Drifts on the Doorsteps

[dmlfarmer]

wow, I missed a lot of discussion being gone for a couple of days. But those those who asked me questions, I am listening and here is my reponses

Tipsy, I told bj in an earlier post and I will repeat for you, I too disagree with election process. You are right it is very poorly run. The voter's list sucks. I think there are many infractions to the democratic process that are ignored or overlooked. I never thought of elections canada running it, you have a good idea if it is possible. I hope you push for it. But tipsy, the election is the a mandated process and by ignoring it and not voting, or worse yet by refusing to acknowledge the winners whoever they are and what ever they stand for, as an individual or group, a person loses any legitimacy for change. Democray is flawed and in some cases, like the voters list absolutely stinks, but I believe it is a hell of a lot better than the alternatives.
I also agree the CWB is responsible for some of this mess. The government is also guilty of dirty tricks. Candidates on both sides have done unethical campaigning. As a result, I do not think we are getting, or will ever get the best people to run as candidates to be directors. I am worried ideology is more important for both sides than running the CWB!

Craig: To you also, I repeat I do not agree with voter's list.
But two wrongs do not make a right. A bad voter's list does not justify 3rd party abuses. Both are wrong and both need to be addressed and changed.

In any transaction there is more than price, as jdepape also points out. In a time with abundant stocks of grain, having the ability to seek out new markets is market power. Having a recognized brand gives market power. I am sure you will agree, both Walmart and McDonalds have market power, yet neither of them have premium pricing of their product and both have the power to minimize what they pay their suppliers.

Farm Ranger:
I need to pause and take a deep breath so I don't say something rude.

It is comments like yours that make it impossible for there ever to be real discussion and maybe even a solution some day to the CWB. The CWB does not conviscate grain! Right or wrong, the law in this country says if you grow wheat for food or export or barley for export or malt in the DA, you must sell through the CWB. That is not a secret. So by choosing to plant those crops you are in fact agreeing to market through the CWB. So don't try to blame the CWB and say they are convescating your property. Hell, you can't sell milk unless you buy quota - thank God grain farmers don't have to buy quota. You can't drive a car unless you have a licence, and the car is registered. Or they will conviscate your property! And there are a host of really stupid laws that should have never been made or that are still on the books.

Farm Ranger, maltsters are not building new plants in the US either - which does not have a single desk! Yet they are building in China, which has a single desk purchasing system, and they are building in Russia and eastern Europe which has questionable trading of grains so I will respond there are many reasons why a company choses to build where they do and not just supply, demand, or price as jdpape also says.

Finally jdepape:
I disagree, the the import tariffs do play a role, even if the end product is exported rather than used domestically. And even if the malt was not for export, I submit it is very likely the plants still would be built on the cost due to shipping, labor, and other considerations.

Just as you say there are reasons other than price for maltsters not building in Canada, IMHO, there the CWB does have other market power than priceing. Unfortunately I cannot give you empirical data to back that up as you asked for just as I doubt you could tell me exactly how much money the CWB is costing maltsters, or how much more they would pay farmers for barley if there was no CWB. That is why there is so much difficulty in finding a workable solution. Very few farmers have answers, nobody is seeking the answers; they are only arguing their case.

And no I did not misinterpert your statement about Nobody needs Canadian wheat. Countries do not need to buy Canadian wheat, I agree. I simply added grain companies do not need to buy canadian wheat either.Cargill and Viterra can both access grain anywhere in the world. They do not need to buy Canadian wheat to make a sale. The only organization in the world that is mandated to buy Canadian wheat and barley and must buy Canadian wheat and barley to meet sales committments is the CWB.

[Fransisco]

dml said, "Democracy is flawed and in some cases, like the voters list absolutely stinks, but I believe it is a hell of a lot better than the alternatives."

The alternatives in your view then are what?

Here's my alternative. Everyone gets to sell their grain to whomever they want just like they already do with every other non-board grain. I fail to see what is so terrible about that.


dml said, "IMHO, there the CWB does have other market power than pricing. Unfortunately I cannot give you empirical data to back that up as you asked for just as I doubt you could tell me exactly how much money the CWB is costing maltsters, or how much more they would pay farmers for barley if there was no CWB."

So if you have no empirical data what are you basing your conclusion on? Theory and just what "feels" right?

As to how much more farmers would get paid for their barley if there was no single desk? That ones pretty easy, they would get paid the world price. The same world price that gets paid to farmers in the nearest open market. Which just happens to be the U.S. You've seen lots of easily verifiable price comparisons here already on agriville that show you what it would be.

[jdepape]

Dmlfarmer:

1. Assume you are a Chinese malting company and you assess the malt market in South East Asia and determine that countries like Vietnam and the Philippines are experiencing rapid growth in beer consumption and therefore malt demand. You crunch your numbers and you can make a good ROI if you build a malt house in China (on the coast) and make malt for SE Asia with either Canadian or Australian barley. So you build it and import barley, make it into malt and export it. QUESTION: how does an import tariff on malt IMPORTED into China affect you or your business when you are not importing malt?

2. How much would Canadian maltsters pay for malt barley without the single desk, you ask? Fransisco already said “the world price” and I agree. Here’s a real “empirical” example.

Back in the spring of 2008 when CashPlus was born, the first bid to farmers was equivalent to $5.50/bu delivered to a local elevator. Remember? At the time, the maltsters would have paid $8.00/bu. Because that’s what they were paying. We had just gone through 07-08 and the world was pretty low on just about everything and the price of malt barley was high along with everything else.

Before you go say, “oh yeah, the maltsters wouldn’t pay that much without the single desk there! They’d pay only a small premium over feed barley to get the malt barley.”

The problem with that idea is timing. Maltsters buy barley when the brewers are buying malt. They go back-to-back. So when brewers are buying in the spring, the maltsters have to come up with a price – and ironically that price has little to do with feed barley. In the spring the maltsters are “buying acres” – they compete with the highest return crops. In 2008, that was spring wheat and canola. In order to buy acres, they needed to show a decent return for malt barley as compared to those two crops. BUT – with the added complexity that they may not make malt, so they have to figure in the chance it might go feed.

In 2008, the maltsters were furious and frustrated with the CWB. In their view, the $5.50 price wasn’t buying them acres. Since they were paying $8.00, they wanted the price to farmers to reflect that. Through strong language negotiations, the maltsters finally got the CashPlus price up to $7.00 later that spring.

If you have a problem with this idea, go talk to Anheuser-Busch in the US and ask them why they have malt barley basis contracts that are based off Minneapolis spring wheat futures. (When wheat futures rally, so does the price of malt, staying competitive.)

You want solutions? Without the single desk in Canada, I see a malt barley sector that contracts for barley by variety early in the year just as they do in the US. The prices are based on competitive returns per acre when compared to other crops (not feed barley). You just might sign malt barley basis contracts based off canola futures. Feed barley prices will have more to do with domestic and offshore feed barley prices and corn prices than malt barley prices.

3. Cargill and Viterra in Canada need your wheat. Remember the argument that the private trade works on a margin? Well, they do. And the grain handling business is largely a fixed cost business – it can be as much as 95% fixed costs. That means the more grain they can pump through the elevator, the better. If an elevator (or an elevator division) does not handle enough grain to cover those fixed costs and make a contribution to variable costs and make a profit, the people involved have some explainin’ to do. And if head office doesn’t like your explanation, they will find someone else to fill your shoes. So yes, they certainly do need your grain.

[jdepape]

One more thing, dmlfarmer. You were answering farmranger on this but I want to weigh in:

You say maltsters are not building new plants in the US. Correct – since the global economic meltdown of 2008, malt demand has dropped off. Over 20 projects around the world were either canceled or put on hold.

The last big investments in malting in the US are:
• Cargill in Spiritwood, ND (120,000 tonne upgrade in 2008)
• Busch Ag in Idaho Falls, ID (350,000 tonne upgrade in 2002)
• IMC in Great Falls, MT (700,000 tonne facility built in 2003)
• Modelo, Idaho Falls, MF (140,000 tonne facility built in early 2000s)

China’s additional capacity (some of which I talked about earlier) was built in 2008-09 and totaled about 1.5 million tonnes.

China does not have a single desk buyer of malt barley. COFCO is a government buying agency but many malt operations are owned by multinational companies and they buy direct.

Just helpin' you get your facts right.

[FarmRanger]

“<i>…Farm Ranger:
I need to pause and take a deep breath so I don't say something rude.

It is comments like yours that make it impossible for there ever to be real discussion and maybe even a solution some day to the CWB.<i>”

I am all for solutions to problems that farmers face with board grains in Western Canada. I’m merely trying to point out the elephant in the room; that if I grow grain covered under the CWB act, I don’t have the right to sell it to the highest bidder, or the lowest bidder, or any bidder except the CWB. Sorry, but this amounts to confiscation. Confiscation of property is a radical solution which should be sparingly used in a free country and should only be implemented if there is a significant, demonstrable and justifiable public good that outweighs the loss of freedom for those affected (western Canadian grain farmers in this case). Even where a significant public good is demonstrated, there should be adequate monetary compensation for those affected. Jdepape and others have tried on numerous occasions to point out that there isn’t any price benefit, but this is simply ignored, or mocked, but never rationally refuted.

<i>Right or wrong, the law in this country says if you grow wheat for food or export or barley for export or malt in the DA, you must sell through the CWB. That is not a secret. So by choosing to plant those crops you are in fact agreeing to market through the CWB. So don't try to blame the CWB and say they are convescating your property.</i>

I don’t blame the CWB for confiscating my property, it is functioning within the law. The law is badly flawed, not applied equally or equitably throughout the country, and <b>should be repealed</b>. I choose to grow board grains to fill out a good agronomic rotation which works well on my farm. Why should I be forced to replace those crops with something agronomically inferior? I paid for the seed, and I paid into the WGRF which helped to develop it, so what justification is there for stripping my right to sell it?

It speaks volumes that some people won’t (or can’t) discuss in a civil manner the downside implications of CWB legislation. I appreciate that dmlfarmer is at least trying, although I’m not sure why you would imply that you would be justified to be rude to me for pointing this out.

[FarmRanger]

Oops, formatting problem on the above post, my apologies. Trying again.

“<i>…Farm Ranger:
I need to pause and take a deep breath so I don't say something rude.

It is comments like yours that make it impossible for there ever to be real discussion and maybe even a solution some day to the CWB.</i>”

I am all for solutions to problems that farmers face with board grains in Western Canada. I’m merely trying to point out the elephant in the room; that if I grow grain covered under the CWB act, I don’t have the right to sell it to the highest bidder, or the lowest bidder, or any bidder except the CWB. Sorry, but this amounts to confiscation. Confiscation of property is a radical solution which should be sparingly used in a free country and should only be implemented if there is a significant, demonstrable and justifiable public good that outweighs the loss of freedom for those affected (western Canadian grain farmers in this case). Even where a significant public good is demonstrated, there should be adequate monetary compensation for those affected. Jdepape and others have tried on numerous occasions to point out that there isn’t any price benefit, but this is simply ignored, or mocked, but never rationally refuted.

<i>Right or wrong, the law in this country says if you grow wheat for food or export or barley for export or malt in the DA, you must sell through the CWB. That is not a secret. So by choosing to plant those crops you are in fact agreeing to market through the CWB. So don't try to blame the CWB and say they are convescating your property.</i>

I don’t blame the CWB for confiscating my property, it is functioning within the law. The law is badly flawed, not applied equally or equitably throughout the country, and <b>should be repealed</b>. I choose to grow board grains to fill out a good agronomic rotation which works well on my farm. Why should I be forced to replace those crops with something agronomically inferior? I paid for the seed, and I paid into the WGRF which helped to develop it, so what justification is there for stripping my right to sell it?

It speaks volumes that some people won’t (or can’t) discuss in a civil manner the downside implications of CWB legislation. I appreciate that dmlfarmer is at least trying, although I’m not sure why you would imply that it would be justified to be rude to me for pointing this out.

[dmlfarmer]

Not a lot of time, so cannot reply to all. Sorry.
"I" am an astute Chinese businessman who knows beer consumption is rising in my country and neighboring land and I can make a profit by supplying malt for this growing demand. So do I purchase malt from Canada for my own country at a 9% tariff or could I make more profit buying barley at a 3% tariff and making my own malt. Oh, I also know wages, taxes, and quality regulations are lower and laxer in China than at home so cost of producing malt would be lower if made in China.

And if I build my malt plant in one of the 14 free trade areas in China(aka export processing zones) I don't even have to pay any tariffs if I export the malt, and even if I decide to sell into my home country I only have to pay the lower duty at the time the malt moves out of the free trade zone and not when I import it into the country. I think I will seek a maltster as a partner and build my own plant here.

"I" am a multinational malting company and I see China and south east asia needs malt. Do I build a new plant in Canada, where because of distance and costs and the CWB I am limited to buying Canadian grain and even if the CWB goes away, it probably only adds Northern tier US barley as a supply source. Or do I build it in a free trade zone in China where since it is right on the coast I can still bring in Canadian and US barley, plus Australian, Argentinan, or barley from any other country depending on quality, costs, and shipping. Hey, I also know that no duties need to be paid on import and export of this barley and malt, regardless of where it comes from, and that the Chinese government waives the value added tax, business taxes are reduced and that my Chinese partner gets income tax reductions on other business because he is involved in the FTZ. And a real bonus is labor and transportation costs are lower.

Yes, tariffs do play a role, even when we are talking FTZ and EPZs. That is why 116 (maybe more now) countries in the world have FTZs some of them dating back to the early 1900's Interestingly the only FTZ in Canada is only a year old and is in landlocked Winnipeg. Oh well!

I have personally been in successful FTZs and I do know the value they have in determining if a company invests in one country or another.

On your last point, you are confusing micro and macro economics. We agree that on a macro level Canadian wheat really is not needed. Countries can source grain through multinationls from around the world.

On a micro economic level, wheat is an important part of a primary elevator business. But it is not the only business. Wheat can (and has and is) dropping at primary elevators not only in Canada but in the US and even in hungry Pakistan. But other crops are filling the fields and elevators. Most farmers are fairly astute businessmen and will adjust their cropping IF POSSIBLE to replace low return crops like wheat with higher return crops ie canola in Canada, corn and soybeans in US. Primary companies will service what is being grown.

And make no mistake, a multinational company has multiple means of quietly influencing the market if they do not want to service an area, region, or even country. Shipping, handling, elevation charges, gradiing, quality of management, hours of operation, basis, and yes even price can and is used daily both on a macro and micro level. There is nothing better than the free market when both buyers and sellers have equal power, respect each other, and are willing to share revenues fairly. Is this still possible when the 4 biggest multinational grain companies control about 75% of the world grain trade? This is the primary reason I think we need the CWB. If the majority of western farmers decide this is wrong and make the choice, within the law (director elections) that we do not need the CWB or the single desk, I will respect their decision, and their right to make that choice. But before going down a path from which we cannot return, I wish both sides could set aside ideology long enough to determine why the board is not working and elect or appoint(in the case of government directors) directors on the basis of business skills instead of ideology.

[dmlfarmer]

FR: it is not justifiable to be rude, that is why I had to pause for an hour before replying. had we been talking in person, I would have had to walk away for the same time period. Using an inflamatory word like confisticate is simply exaggerating your case and does not permit a resonable discussion. That is what I am trying to do. Unlike some others on this site, I try my best to refraim from name calling, or making stupid statements. Tell me where I am wrong, show me what should or could be done, like Tipsy did and you have my respect. If a poster is continually trying to inflame, or pick a fight and I simply stop reading that person's posts. And when conversation stops, both parties lose.

[jdepape]

You missed my point on the Chinese malt. Because of the single desk, we have less malting capacity built here and therefor produce less malt here for export. At least part of the demand that added capacity would have served is in South East Asia. Instead, that demand is being served from China but using Canadian barley.

Your eloquent and detailed description of TFZ issues around location selection is appreciated. But it doesn't change my point - the single desk kept investment away from Canada right at the time the industry was going through a substantial rebuild. Doubt the opportunity will come back in our lifetimes.


You make an interesting (yet common) point about the 4 major grain companies and why we need the CWB. So to you (and others), the CWB is a form of countervailing power against these guys and without it, they would be able to make excess profits at the farmers' expense.

What makes you think the large grain companies <b>aren't</b> making excess profits off the CWB now (and therefore, off you)?

I've shown how the costs of the system are higher with the CWB. Who do you think is on the other side of those costs? (Hint: it's not the railroads.)

I've shown how the returns to farmers via the CWB (pool) are lower than the lowest daily street price in the US. This represents a <b>cost of doing business through the CWB</b>.

I've shown how the prices of all grains and oilseeds are drawn down because of the CWB pricing and shipment mechanisms.

<b>You have to ask yourself, how much is this countervailing power worth to me?</b>

[FarmRanger]

<i> Using an inflamatory word like confisticate is simply exaggerating your case and does not permit a resonable discussion</i>

You have a valid point.
Confiscate: Encarta dictionary definition: “to seize property legally forfeited to the public treasury as a penalty”
Since this almost sounds like there is “no monetary compensation”, rather than what I meant which was “inferior monetary compensation”, you may have me there (and penalties only come into play if a western Canadian farmer tries to exercise property rights that don’t exist for board grains). It wasn’t my intention to be inflammatory, only to accurately convey the situation, without any flowery language hiding what was actually being done to western Canadian grain farmers.

To more accurately convey this idea, perhaps the word I should have used was:
<b>Expropriate</b>: Encarta dictionary definition: “<b>to take property or money from somebody</b>, either <b>legally for the public good</b> or illegally by theft or fraud”

My observations so far:
The defense of this expropriation is based on an economic theory that the single desk exerts market selling power for the benefit of the farmers it sources from.
The opposition of expropriation is based on observed economic reality of substandard returns at the farm gate.

It seems to me that the appropriate thing would be to prove each other wrong. Jdpape and others have been trying to do just that. Prove them wrong if you can.
But all I see from most single desk supporters is name calling and a dogmatic adherence to a theory that isn’t bearing out in the real world.

Maybe it’s time to admit that the expropriation isn’t justified as being for the public good after all? And by public, I mean western Canadian grain farmers.