Report of the Standing Committee on Agriculture and Agri-Food

[parsley]

charliep, you say, "An interesting discussion would revolve around why flour mills do not source more supplies directly themselves".

Local mills do TRY to source directly.
1. For example, in Manitoba, one on-farm entrepreuneur tried to source his own grain in his own bin on his own farm, in the same yard as his new plant. That's as local as you can get. The CWB would not allow him to use his own wheat in his plant because although he had a contract with the CWB , they hadn't called that contract yet...so the CWB's answer was no. Needless to say , he quit dealing with wheat and barley.

2. Small Mills try sourcing for a specific falling number for milling wheat so the farmer has to test it himself He pays for the CWB grade#1, #2, etc which the miller doesn't want. The falling number determines the bread making quality and is what the miller thinks is important.. The grade is what the CWB thinks is important. The famer needs the required testing according to the millers specifications , not what the CWB has deemed as important.

3. For both interprovincial and export licenses, the CWB always requires the buyback to be done even though it is not a legislative requirement. This is a procedure that prevents sales. It has for us and it has for a lot of farmers. Stops sales dead in its' tracks. (On the other hand, feed mills were able to negotiate a "no-buyback" license with the CWB)

4. I read this charliep, and had to make a few comments between some late seeding. I could fill up six pages. The bottom line is this, millers want grain and farmers have grain. We should have the following:

Willing Buyers willing Sellers= Wealth Creation

What we have is this:

Intimidated Buyers Captive Farmers = Diminishing supplies

Parsley

[chaffmeister]

As parsley suggests, there is a lot to this debate. But really, when you get right down to it, there are two types of people in the world – those that support the CWB and those that don’t. As I have said many times, my problem with the CWB’s defense is that the benefit of a single desk seller has never been substantiated. On top of that, there seems to always be other “benefits” thrown in to the discussion that don’t appear to be what was being addressed in the first place. What I would like to do is touch on all the “benefits” that have been presented recently and score the CWB on them.

1. Foreign buyers prefer Canadian wheat quality.
The CWB often takes credit for this. However, foreign buyers also like the quality of Canadian canola, oats, barley malt, Alberta beef, live hogs and chilled pork. They like our honey, alfalfa pellets and our potatoes – the list goes on. Let’s give credit where credit is due – farmers are the ones that are making the quality products, processors take some and further enhance the product, and the Grain Commission ensures consistent quality leaves the country.
The CWB plays a role in grain quality issues (varietal licensing, etc) but the single desk selling aspect of the CWB has nothing to do with why foreign buyers prefer Canadian grain quality.
This is not a benefit of single desk selling.

2. According to thalpenny, the KFT study determined the CWB captured an average $13/tonne premium on some CWB sales.
Although this can’t be substantiated, I’ll give ‘em this one.
This still doesn’t carry much water though, for a couple of reasons; (1) we don’t know what proportion of the total export program these premiums are captured on (maybe the study indicates this but I can’t find my copy right now) and (2) we don’t know how this compares to the overall performance of the CWB, relative to the market in general over a crop year. For instance, in any given year, the wheat market might fluctuate anywhere from C$2.00 to C$3.00 per bushel ($73 to $110 per tonne), or greater. That $13 per tonne premium can disappear pretty quickly if the CWB has poor timing on just a few sales and sells in the bottom end of the range.
Also, we don’t know how this $13 compares to the losses incurred by the CWB due to shipping higher protein than required and/or higher grades than required.
Before the CWB is in a position to brag about its “successes”, it should also be prepared to discuss its total performance in detail.

3. The CWB also has argued that it is cheaper to ship CWB wheat than canola and quotes the KFT study as evidence of this.
The KFT got the wheat to canola comparison totally screwed up. They assumed that since the canola basis in the country was $40 under Vancouver futures at the time, the cost of moving canola to port was $40 and compared it to the CWB’s “basis” of $25 (for handling and cleaning), both excluding rail freight. If they had done the analysis correctly, they would have seen that the cost to move canola to port was more like $22 at the time. In addition, the canola basis covers implied storage and interest, whereas the CWB “basis” of $25 did not include storage. Farmers have paid in the neighbourhood of $4 to $5 per tonne in storage and interest on CWB grain each year. Also, a proper comparison should include the added overhead (selling and administration) of the CWB, which although is separate from the “basis” on CWB grains, it is included or covered in the canola basis. This adds another $5-6 per tonne to the cost of shipping CWB grain.
Adding all this to the CWB “basis” to compare canola-apples to wheat-apples takes the CWB “basis” to about $36 vs canola at $22 – about $14 per tonne over the cost of shipping canola.
Throw in demurrage/dispatch (which the farmer pays/receives on CWB grains but which is absorbed by the exporter on non-CWB grains) and I’m not so sure the CWB would want to make these comparisons anymore.
The CWB should not be so proud of the results of the KFT study; evidence indicates that moving CWB grains is more expensive than non-CWB’s.

4. Thalpenny indicated that one benefit of the CWB is the roughly $70 million benefit from the government guarantee of credit sales.
I’m not sure how this is calculated but you know, it doesn’t really matter because this has nothing to do with the CWB as a single desk seller. Rather than take this government backing away from the CWB in a dual market as thalpenny suggests would happen, the feds could provide it to all exporters.
Government guarantees on credit sales are not there by virtue of the CWB being a single desk seller.

5. According to thalpenny, “there is evidence that the single desk….is capturing value in the new commercial transportation environment (over $40 million for the first three quarters of this year, not to mention any trucking or other incentives that get paid)”.
It’s inappropriate for the CWB to take credit for the savings from the new transportation environment. Fact of the matter is that with the “old” system of car allocations and freight rates, there was no incentive to be an aggressive merchandiser of CWB grains because aggressively going after more deliveries from farmers would not provide any more movement through the elevator – grain companies were basically stuck with their historical car allocation with only limited means to grow.
Under the new freight environment including multi-car loading incentives we see that the use of trucking premiums has increased dramatically – on all grains. And, under the tendering process we see grain companies aggressively going after tenders to increase market share, something they could never do before. This is a function of a small crop as grain handling is a business of proportionately high fixed costs and where volume is paramount – handling grain at $3/tonne is better than handling none at $10/tonne.
To say that the CWB is responsible for these events is just wrong; to say it’s by virtue of being a single desk seller that the CWB can provide these savings is patently misleading. The reason that you don’t hear about “these savings on canola or peas” is because those margins were shaved long ago and are reflected in basis levels and trucking premiums. (See point 3. above.)

There are more points that could be made but I think I have taken enough time today. In my view, the CWB’s argument against a dual market and in support of keeping the single desk character of the CWB intact is weak. The CWB argues that under a dual market, the CWB as you know it will disappear and look what you will be giving up. I have looked and based on the arguments and “evidence” put forward, I don’t see much to keep. (And I haven't even touched on the issues around farmer involvment in value added and the buy-back. I'll get to those another time.)

My bottom line - you’ll need better arguments to convince me.

[ianben]

Being at the recieveing end of the Warburtoms contract ie. eating their bread.I am sure it is the Canadian quality and consistancy they require.

Comparing the premium they charge for the bread to the premium I understand they pay the Canadian farmer I would say the CWB had done a lousy job.

However when I look at our milk sector who removed their marketing board about 7 yrs ago. The individual and even groups of farmers have been a disaster at maintaining realistic prices.

I believe until farmers learn true value of their produce and are prepared to try to manage supply the way it is sold will be of little consequence. We will all have to take what is offered!!!

I say sold because I dont think any farmer truly markets grain.

Can the CWB do anything but sell either?

[ianben]

Parsely has left some misleading comments - if mills want to source their own product, and get the grain specifications they desire, they are free to do so. IN fact, most of the western mills do just that. If they want to pay a premium over the CWB price to the farmer, they do so, and in certan cases actually have paid considerably over the initial payment to get what is desired.

There is flexibility to allow the domestic mills to attain the quality of grain they desire, regardless of contract delivery calls.

And the claim isn't that the single desk can take credit for Canadian quality, but the CWB can take credit for capturing that value and passing ALL of it back to farmers.

The credit guarantee issue is about the fact the CWB can borrow at govt. secured rates and lend through the credit program at commercial rates. Farmers capture ALL the spread and that's where the $70 million comes from. The export guarnatee exists for exporters of other products through the Export Development Corp., but they cannot borrow at the govt. secured rate. That's where having the single desk provides a mechanism to pass these savings on to farmers.

REgarding basis, it's a mug's game to get into viewing basis as some sort of indication of costs to ship, and that's evidenced by Charlie's indication of the spread on canola of $40/t (almost $1.bu) The costs that get company incurs to elevate and transport grain, the interest carrying charges, terminal charges, cleaning and removal of dockage, and all other costs to get grain from a delivery elevator on board a ship at FOB position are the true costs to be compared. When those numbers are determined, then look at what the actual charges through basis deductions are to the farmer and see if there are any discrepancies. Sometimes the co may eat some costs to avoid higher costs for demurrage. Sometimes they collect mightily. What's the average? With CWB grains, most of those costs are reported on the cash ticket, and the balance are reported in $/t in the year-end financial statement. The commercial transportation system operates in a fashion to capture costs from non=performance by grain companies, so companies have to weigh their shipping priorities for board and non-board crops accofidngly and be prepared to pay for lack of performance. Big improvement in my mind.

KFT evaluated the returns from ALL sales of wheat over the period and the results were the NET benefits.

So if an open market is what farmers want, they should be prepared to forefeit these items. But a dual market can not exist in a sustainable way. Ont. mills are saying they want the single desk, or an open market. This inbetween stuff is dysfunctional, and uncertain and not good for business.

Tom

[TOM4CWB]

thalpenny,

Take a look at what the CWB has done to the CWES wheat!

I was told shipping by the CWB of this premium class of wheat will almost disappear next year.

Elevators don't want it, just like CPS White, they need to blend it into CPS RED to move it out through the system in a timely manner.

No wonder no-one likes our CPS/CWES wheats.

The last benchmarking CWB study has a fatal flaw, the flawed assumption is that the CWB holds up world prices because of its monopoly.

Ask a cannary seed or yellow mustard seed buyer about how quickly farmers gave their special crops away, and how competitive they must be to survive!

CWB price discrimination is a chance for the CWB to have cheap give away sales without any farmer ever knowing what you are up to. If we knew, what your giveaway prices were, we would never deliver the grain to you.

Competition means you can't do give aways, and that is what you are so afraid of.

Farmers working together can extract a premium price, without the CWB, just ask any cattle feeder who had to buy barley last winter in western Canada!

The CWB's old tired lines are getting worn out. It is sad when you won't get with reality in 2002 and work for the privelege of marketing my grain, instead you think it is your right.

You got away with this for a long time, how much longer will we believe you on blind faith and shrinking margins alone?

[charliep]

Just a note on canola basis variation is likely $5 to $10 within a crop year with the other extremes exceptions. Basis variability should be treated as an opportunity with the ability to put an extra 10 to 20 cents/bu in a farmers pocket that wouldn't exist otherwise.

Comparing canola basis to CWB deductions is also not fair. CWB deductions are cost of converting an average port price to a local level. Canola basis is what relates a futures price to a local cash price for all market participants (including local crushers).

A more relevant comparison would be to compare US cash markets (including quality and protein premiums) to the relevant futures. There is significant variability in US basis used in CWB daily pricing calculations. This variability is hidden in the pooling system and is not visible to outside people.

[charliep]

Welcome back Tom4cwb.

I am looking for clarification on your comments on mustard and canary seed. In hindsight, a person may have waited/got a better price. A person made the decision based on the best information at the time and their profit/cashflow targets.

A discussion for a different link but maybe relevant to this thread is that the pulse/alternative crop industry really needs more tools to help them manage their risks and marketing needs. A role for a new type of non compulsory CWB?

[TOM4CWB]

Charlie,

RIGHT ON!

This is the attitude that the CWB MUST foster if they really want to be around in ten years, adapting and being proactive in leading change...

If the CWB can become innovative and ask nicely, allowing voluntary wheat and barley marketing by themselves, then legislative changes would easily be put in place to accomodate expanded marketing opportunities with other crops...

On is this not what the CWB wants?

The full service marketer with complete access to all grains will do a much better job of serving our customers... can't the CWB become this... or would this be tooooo much wooooork??????


Or is the CWB right, that they haven't ever been anything but an added burden in the marketing system with no real purpose other than to carry out inventory control on "designated area" wheat and barley, for the benefit of the rest of Canada's agriculture?

SO the CWB has a choice to make, like bringing a horse to water, will they drink?
Or will they refuse and die of thirst... rather than adapting like their farmers must do to survive in a rapidly changing world!

[parsley]

Remember how the CWB went from Voluntary Wheat > Compulsory? It's would be easy to go from voluntary canola to compulsory. Tom4CWB, you have to be careful meeting Jack the Ripper for lunch.

This is printed on this site:

Section 18.1 The Minister may by order direct the Board.

And I got into the old papers....."MINUTES OF THE WHEAT COMMITTEE OF CABINET MEETING held in Honourable Jas. A. MacKinnon's Office on Thursday, May 2, 1946, at 5:00 p.m."

This is one entry:

"Dr.Wilson mentioned the need of broad wheat exports to provide a substaining cargo for Canadian shipping."

What a good idea for the shippers!

The point is the CWB can gabitate all they want and bat those pooled eyes at the fundraisers, but in the cold light of morning, the Minister is instructed by the Government and the CWB is instructed by the Minister. The CWB legislation still supports this system in 2001, and it doesn't neccessarily work in the interests of farmers. The shipping is just one example.

We need to get out of reach of the legislative pickpockets.

Parsley

[TOM4CWB]

Parsley,

Its obvious you do not trust the CWB, and you obviously have good reasons for this mistrust.

The CWB is in trouble because of this lack of trust, it seems the worse things get the more the CWB spends to try to convince us through slick media and spending at farm functions to impress us.

Actions and performance always are much more important than words, especially when these slick media blitzes work against the CWB instead of enhancing its image.

Too bad the CWB directors wouldn't listen to farmers instead of hiring slick consultants who they pay to tell them what they want to hear.

This is why the Standing Committee said what they said about the CWB conflict, it is destructive and hurts everyone.

Even those Liberals with their eyes closed couldn't miss the insanity of doing the same thing over and over while expecting a different result.