Report of the Standing Committee on Agriculture and Agri-Food

[charliep]

Some interesting reading for those who are watching the rain fall/waiting for things to dry up.

http://www.parl.gc.ca/InfoComDoc/37/1/AGRI/Studies/Reports/AGRIRP5-e.htm

You may find the section on the CWB particularly interesting. The following was pasted from this report.

RECOMMENDATION 14

Whereas additional on-farm activities and local value-added processing are an excellent way to give farmers more influence in pricing, the Committee recommends that the board of directors of the Canadian Wheat Board authorize, on a trial basis, a free market for the sale of wheat and barley, and that it report to this Committee on the subject.

[AdamSmith]

Mark this day on your calenders for this report is a watershed event for farmers and the grain industry in western Canada. The significance of that little rcomendation #14 is massive.

As of June 11, 2002 the CWB stands alone with the NFU and NDP as it's only dependable allies. Ontario Liberls have now said that it's unacceptable for their constituants to have marketing flexablity and freedom but not Western Canadians.

A free market in wheat and barley. Boy oh boy do I like the sound of that.

But I'll bet any of you a whole dollar that the CWB will be defiant and reject the committees recommendation. But I think that's a given. The big question is will Ralphie still suport the Board and it's monopoly or will he secumb (sp?) to reality and do what he can to make this happen? I think he's going to choose the CWB monopoly over growth, investment and wealth creation.

What do the rest of you think?

[melvill]

I'm going to add a little fuel to the fire! (Hopefully nobody know where I "live".) When I worked in the Peace an elevator manager and I kept track of all the canola delivered to his facility over each of two years. During that time period, slightly over 60% of the canola he took in was priced (including all pricing methods - hedging, DDCs, basis contracts, spot cash, etc.) in the bottom 1/3 of the price range (low to high) for each year. Do you suppose that will happen to wheat in a fully open-market or will farm managers be better market managers of their wheat?

[rain]

The point is choice. Go to the CWB if you want. Or don't. It is that simple.

Does anyone know how many of the committee members where Liberal and how many voted for the change?

[chaffmeister]

Of the 15 members on the Standing Ag Committee, 8 are liberals. The vote was one vote short of unanamous - Dick Proctor (the lone NDP) voted against it. Also of interest, all the other recommendations in the report were supported unanamously by the committee.

The government has 150 days to respond to the recommendations. Assuming that means "all" days and not just "business days", that makes the deadline Nov 8th, 2002.

Here's a question for Melville - a question that I have often pondered and wondered about: How would the CWB fare in the same type of analysis you did in the Peace on canola? In other words, where in the annual price range has the CWB "performed"? Some analysis I have seen (and performed) has compared the CWB total payment (initial plus interims plus final) with the average daily price for wheat at competing locations (PNW) over a crop year. The results indicated - no, suggested - that the CWB results were below the average price for the period. Of course the CWB has internal costs to cover which lowers its achievable net price down somewhat. But that's another issue, isn't it.

Please allow me a few comments about the CWB:
1. Technically speaking, the CWB is NOT a monopoly - it is a monopsony. In other words, the CWB is not a "sole supplier" (the definition of monopoly) - it is a "sole buyer" (a monopsony). If on the global stage, the CWB were a true monopoly, they would set the market price rather than accept the market price.
2. The CWB INDEED accepts the market price on world markets, as it competes with wheat exports from Australia, Argentina, USA and EU (and some smaller ones).
3. The CWB sales department is made up of people - some very good people. But they are human - they don't have magic cookie dust or crystal balls to help their sales performance. To expect them to do better than average consistently (i.e. pick the tops) over time would be expecting too much.
4. In my mind the CWB has never demonstrated clearly that they "outperform" and bring incremental value to the farm. But even if they did outperform and were able to show it, it would still make sense to allow farmers a choice. If the CWB did a great job, perhaps many farmers would still choose to use the CWB - but then, it would be their choice.

[chaffmeister]

I think the Standing Committee used an appropriate term when it said 'free-market'. The benefits of single desk selling would disappear under the proposal the Standing Committee put forth. It's interesting that the list of attendees to the Committee's Prairie meetings would not have exceeded 100 people, and there was very little time devoted to the meetings by the Committee (max 2-3 hours).

The best indication of farmers' desire for this type of change will be through the upcoming election of CWB directors. They have the power to make that type of change.

So selling to the CWB in this free-market proposal will not be the same as selling to the CWB now. That inference is misleading. Price pooling would have to change. Cash buying will diminsh the risk management value of pooling prices. The principle of farmers receiving the same value for the same quality of grain (adjusted for their location) regardless of the timing of sale through the year will disappear.

I prefer the term single desk selling rather than monopoly. As farmers receive all the revenue from sales net of costs, its pretty tough to argue the CWB is the buyer of the grain. It is definitely the seller on behalf of farmers. There is no retained earnings held by the CWB - the funds are totally dispersed each year.

Coordinated movement of grain does reduce costs, and limits rent seeking for peak shipping times by the railways. Remember that the RR have a cap on total revenue but they can alter the tariffs throughout the year without limitation. As long as they calculate the total revenue correctly, they can offer lower tariffs at times of lower cost for them, and higher tariffs at times of higher cost (ie peak shipping time of Nov-Feb)

A free market for CWB grains will introduce competitive bidding for rail capacity, and competitive undercutting of prices to customers to get market share. RR and end-use customers will be the winners. Higher bidding for transportation costs will not be favourable to smaller shippers of pulse and non-board crops. These costs will translate into higher basis costs for those products.

A free market would diminsh the CWB to looking and acting like the rest of the grain companies to secure products from farmers. Cash pricing would become the norm. So to infer that there is a choice of the CWB that people are familiar with in that environment is just wrong. A dual market is an open market.

Tom

[rain]

I still can not understand why so many people are afraid of change. We keep hearing how bad it will be with out the board. I have never seen any information that validates claims made by CWB supporters. Yet they can tell us how bad it will be without them. Another claim that can not be validated.

The only thing to fear is fear itself.

[parsley]

AdamSmith, you should be very happy because this is a good day for the farming community. For a few, it will be a scary time, rather like the prisoner who is unwilling to leave the jail even though he's done his time.

Tom, Perhaps you prefer to use the term "single desk", but in reality, "selective desk " is what is being applied by the CWB. For example, the CWB doesn't see the need for Quebec to even APPLY for a CWB export license let alone flash one at the border. "Selective-desk" licensing. The Board has decided not to market all the wheat and barley that passes through the Export Manufactured Feed Agreement. Selective-desk marketing. The Board lets all the big feed mills bypass pooling. Selective desk pooling. And on and on. Wheat money to political parties. Selective spending.

Farmers have figured out what the Board is doing Tom and there is a rebellion. And Melvill, the bottom line for farmers is what we put in our pockets at the end of the crop year,... not what adds up at the elevator in a month, or what the grain sells for at port, or any of those measurement or analysis games that does nothing for farmers. What goes into our farm accounts.... the cash at the end of the crop year from wheat and barley,... is where the CWB has failed miserably.

Don Mitchell says it more clearly than I can in his book, The Politics of Food:

"On the other hand, measures such as the continuation of the Canadian Wheat Board and the Price Stabilization Act in 1944 were aimed at keeping prices down for farm commodities. The farm price of commodities advanced only 17 per cent from 1949 to 1970, with the price of wheat virtually frozen from 1945 to 1972. Farm income gains HAD to come from increased volume if they came at all."

He says:
" Farmers managed to increase their average per capita output by six-fold between 1951 and 1966 and they increased the total volume of Canadian agricultural production by 40 per cent. "

That's how farmers have managed to keep paying the bills. FARMERS took the initiative when it came to production, and they will take the initiative when it comes to marketing.

Parsley

[parsley]

The objectives to maximize returns are things we have in common parsley, but apparently we differ on how to achieve that.

In the end, it will be farmers who will determine what is the appropriate marketing structure for them.

Regarding Directors attending political functions - at over 40 meetings across western Canada that the Directors held this spring, talking to over 3500 producers, one point was clear. Farmers want someone to stand up and be a voice on their behalf, and they want their CWB director to do that as part of trying to maximize returns. There are numerous issues where farmers need voice - the trade impacts of the US farm bill, the fallout of those massive subsidies, registration issues of GMO's, the pending sale of govt. hopper cars - the list goes on.

Seizing an opportunity to profile agriculture and these issues directly or indirectly to decision makers seems to me to be good policy on behalf of farmers.

The directors will be held accountable by farmers and will be free to defend their individual decisions at election time. But I don't think farmers want the CWB to become a neutered govt. dept., cowing to the whims of the govt. They asked for, expect and are getting representation of their concerns on various fronts.

Tom

[AdamSmith]

thalpenny, would you have any problems with me cutting and pasting your last posting and emailing it off to Minister Goodale, Minister Vanclief and the Commons Ag committee?

you write "But I don't think farmers want the CWB to become a neutered govt. dept.,cowing to the whims of the govt."

Would this be the same govt. who grant the CWB special monopoly status? Is this the same govt. that gaurantees the CWB borrowings? Is this the same govt. that has a Minister specially dedicated to the CWB? Is this the same govt. that sends out the RCMP and the Justice dept. to arrest and charge farmers who want to sell their own grain?

The truth is thalpenny that the CWB of today (the monopoly version) can only exist by cowing to the whims of govt. The CWB is government. And it is that very same government that gives the CWB monopoly it's life, and it can take it away as well.

The CWB Act says: 47.1 The Minister shall not cause to be introduced in Parliment a bill that would exclude any kind, type class or grade of wheat or barley, or wheat or barley produced in any area in Canada, from the provisions of Part IV, either in whole or in part, or generally, or for any period, or that would extend the application of Part III or part IV or both Parts III and IV to any other grain, unless

(a) the Minister has consulted with the board about the exlusion or extention;and

(b) the producers of the grain have voted in favour of the exclusion or extention, the voting process having been determined by the Minister.

That is what the legislation says.

1.It says consultation, not approval by the board, if board approval was the intent then the legislation would read approval. Consultation and approval are two totally different things.

2. We arn't even talking exclusion here anyway, but we are talking about exclusive. The CWB would lose it's exclusive rights to market wheat and barley while still not being excluded from doing so.

So in my mind, the legislation allows the govt. and or the CWB to do this and still be in keeping with the law.

AdamSmith

[chaffmeister]

I would like to respond to some of thalpenny's comments (I apologize for the length):

"The benefits of single desk selling would disappear under the proposal the Standing Committee put forth."

What ARE the benefits? This was the point I was trying to make earlier in this thread - the benefits of the CWB (if any) have not been demonstrated. Period.

"It's interesting that the list of attendees to the Committee's Prairie meetings would not have exceeded 100 people, and there was very little time devoted to the meetings by the Committee (max 2-3 hours)."

I'm confident that the committee based its recommendations on more input than just the country meetings. This committee has been hearing the problems associated with the current CWB for some time now; please don't try to condemn the process simply because you don't agree with the outcome.

"The best indication of farmers' desire for this type of change will be through the upcoming election of CWB directors."

What about the private surveys the CWB has commissioned that are rumoured to have indicated that 2/3rds of all farmers surveyed want either the end of the CWB or a dual market? Do these surveys not count? Aren't they "pretty good indications of farmers' desire for this type of change?

"Price pooling would have to change. Cash buying will diminsh the risk management value of pooling prices."

I've never seen how price pooling has "risk management value". So you sell all my wheat for me and I get the average of all sales that you make - export and domestic. But if you do a lousy job of selling my wheat (and you haven't proven otherwise) then I could get the average of a bunch of lousy sales. I still have risk - the risk that you may not perform very well. (And you haven't proven otherwise.)

"The principle of farmers receiving the same value for the same quality of grain (adjusted for their location) regardless of the timing of sale through the year will disappear."

Trust me Tom, this a good thing.

"As farmers receive all the revenue from sales net of costs, its pretty tough to argue the CWB is the buyer of the grain."

Tell that to the organic farmers who are trying to export their wares.

"A free market for CWB grains will introduce competitive bidding for rail capacity, and competitive undercutting of prices to customers to get market share."

I think you're saying that competitive bidding for rail capacity among the grain companies will drive rail costs higher. Part of the argument for the revenue cap for RRs (an argument that I think the CWB supports) is that the Canadian RRs were capturing higher rates than their US counterparts (who operate in an environment where there is "competitive bidding"). On one hand the US rates look good, but on the other, "competitive bidding" for freight doesn't look good. How can you argue it both ways?

You also suggest that competitive undercutting of prices to customers to get market share will drive prices lower. I don't buy this; along with competition for export grains will come enhanced price visibility and price signals to the farmer. If I'm an exporter, I will try to be as competitive as possible when selling, otherwise I shouldn't expect to get the sale. But I also recognize that my bids to farmers in the country will only be as good as my sale allows - if I have the "low-ball" sale, I will have the "low-ball" bid at the elevator. I know that my competitors will also be doing export business and if they do a better job at selling (getting higher prices or better terms), they will "kick my butt" at the elevator because they will be able to pay more than I can; to compete with them I will need to match their price and squeeze my margins.

What will really happen in the competitive environment that the CWB is afraid of is that the farm-gate market will gravitate toward the best sales, not the worst. According the Auditor General, the CWB is an effective marketer of grain on behalf of farmers; she also noted that the CWB is a "tough negotiator" when making sales. If this is true, shouldn't the CWB be able to compete with other exporters and still be effective in a dual market?

By the way - in my view, the benefits of effective price visibility and market signals far outweighs any benefit from a single desk seller. But that's just my opinion.

Regarding Directors attending political functions - do you really think that going to a fund raising dinner is an effective forum to "profile agriculture and these issues directly or indirectly to decision makers"? I think farmers who want the CWB to be their voice want to get bang-for-their-buck. (Even those that don't support the CWB and are forced to "use" it, want the CWB to spend thier money wisely.) Spending time in front of the Standing Ag Committee (as the CWB does many times in a year) enables the CWB to detail its positions on all these issues. At a fund raider you may get 5 minutes with one MP as you wait in line for drinks at the bar (and depending on how many times you see him at the bar, he may not even remember talking to you).

How does going to a fund raiser enhance what the CWB is already doing in Ottawa?

[charliep]

Just a couple of more interesting sites that the CWB has posted.

Presentation to the house of commons standing committee on agriculture.

http://www.cwb.ca/publicat/speeches/2002/060602.shtml

Press release with regards to standing committees recommendations.

http://www.cwb.ca/publicat/nr/2002/061202.shtml

Tom H. is right in that the only way currently to get change is elect the right people to the board of directors. When this happens, the change will occur.

I push us back to the threaded web discussion on CWB Director elections. Should they be one stakeholder/one vote (even down to landlords) or voting based on impact on stakeholders business interest (one acre cropped/one vote)?

http://www.agri-ville.com/cgi-bin/forums/viewThread.cgi?1020523606

[chaffmeister]

I need some clarity – on one hand AdamSmith says the CWB Act states that the government can effect a change to a dual market; thalpenny and charliep say that the only way is for the CWB board of directors to make the decision. They can’t both be right.

How would this freedom to market come to pass?

[AdamSmith]

caffmeister, let me propose a not so out of this world hypothetical situation to explain the reasoning behind my belief that this type of change can be done at the ministerial level.

Let's say after a few years of negotiations the World Trade Organization signs a new world trade agreement and in this agreement State Trading Enterprises such as the CWB, would be illegal. In order for this agreement to take effect all countries would be asked to ratify it. After ratification they would then be asked to adhere to its new rules.

Also in my not so hypothetical situation the CWB refuses to give up it's monopoly(your right it's a monopsony but old habits die hard).

Under my hypothetical situation the Canadian federal govt. has two options, it could either 1. abide by the CWB's decision, which would place the whole WTO agreement at risk and/or risk Canada being offside with the WTO and considered a rouge trading nation or 2. it could over rule the CWB and make the neccesary changes itself.

My guess is they would do the latter.

Here's another scenario. The people of Canada get so sick of JC and the liberals that in the next election they elect Stephen Harper and the alliance as the next govt. Harper would wait about 5 seconds before he removed the CWB monopoly.

So there's no question about Ottawa's ability to unilaterally deal with this issue.

But with this Minister and this govt. we've seen no desire from them to make this change. In fact the changes to the CWB Act were designed less to give farmers control over the CWB than they were designed to take the pressure off Ralph. Every time some issue regarding the CWB flares up, all he has to say is "That's up the CWB itself to deal with" and he's off the hook.

So to wrap this up, it is my belief that the Minister has not surrendered total control of the CWB and the grain industry at large over to 10 farmers.
He still controls the keys to the kingdom.

Whether he wants to use them is a whole other proposition.

AdamSmith

[parsley]

chaffmeister, This is how the Canadian Wheat Board Act itself legally answers your question:

Section 18.2 The Minister may by order direct the Board

Parsley