From Agriweek...
The rubber is meeting the road. Though nothing is official, hardly a day went by last week without some subtle small signal that something is about to happen with the corrosive, stubborn Canadian Wheat Board monopoly.
There are many ways to skin this cat. My favorite is the opt-out option, in which western wheat and barley producers could excuse themselves individually from the glories of single-desk marketing and commit suicide by selling their own wheat and barley to whoever offers the best price. It has the advantage that it comes closest to giving pro-monopoly and anti-monopoly advocates what they want. Best of all, it does not allow pro-monopoly interests, whether in the majority or minority, to dictate to pro-choice producers how they are to sell their production. Often in life it is a case of not what you do but how you do it. In this instance it is a matter of what you do and not at all how you do it. Just do it.
As a dual-market world becomes a rational possibility instead of a faint hope, attention is starting to be paid to what a post-monopoly grain trade might look like. The Wheat Board and its directors should have better remembered the old saying: “Be nice to people on the way up because you will meet them on the way down.” The grain trade has been as impacted by the single-desk monopoly and the Board’s bullying habits as anyone. The grain trade, like private business in general, has shown that it can function in any environment, however hostile. It has also shown an ability to quickly and seamlessly change and adapt to new arrangements. This was best demonstrated when the dual market for barley existed for a few days at the start of the 2007-08 crop year. Even before it could be implemented (then de-implemented by a know-nothing junior federal court judge in Winnipeg) private grain companies had bought and sold almost as much barley as the Board handled in the previous year. Awkward negotiations followed to resolve purchase and sales obligations with the Board, out of which not everyone came out whole. The grain companies acted in good faith moti-vated by the opportunities they thought were being presented and the interests of customer acquisition and retention. There is absolutely no basis for concern that the private trade cannot make another transition smoothly when the mo-nopoly is finally dismantled.
It has been mentioned that the grain trade, especially smaller firms, could have difficulty financing inventory, which the Board now takes care of using unlimited financial backing of the federal treasury. Of course farmers themselves currently finance the part of inventory carrying cost that is the interim and final payment withheld from them until the end of the crop year, and at zero interest. Most grain is sold, delivered to the end user, paid for and consumed before producers are paid in full.
Though the value of Wheat Board transactions in a year is typically $5 to $6 billion, the amount of inventory carried at any given time is quite small. As of last week there were about 1.81 million tonnes of wheat and barley stored in the primary elevator system (not all of which was Wheat Board grain) and 920,000 tonnes in terminal positions. The total value to be financed at roughly last week’s cash prices was about $760 million. At 6% the cost of owning inventory is about $45 million a year. However the cost per tonne depends on how quickly inventory is turned over. The private trade would have much greater incentives than the Wheat Board to manage inventory efficiently and its costs would undoubtedly drop to the benefit of everyone in the chain. The grain trade and domestic processors have no evident diffi-culty in financing stocks of canola, which currently run at about 1.4 million tonnes, at a value almost twice that of Board grains.
A very peripheral issue has arisen about job losses should the Board be downsized or should it fail. No one has sug-gested that each job at the Board will be replaced by a new job in the private trade. That is an admission that the Board’s functions represent considerable duplication of what the private companies do and that the Board could be an expensive and non-essential middleman. The Board’s work force should be maintained if it can substantially retain its presently-captive customer base. It is not the responsibility of prairie grain growers to create or maintain artificial jobs in Winnipeg.
This whole evolution should not proceed from any assumption that the Wheat Board will disappear. It should be given every chance and every advantage to show that it can operate in the presence of competition. If the Wheat Board direc-tors and management are half as smart as their propaganda apparatus says they are, they have prepared strategies under which the organization can continue under a wide range of possibilities. If they are not as smart, this whole thing has been a 75-year fraud.
The rubber is meeting the road. Though nothing is official, hardly a day went by last week without some subtle small signal that something is about to happen with the corrosive, stubborn Canadian Wheat Board monopoly.
There are many ways to skin this cat. My favorite is the opt-out option, in which western wheat and barley producers could excuse themselves individually from the glories of single-desk marketing and commit suicide by selling their own wheat and barley to whoever offers the best price. It has the advantage that it comes closest to giving pro-monopoly and anti-monopoly advocates what they want. Best of all, it does not allow pro-monopoly interests, whether in the majority or minority, to dictate to pro-choice producers how they are to sell their production. Often in life it is a case of not what you do but how you do it. In this instance it is a matter of what you do and not at all how you do it. Just do it.
As a dual-market world becomes a rational possibility instead of a faint hope, attention is starting to be paid to what a post-monopoly grain trade might look like. The Wheat Board and its directors should have better remembered the old saying: “Be nice to people on the way up because you will meet them on the way down.” The grain trade has been as impacted by the single-desk monopoly and the Board’s bullying habits as anyone. The grain trade, like private business in general, has shown that it can function in any environment, however hostile. It has also shown an ability to quickly and seamlessly change and adapt to new arrangements. This was best demonstrated when the dual market for barley existed for a few days at the start of the 2007-08 crop year. Even before it could be implemented (then de-implemented by a know-nothing junior federal court judge in Winnipeg) private grain companies had bought and sold almost as much barley as the Board handled in the previous year. Awkward negotiations followed to resolve purchase and sales obligations with the Board, out of which not everyone came out whole. The grain companies acted in good faith moti-vated by the opportunities they thought were being presented and the interests of customer acquisition and retention. There is absolutely no basis for concern that the private trade cannot make another transition smoothly when the mo-nopoly is finally dismantled.
It has been mentioned that the grain trade, especially smaller firms, could have difficulty financing inventory, which the Board now takes care of using unlimited financial backing of the federal treasury. Of course farmers themselves currently finance the part of inventory carrying cost that is the interim and final payment withheld from them until the end of the crop year, and at zero interest. Most grain is sold, delivered to the end user, paid for and consumed before producers are paid in full.
Though the value of Wheat Board transactions in a year is typically $5 to $6 billion, the amount of inventory carried at any given time is quite small. As of last week there were about 1.81 million tonnes of wheat and barley stored in the primary elevator system (not all of which was Wheat Board grain) and 920,000 tonnes in terminal positions. The total value to be financed at roughly last week’s cash prices was about $760 million. At 6% the cost of owning inventory is about $45 million a year. However the cost per tonne depends on how quickly inventory is turned over. The private trade would have much greater incentives than the Wheat Board to manage inventory efficiently and its costs would undoubtedly drop to the benefit of everyone in the chain. The grain trade and domestic processors have no evident diffi-culty in financing stocks of canola, which currently run at about 1.4 million tonnes, at a value almost twice that of Board grains.
A very peripheral issue has arisen about job losses should the Board be downsized or should it fail. No one has sug-gested that each job at the Board will be replaced by a new job in the private trade. That is an admission that the Board’s functions represent considerable duplication of what the private companies do and that the Board could be an expensive and non-essential middleman. The Board’s work force should be maintained if it can substantially retain its presently-captive customer base. It is not the responsibility of prairie grain growers to create or maintain artificial jobs in Winnipeg.
This whole evolution should not proceed from any assumption that the Wheat Board will disappear. It should be given every chance and every advantage to show that it can operate in the presence of competition. If the Wheat Board direc-tors and management are half as smart as their propaganda apparatus says they are, they have prepared strategies under which the organization can continue under a wide range of possibilities. If they are not as smart, this whole thing has been a 75-year fraud.