CWB’s Smear of Informa Report Doesn’t Stand up to Scrutiny

[Fransisco]

*Wheatgrower press release*

CWB’s Smear of Informa Report Doesn’t Stand up to Scrutiny

Thursday, August 14, 2008

The Western Canadian Wheat Growers Association says the Canadian Wheat Board’s comments last week on Informa’s study of the CWB’s performance are not based on substantive analysis and amount to little more than a drive-by smear. It appears as if the CWB hastily crafted its press release in response to media stories that recognized the significance and credibility of Informa’s findings.“The CWB had more than a week to examine the study and conduct a comprehensive analysis,” says Mike Bast, Chair of the Wheat Growers. “Yet, instead of providing a thorough and professional review, the CWB chooses to engage in smear tactics.”

The CWB’s criticisms focus on Informa’s selling price analysis which was based on price data collected by the United Nations at various port positions. Informa adjusted the price data to account for differences in the quality of wheat sold by various exporters into each market. For spring wheat, Informa found that the CWB did not earn any price premiums in 10 of the 11 exports in which the CWB had a sizeable market share.

The Wheat Growers have prepared a detailed commentary in response to the CWB’s claims. In the commentary we explain how Informa’s selling price analysis was only one of three approaches it used to assess the CWB’s marketing performance. For example, an elevator price analysis found that U.S. farmers obtained higher returns for their spring wheat in five of the past six crop years, with the average price difference being Cdn $15.97 per tonne or 43 cents per bushel.

“Even if the CWB’s criticisms of Informa’s selling price analysis were to have some validity, it still doesn’t explain why the farmgate returns we get under the CWB are so much lower than what the U.S. farmers get under the open market,” says Rolf Penner, Manitoba Vice President of the Wheat Growers. “If the CWB is indeed earning the premiums it boasts about, where does the money go? It sure doesn’t end up in our pockets.”

The Wheat Growers are disappointed with the CWB’s unprofessional and knee-jerk response to Informa’s report.

“Instead of giving the Informa report the consideration and respect it deserves, the CWB simply lashes out at anyone who might dare suggest the monopoly is not providing a positive value to Canadian farmers,” says Bast. “The CWB’s over-the-top reaction undermines its credibility and is not in keeping with what farmers expect and deserve from their CWB.”

[Fransisco]

Apparently they also have a more detailed point by point rebuttal of the Wheat Boards Informa criticism. I'll try to get ahold of it later on in the day unless someone beats me to it.

[wilagro]

Why should the CWB "have to" answer one way or another to a study commissioned by the AB gov't which has made it well known of its opposition to the CWB as it now exists?

They should just say..."screw off"... "you troublemakers"..."we have work to do".

Having to answer to every criticism wastes time and resources.

[stubblejumper]

I didn't realize that the report was a farmers for just me report. It all makes sense now.

[Fransisco]

So in other words Willagro in your opinion the CWB should be accountable to no one.

[Fransisco]

If the board were voluntary they would have the right to say 'screw off'. But its not. As long as its a crime for farmers to sell their own wheat and they are forced to fork it over to the board questions will be asked and comparisons will be made.

[charliep]

Just curious if anyone has any questions about the
report (92 pages). Would be happy to answer to
the best of my ability as an Alberta government
employee. I am sure Informa Economics Canada
(not Texas, not Memphis, not London although the
Canadian office is part of the latter two) would
offer the same commitment.

The documentation on the $560 mln is coming
from the CWB is coming but I can likely guess the
process - they reference the public data source.

wilagro - You might want to review the CWB
producer survey from this spring. What are
western farmers in general and Alberta farmers in
particular asking (perhaps yelling) for? That's all
farmers?

[FarmRanger]

If a farmer has no choice whether to sell to the CWB, what incentive does it have to be accountable to the farmer? If you aren’t happy with their performance, what are you going to do, stop dealing with them and go to the competition? Umm, don’t think so. The competition that might have actually been able to bid up the value of your product has been legislated out of existence.

[Fransisco]

<b>1) CWB statement: “An Alberta government report has used false assumptions and selective data to undermine the value of the CWB”.</b>

Wheat Grower Response:

Unlike previous studies that have claimed to demonstrate net benefits of the CWB monopoly, most of the analysis contained in the Informa report does not rely heavily on assumptions, but rather is based on the straightforward examination of publicly available data.

The study also does not rely on a single approach to evaluate the CWB’s performance. For example, in assessing the ability of the CWB to generate price premiums, the Informa study uses United Nations price information at various port destinations to conduct a selling price analysis. This analysis finds there is very little evidence that the CWB is able to influence market prices to capture higher values for Canadian farmers.

To verify this conclusion, the Informa study then examines prices of wheat, barley and durum received by farmers at North Dakota elevators over the past six crop years and compares these to the returns received by Saskatchewan farmers under the CWB. The U.S. data series is based on the “daily average basket price” at a number of locations. The Informa study indicates that 69 locations are currently reporting data for hard red spring wheat, 28 locations for durum, 27 locations for malt barley and 50 locations for feed barley. (Page 42).

The Wheat Growers acknowledge that such an approach necessarily “assumes” that the daily average basket price is representative of what U.S. farmers actually receive. However, if anything, these averages will likely understate actual returns, because when farmers go to sell their grain, they usually seek out the best bid on any given day – they often contact several buyers in an effort to seek out the best return. They don’t accept the “average” price of all buyers.

The Informa study does not stop there. To substantiate the elevator price comparison, the study then draws on USDA weighted average price data and finds that “with the exception of 2001/02 and some crops in the current marketing year, the CWB final payments are consistently and significantly lower than the US [marketing year average] prices.” (Pages 47 and 48).

The Informa study also notes that in this comparison, the analysis uses a weighted average price for “the entire class of wheat, durum or barley, regardless of grade” to determine U.S. average prices and yet compares these to the returns for high quality grades in Canada (i.e. 1 CWRS 13.5% spring wheat, 1 CWAD 11.5% durum wheat, Standard Select 2-row and 6 row malting barley and 1 CW feed barley). Despite giving the CWB this advantage, the U.S. returns still come out ahead. (Page 48).

So when the CWB accuses the Informa study of using “sweeping assumptions” and “selective data”, this is no more than empty rhetoric. Yes, the Informa study “selects” data from a number of different sources (including United Nations, North Dakota elevators, USDA and Quorum Corporation), however this only serves to strengthen the findings, not weaken them. Also, where assumptions have been made, the benefit of the doubt has often been given to the CWB.


Weighted versus simple average prices

One of the more revealing findings of the Informa study is that the USDA data shows that there is very little difference between weighted average prices and simple average prices. For example, over the past 8 years, the price difference is only 5 cents per bushel for spring wheat, 8 cents for durum, 2 cents for malting barley and 6 cents for feed barley (page 47). What this means is that in conducting price comparisons between Canada and the U.S., it generally matters little as to whether the U.S. price data is weighted according to sales volume or not.


Net interest earnings

The Informa results are actually flattering to the CWB because the authors of the study make no adjustment for the “net interest earnings” that are embedded in CWB returns.
These interest earnings arise because of the Canadian government’s guarantee of CWB borrowings which allows it to borrow at below-market rates. Most of the CWB’s interest earnings relate to large receivables from various countries that arose more than two decades ago.

The Wheat Growers acknowledge that net interest earnings increase the final pool returns that are distributed to farmers and that this can be construed as a benefit of the financial backing the CWB receives from the Canadian government. For this reason, we can understand why Informa did not deduct these interest earnings in its comparative analysis. We note however that the existence of these interest earnings in the final pool returns has the effect of masking the CWB’s true marketing performance.

CWB pool account deficit

It should also be noted that Informa’s analysis makes no adjustment for the deficit that the CWB incurred in the wheat pool account in the 2002/03 crop year. In that year, the federal government covered the CWB’s deficit of $85 million, amounting to $9.86 per tonne. Again, the Wheat Growers acknowledge that this payment represents a “benefit” of the single desk (or rather, a benefit of the government guarantee of initial payments), although we assert that to obtain a true assessment of the CWB’s marketing performance, adjustments should be made to CWB returns to exclude the effect of net interest earnings and any pool account deficits.

[Fransisco]

<b>2) CWB statement: The Informa report calculates “that the CWB earned significant premiums (prices above market values) of up to $33 per tonne in 10 of 11 markets studied, but then uses a number of incorrect assumptions to discount them.”</b>

Wheat Grower response:

The Informa study examined 11 markets in which CWB exports represented a significant share (i.e. greater than 25%) of the country’s total wheat supplies or where the CWB exported large volumes. The analysis found that the CWB selling price was indeed higher in 10 of these 11 markets, but this was mainly due to the fact that the CWB was selling a higher grade of wheat into these markets than other exporters. When Informa adjusted for these quality differences, it found that the CWB earned a premium in only one of the eleven markets, namely Japan. The Informa study concluded that “only one market exhibits a potential price premium but it is insufficient to compensate for the lower prices [obtained] in other markets.” (Page 35).

The CWB claims the Informa study uses a “number” of incorrect assumptions to discount the apparent CWB premiums. It is not clear what assumptions the CWB believes are not correct. The Informa study carefully walks the reader through its analysis for one market (Colombia) to demonstrate how it conducted its analysis. Informa also states that it adjusted for the quality differences based on “the spreads in US cash wheat prices at the US Gulf and Pacific Northwest (PNW) regions, depending on the export market.” (Page 32). The CWB fails to demonstrate how this is not a valid basis to account for the differing qualities of wheat sold by various exporters into differing markets.