Comments in Old Crop Barley PRO Commentary

[parsley]

More DFistrict Two Miscellaneous Questions needing answering

QUOTE

"Misc Questions

17) What is the exact area of the NAFTA agreement that some CWB directors say does not allow for a monopoly to be reinstated after a trial period of dual marketing? Please explain in detail your concerns.

18) On page seven of the Special Audit report done by the Auditor General of Canada’s office it states that the CWB is changing from the “OLD exempt crown corporation closely associated with the federal government; with a reputation for secrecy…….. to a NEW Shared-Governance organization; no longer an agent of the Crown with separation from the government.” However in the Population Affiliation Report; Summary of Additions, Modifications and Proposed Organizations (copy attached) which is put out by the Treasury Board of Canada Secretariat, it shows that the status of the CWB has not changed in any way. The CWB is still exempt from Part X of the Financial Administration Act that deals specifically with Crown Corporations; and the Canadian Wheat Board is still not subject to the Access to Information Act. Will the directors move forward and change the status of CWB with regards to these Acts so that the CWB becomes subject to the Access to Information Act and is no longer exempt from Part X of the Financial Administration Act? Please state a time frame for this decision.

19) What is the total $ amount that has been taken out of the Pool Accounts for the administration costs associated with the Export Licenses issued by the CWB between 1991-2001? Please include Export Manufactured Feed Agreement licensing costs.

20) Is there now or will there be anytime in the near future, plans to create a capital ventures contingency fund? If there has please explain it in detail.

21) If there needs to be a consensus for disclosure on any of the above questions could you please make public the way each director voted so their constituents can decide whether or not their directors are voting in their districts best interests?

Thank you for your willingness to respond and acknowledge the concerns of farmers. Some of the questions are very detailed and we understand that it will take time to gather all the information you need to respond with complete accuracy. Your co-operation in answering these detailed questions shows your willingness to bring the CWB to a new level of openness and accountability.

Yours truly
Jim Chatenay"

UNQUOTE

When you read this, ask yourselves why are the other Directors not working as hard for farmers as James Chatenay is?

Parsley

[parsley]

This addendum to the Questions sent is very interesting for farmers to read.
QUOTE

"Background for Questions to the CWB

When the Canadian Wheat Board makes a credit sale it borrows the money for the sale and puts that money into the appropriate pool accounts for the farmers. The fact that the Government of Canada guarantees payment of principal and interest on all credit receivables under the Credit Grain Sales Program seems to be a no lose scenario for the CWB. In reality, the guarantee is not that straight forward. The accounting policy set up by the Canadian Government states that each time a sovereign debt is deemed non-performing, the principal and interest can be rescheduled and no payment has to be paid by the Government of Canada to the CWB until the particular country formally admits to default. Unfortunately formal repudiation of debts by debtor countries very seldom happen because why would they repudiate their debts when a rescheduling agreement can be obtained that spreads out loan payments over an extended period and sometimes includes a grace period of several years. As loans come due, if the country can’t pay, the loans are rescheduled. This can go on indefinitely. This gives the government the loophole it needs to pay only a token payment to the CWB in regards to Credit Grain Sales interest. This is how it works.
To calculate the net interest that is returned to the farmers, the CWB takes the total amount of interest due from the credit grain sales (as opposed to what is actually received), subtracts the total interest paid on borrowings and comes up with a positive amount which is paid to the farmers. When the CWB works out the interest due from the credit grain sales they base the interest rate for debtor countries on the rate agreed to at the Paris Club. This rate is little more than 1% above what Canada pays for borrowing. This is considerably lower than what the rate would normally be for countries with less than desirable credit ratings. The normal interest rates for the majority of the countries dealing with the CWB range from 6-17% on the Moody’s rating list that was worked out in the year 2000 when world interest rates were fairly low. In the 80s when the countries started having trouble servicing their debts to the Board the interest rates were much higher. The results of rescheduling interest rates of debtor countries so that they are paying approx 1% more than what Canada’s pays on its borrowings, has an incredible impact on what the pools receive for interest earnings. For the last few years the spread between interest paid by the CWB on borrowings and interest that was due on credit sales was approx 4% (before rescheduling) as opposed to the 1% (after rescheduling) we are now receiving from the Government of Canada. In the years of high interest rates the spread could have been anywhere up to 8% (before rescheduling). When you are dealing in billions of dollars of credit grain sales you are talking about a great deal of money. As we sit now the spread of 1% gives us approx $75 million dollars (this is what pool accounts receive). The spread of 4% (before rescheduling) would have given farmers accounts close to $300 million. In the 1980’s the spread of up to 8% could have earned the pool accounts anywhere up to 2 times that amount. This becomes very significant over the years. To make things worse, the Paris Club and the government also rescheduled loans with 0% interest over a number of years and principal owed to the CWB by the government of Canada was often rescheduled along with the loans. When the CWB was asked about this method of doing business they stated that if the CWB did not go along with what the Government and the Paris Club decided, then the accounts would go into default and the CWB would lose all the money from the defaulted credit grain sales. This of course is not correct because the government would never allow that to happen. A formal admission of default by the debtor country would mean the government would have to repay the entire amount of principal and interest due to the CWB from the debtor country in accordance to the rules of the Government of Canada Guarantee. Rescheduling puts off the need to tackle this problem. This then brings up the question of why the CWB and the government of Canada continually deal with these countries that have questionable means of repaying their debts. Why do they continually extend their credit limit and then forgive or reschedule the loans? The answer to this is political. The government of Canada, through the CWB is keeping a guaranteed supply of credit grain sales to offer up to the G-8 as proof of their commitment to reduce poverty and satisfy their obligations to the Enhanced HIPC (Heavily Indebted Poor Country) Debt Initiative. On March 25, 1999 Prime Minister Jean Chretien announced the Canadian proposals to enhance debt relief and, in so doing, Canada emerged as a leader amongst the G-8 on the debt issue. Moreover Canada pledged to provide 100% debt relief to the poorest countries. The February 2000 budget expanded the 100-per-cent debt forgiveness to all eligible HIPC’s that are making a real effort to improve the well being of their citizens.
The most troubling part of all this is the fact that in 1995 the CWB, with the Government of Canada, set up the Agri-Food Credit Facility which allows the CWB to sell grain either directly or through accredited exporters on credit to private importers where the importer cannot provide a sovereign guarantee of repayment. Since the transactions involve private buyers and their foreign banks, country credit ceilings do not apply but instead the Government of Canada evaluates each transaction on a case by case basis. The government of Canada guarantees a declining percentage of the receivables under this program based on the repayment terms of the credit, with the Canadian Wheat Board assuming the risk not covered. This risk amounts to approximately 2% of the total and this money comes directly out of the pool accounts. The total amount of credit in this account is starting to rise dramatically and considering the track record of the Credit Grain Sales Program there should be some major concern on the part of the farmers concerning this facility.

Sources for Background & Questions

1989 & 1992 Reports of the Auditor General
2002 Special Audit Report of the Auditor General of Canada
Moody’s Investors Service Ratings List
Treasury Board of Canada Secretariat - Population Affiliation Report on Crown Corporations - Section 4
Department of Finance
Report on Operations Under the Bretton Woods Related Agreements Act: 3 Joint Issues - Multilateral Debt Relief
CWB Annual Reports 1991-2001"
UNQUOTE

The Canadian Wheat Board has some explaining to do.

Parsley

[cowman]

So when you take out the interest payments and shipping the actual return is $2/bu.? Incredible! Meanwhile the Alberta feedlot owner and hog farmer are crying for barley and we are giving it away to Aba Daba or whereever to feed their pet camels? I guess the question is why? Is it only to keep the railroads in business? To keep the ports in the black? To keep the government workers employed? So in comes the subsidized corn and the Canadian government cries foul while they are doing the exact same thing with barley?
I'm not sure just when it was, probably in the late eighties, that there was a hard frost over most of the western grainbelt. The wheat crop was badly damaged but still a very large crop. The CWB announced it had made a very large sale to the USSR at a very large premium. Going to save the wheat farmers! Credit sale of course! The Russians insisted on top notch wheat so nothing but the best went to them. Of course they had no intention of ever paying for it so could offer a big premium and the CWB knew that! Made the CWB look real good, single desk extracting a premium for all the poor wheat farmers! So there was nothing left to sell to the Canadian millers but the frozen pig feed(at an even higher price!). Of course no one knew about this at the time but I sure wondered why bread would fall all apart in the toaster. So the Russians had free quality bread from the Canadian government and the people of Canada got to eat pig feed at high prices! The CWB is rotten to the core and should be abolished.

[TOM4CWB]

Cowman,

The Canadian Government feels it needs control on grain, because politically food is the most powerful tool for a government to use...

Just look at CWB PRO's for feed and malt barley, they are below the domestic barley market price... and the CWB keeps it this way so livestock producers have feed...

It is interesting to hear the inside comments from the feedlot industry in southern Alberta... they know the CWB is there biggest friend on procuring feed grains the exist...

I see the CWB lowering the new crop PRO CWRS by over 20/t to make CWRS go to the feed market over the last two months.

This has been obvious through the PPO contracts, every time the CWB takes more basis, it is obvious the PRO is undervalued even more...

THIS allows all the lower grades of CWRS to go into the domestic market, as we know from the past that 3CWRS is directly competitive with Hard Red Winter Wheat, now it appears that CPS red is worth more than CWRS of better milling quality...

The pools and the CWB are strictly in place to control inventories, when the government of Canada requests grain be held back... what is the mechanism???

The initial prices are not set by the CWB, they are set by the AG Dept, and the PM and Cabinet of Canada...

And the Minister of Finance approves the CWB's business plan, without his approval on what the CWB does, nothing happens at the CWB...

Now if this is western Canadian Farmers controling their destiny and marketing their own grain...

And then the CWB spends millions more on top to "educate" us foolish farmers that WE ARE IN CONTROL OF THE CWB???

How stupid do they think we are???

Please don't answer that question... cause at every CWB election in the past... we have done an excelent job of proving them right...

But there is more... and the main reason I continue the fight for honesty at the CWB...

Farmers are inherently trusting people, and they want to believe what they are being fed... from their own government and elected farmer reps.

And when 1 of the farmer reps has a conceince, and won't be bought off with big money, they try to get rid of him in any way possible.

And yes any payment over the 20thousand base the directors get, is just payoff money, except in the case of Chatenay, who is being paid for the cruel and unusual punishment he and his family are being subjected to...

Only in Canada you say...

[TOM4CWB]

Charlie,

I don't get how the CWB could possibly only get 2.00/bu from the market...

If the CWB wanted to maximise our pool returns, they could have shipped all the barley to southern Alberta, at $10-15/t less frieght, and a dollar a bushel more from the market...

Then 56,000t less corn would have come into Canada from the US, and the 2001/02 pooling account would have paid out 230/t instead of 180/t.

Now with what the CWB has actually done, how can anyone suggest that the CWB is extracting a premium with the single desk, when they are giving our grain away at 30% below fair market value?

If the CWB does this with barley, and thinks what they are doing just fine, exactly what are they doing with the rest of the grain they sell on our behalf???

[cowman]

I sort of lost you on how the CWB keeps the price low for barley. The fact is feedlot alley is about the highest market around. If real international prices are $2/bu. and through smoke and mirrors they jump the price up to $3 how is that keeping the price down? The fact is that 56,000t should be going into the highest market available-feedlot alley.
The export market for feed barley is sort of a farce. It has more to do with protecting jobs, prestige and ideology than the real economic world. Basically the whole thing rests on government credit. Consider this if the government sold all the feed barley to the feeders on long term credit just think of high it could go! Especially if the feeder didn't have to always pay it back! Why we could have $6 feed barley real quick! If the government can do this for Poland or Russia or whoever why not our poor old feeders in feedlot alley? We just might see the grain farmer make a big comeback?

[charliep]

Cowman

A couple of thoughts.

1) Timing of sales can have a big impact on the CWB pools. This relates to the price signals the CWB gives and when farmers are willing to contract. Last year, I would suspect all the CWB feed barley was contracted under the early pricing option last Sept. Sales were made in the fall.

2) International barley prices have been lack lustre at best. Eastern Europe and former Soviet Union crops were good/sold at cheap prices to the middle east (Saudi Arabia is the biggest feed barley market). Europe had a good crop as well. Australia is currently providing most of the supplies for the Japanese market. Our domestic market was short 1.5 MMT plus of feed grains last (thus the corn imports).

3) Tradition drives a lot of customers. When you force them to try something else either because of lack of supplies, poor quality or price, quite often they don't come back. A case in point is the California dairy market where they had a preference for a long period of time for barley (fibre/higher butter fat). A whole bunch of factors pushed them to corn and guess what - they now feed corn. The same thing is happening to other traditional international barley customers.

4) Just a reminder the sales for this occurred in seventies and early eighties. Lots of barley grown in western Canada and a smaller livestock industry. We gave away feed barley on credit and to add insult to injury, we threw in a transportation subsidy (method of payment).

[TOM4CWB]

Charlie,

Just like Cowman said, and I will say it again;

"If the CWB wanted to maximise our pool returns, they could have shipped all the barley to southern Alberta, at $10-15/t less frieght, and a dollar a bushel more from the market...

Then 56,000t less corn would have come into Canada from the US...

Since there is absolutely nothing in the CWB Act that prevents domestic feed barley sales, why, especially when the CWB knows volumes are small in their handle on feed barley, do they not sell into southern Alberta?

Further, did the barley pool get so bad, not because the price recieved by the CWB was so low, but rather because the CWB was paying out $25/t from the pooling account into CWB buy-backs, which would deplete the pool...

Is there any numbers on how much barley was shipped into the US through the buy-back system???

I know California dairy farmers would still love to buy our feed barley, if we would give an assurance that we would supply consistant quanity and quality product.

The CWB really messed up this market when they sold barley to them, and then bought it back rather than deliver...

The California market is still completely viable for barley exports, if a person would make a commitment to service that market fairly...

Does the CWB and Canadian gov. have an agreement with the US government to wreck our barley market and production... so we need to import corn???

How can what is happening continue, when it is so obvious this is a foolish unbelievably insane way to market grain?

[charliep]

Too many questions. Perhaps we can both agree the barley is best served by a fluid market that is based on price signals (they who pay best get) and an effective hedging tool.

[AdamSmith]

Let's talk about solutions boys.

We can all wail and stew over what has been done and it's valuable information as far as understanding the problem but...

Farmers need solutions, real meaningful long term solutions.

The CWB today can’t even be considered a serious choice as a marketing option for barley due to their inept recent past performance.

I support choice, providing that the options available are of value and the CWB as a barley marketer is of no value to anyone at all, and they have no one to blame but themselves. It’s too bad the CWB doesn’t understand that they’ve lost barley already and that they don’t have the ethical makeup to let it go so we as farmers can salvage what demand still may exist in the off-shore market place.

Let me say this as clear I possibly can, Barley must be removed from CWB jurisdiction with no regard for a dual market at all.

To carry on otherwise is not dealing with reality.

On the other hand with wheat we still have a chance to make a voluntary system work because the CWB can still be considered a meaningful option for those who make that free choice.

[charliep]

A question to chaffmeister or tom4cwb.

What happens if as a part of international agreements Canada decides to write some of this debt off?

I realize that the government guarantees this debt but I didn't realize it is still on the CWB books.

[TOM4CWB]

Charlie,

If the debt was written off, the CWB would simply lose most of the approx. 75mil/year churning income from these debts.

The CWB directors have been worried about this happening since they took office.

Really, any advantage the CWB has today in cost savings is from this churning income.

I agree AdamSmith on the CWB and barley, the CWB must get out of distorting this market place.

And to prevent CWB distortions may well mean that the only viable solution is to, get out of the market totally.

The CWB track history on barley is so bad that there destabilising effect and historical practices mean that almost no-one trusts them at all any more...


When do we have our vote on removing barley from the CWB?