your elevator, why haven't you? Better yet, why did you accept to 30 carlots into your elevator without movement? You say the CWB has refused to allocate shipment for the past 6 months. What about allocation zones - you mean that the CWB has not allocated any shipments for the grain within the zone at all? Or are you a single-elevator company (or small enough that you only have one elevator in the zone)?

You say that the CWB has over a month to actually call for the grain and you will be plugged for that time.

Assuming you are a 50 car loader, you have more than 15,000 tonnes of space. 50 cars is about 4,000 tonnes, 4,500 tonnes max. I don't think that amount of grain - on its own - will plug your elevator. If space is a problem, why wouldn't you coordinate trucking with the arrival of the railcars - you will know a minimum of two weeks in advance that the cars are coming. Plenty of time under most circumstance to bring in the grain from the farm - especially if you have already sent out your guy-in-the-white-pickup to buy the grain on the farm.

Also, my understanding is that storage charges still apply on tendered grain as there is no way to account for tendered and non-tendered grain separately.


We may agree that there are problems and "issues" with the CWB and its system, but you can't blame the CWB for everything.

Chaffmeister

[TOM4CWB]

chaffmiester,

I was simply putting forward comments I recieved from a number of elevators and grain handlers, and their comments!

I know the WGEA all agreed to sign up to the CWB program on tendering, what makes you so sure that they don't have an agreement on the non-board side?

I do know that 2001-02 is going to be one of the tuffest years for both grain producers and handlers, and I sure hope that we all can work co-operatively to make our system more effient in a way that reduces costs to all of us while providing our customers with a grain product that is valuable and adds profit to their business verses our competing suppliers of grain.

I did not blame the CWB, but I did ask if this was the best most efficient way to handle our grain.

A number of my partners that I work with in the grain handling system know that we could do better, and that would be a good thing to work towards, wouldn't it?

[TOM4CWB]

Farmers and grain handlers are competitive but railways and the CWB are not. Hopper car turn around takes 21 days that is really competitive. CWB monopoly thats really competitive. Chaffmiester says that once your overhead cost is met there is no cost to doing buisness(wish that worked on my farm). Halpenny can't see past his pay cheque. MAKE THE RAILROAD AND CWB COMPETITIVE. I would love to have the locked in freight rate of $30.00 or more per tonne to move grain to the coast without competition. I would love to have the value added domestic and export market without competition. I would love to have all the grain production in Canada on my farm. Get the message peons. Oh! free us up you who continue this economonical terrorism on farmers and other agricultural buisnesses. The Kernel

[TOM4CWB]

I missed responding to some of the questions here when they were posted - sorry for the delay.

One important point to note is that the CWB does not allocate cars at the elevator level. The CWB is not responsible for administering the train runs anymore - that's the railways now. The cars are allocated to the grain company within a zone and with a end destination and specifications defined. The company is responsible to decide where in their network in the zone they draw the grain from.

So grain in an elevator for 6 months as TOM4CWB described because of no cars is more likely a result of the grain company placing their cars at a different elevator.

For the tenders, the grain company awarded the tender can draw that grain from anywhere in the port catchment area, so there is a great deal of discretion on the part of the grain company to determine where the grain comes from.

The grain companies are setting the standard for competitve bids - the CWB is not arbitrarily setting a threshold for tender bids. Obviously, if the bids are higher than what grain movement would otherwise cost, the CWB may not accept the tender ...

Tom

[TOM4CWB]

thalpenny,

I had hoped that the CWB would admit that there are a few bugs in the way it works tendered and normally allocated shipments together, no doubt work is needed as this is a new experence for everyone involved.

The point in the end, what I was getting at was, "leveraging" stocks in the inflexible system of delivery the CWB stands firmly in favour of costs farmers money in the end.

Extra freight costs will come out of my pocket in the form of higher basis costs on my other grains.

Modern terminals are operated as profit centres, and any extra cost inccured either directly threatens the viability of the grain handling operation, or threatens the viability of the farmers operation.

None of us have any "spare cash" to play with in our operations, and an extra unneeded cost, that isn't working towards making our system the least cost possible, is a threat to both farmers and grain handler's existence!!!

Now thalpenny, don't you agree that the CWB could respect those it does business with, and use the golden rule, "do unto others as you would have them do unto you" just a little more each day in the operational side?

Wouldn't this make life for all of us just a little less stressful???

[TOM4CWB]

I think, Tom4CWb, that you have made the point most eloquently that the CWB is saving farmers money.

It's a bit of a stretch to attempt to say that the grain co's are somehow forced to have higher basis on other crops to compensate for the lower basis on CWB grains.

The railways can set rates where they like. Companies can advance bood unit trains, and send mixed shipments of CWB and non-cwb grain. Full flexibility there. If the RRs exceed the revenue cap, they pay some of it back. Grain companies can set their elevator and terminal tariffs at whatever rate they like. No regulation there anymore.

If the grain co's tender at values under the initial payment level at port, the CWB will capture those savings on behalf of farmers. What you're saying is that somehow the grain co's have farmers in a captive market with non-CWB grains, and that they can extract more from them through the basis than they can with CWB grains. Perhaps, Tom4CWB, you are trying hard to change the wrong system?

Tom

[charliep]

Tom

I would be cautious in saying there are excess profits (or any profits for that matter) in the grain handling system. In a year of a drought reduced crop, the grain companies are being aggressive on the CWB tenders as a way to capture shipping opportunities and handle in both the elevator and terminal system. Similar to farmers, this is a year when they will try to capture variable costs plus some contribution to fixed. Longer term, this situation cannot continue without major changes in the industry and/or more consolidation of grain companies.

On a longer term basis, how will the CWB tendering process contribute to reducing costs in the handling system (real costs for the system versus results of tenders)? How will the CWB tendering process improve our ability to satisfy customer needs (right product/quality to the right location for the delivery date in the contract)?

[TOM4CWB]

thalpenny,

On our farms we are taking profits from one crop, and transfering that revenue to make up for a shortfall in another crop.

To suggest that grain handlers do not have to do the same when they are in the low handle position like this year is not reasonable.

Charlie has the fixed and variable cost issue well explained, and if the CWB is leveraging money out of grain handlers, the CWB is depleteing the capital base of these operations.

It will be said by many that farmers are much worse off, but just ask a Canada 3000 worker where they are after they just were thrown on the street without even wages being paid up.

I see the fearless our Chairman Ritter is encouraging farmers to invest in old elevators and promising car allocation and shipping.

Now if the CWB keeps these old facilities open by subsdising them, at the expence of the new high throughput elevators, where does this leave those who would spend millions to create a more efficient handleing system, just to have the CWB cross transfer the increased efficiencies back to the old farmer owned elevators.

Now thalpenny, what does this do to the share value of my Agricore United investment?

When do we call a truce and work to improve the efficiency of our system, rather than trying to score propaganda points, and really hurt farmers buying the old elevators who will have to face up to the new reality some day?

Is it not possible that the CWB will contribute to these farmer's demise, by encouraging them to operate these old elevators?

[charliep]

I thought I had better clarify that I don't think having grain companies lower tariffs in the tendering process is a bad thing. Grain companies are big boys and can make decisions that are in their best interest. Longer term, the grain handling system has to be allowed operate in a very efficient and low cost manner. Profit for grain companies is not a bad thing provided they are efficient and providing good service. The process also has to make sure we are doing the best job possible in meeting customer requirements (both quality and timing).

A recent conference I attended has a speaker who made the comment that the CWB is taking more of an advocacy role on behalf of farmers in dealing with grain companies and others since the change in structure. Is this an appropriate role for the CWB to take?

[TOM4CWB]

Charlie,

My issue with CWB and its role is the specific powers legislation gives them and the lack of transparent accountability the CWB has.

One saftey government has is the auditor general scrutinizing yearly the Canadian governments activities.

Unfortunately the CWB is not part of this accountable process.

It is true the CWB was invited by the Board of Directors to look at 1999-00, but the Minister Responsible and CWB Directors will only release information that they want to, not the whole report, if there is damageing discoveries the auditor general makes.

There is also a big difference between being Invited in by the CWB, rather than having the legal right to scritinize CWB operations on a yearly basis, and reporting back to parliament the results.

Please show me an accountable trustworthy transparent process that proves the CWB is both independant and fair in both the tendering and rail car allocation system.

I have not seen anything that protects CWB employees from the temptation of being drawn into bribery or payoff scheemes.

If there is an independant transparent process that gives this protection, could the CWB state it and how it would protect the integrity of the system?

The same goes for the process of buy-back and sales that are contigent on export licensing!

Where is the process that proves the CWB is trustworthy?

[TOM4CWB]

thalpenny,

I asked a local elevator person what could assure me that Really Cheap CWB tenders were not being rewarded in return by cheap sale prices to grain going into the US or other export destinations.

A red face and no reply was the answer, as from everything the CWB Act and Regulations state, there are no safegaurds either for the CWB sales department or elevator company staff.

In many parts of the world, bribery and payoffs are the normal course of business, as CWB staff well know.

This however is no excuse to have this corrupt method of doing business in Canada, ESPECIALLY WHEN IT COULD BE A REASONABLE EXPLANATION OF WHY WE RECEIVE LESS FOR OUR WHEAT AND BARLEY THAN OUR NEIGHBOURS THAT FARM JUST SOUTH OF US!!!!

The saying that perception is reality is well worn by CWB spin masters, and I really would like to see a transparent and accountable system that would allow farmers in the designated area to truly trust the CWB.

Could this even be a possibility thalpenny???