Canadian Wheat Board

[nejar]

1. Does anyone know who or what government department is carrying the debt incurred by CWB from the Russians defaulting on their grain account. The number is huge and you never here what became of that. I think the number was close to that of Canada's national debt.

2. Can anyone tell me the logic of having farmers processing their own board grain locally a criminal offense when Canada has the largest distance to ship grain in the world, the rural communities are dying a slow death and the cost of freight is skyrocketing. What a boost to the rural economies if there could be small privately owned specialty mills in rural western Canada.

[Vader]

nejar, you must live in a vacuum. This topic went around and around for months a couple of years ago.

The CWB sold grain to Russia on credit. The federal government guaranteed the loan. The CWB borrowed the money from the banks and paid the farmer for his grain. That would have been the end of the story except that the CWB finance department recognized the potential to earn money from the receivable. Rather than borrow from the banks the CWB issued bonds and has been earning millions of dollars on the interest rate spreads. Sadly the Russians are now paying down this debt and this revenue stream will disappear over the next five to ten years.

In terms of value added processing nejar, there is nothing stopping you from processing your own grain. Processing is alive and well in Western Canada. On a per capita basis processing has increased relative to Eastern Canada and the US. Flour milling is a mature industry and demand has fallen off over the last decade or so. The industry is generally over capacity and many plants have shut down. Some have gone bankrupt. This is particularly so in the case of pasta. I would need to see a VERY solid financial plan before I invested any of my money in a new flour milling or pasta venture.

Now if someone were to offer me the opportunity to invest in an ethanol plant or a bio-diesel plant I might get excited, but again I would want to see the business plan.

[charliep]

As an interesting comment, Canada is a net importer of pasta. I would encourage everyone to check the noodle section of a grocery store and see how much Canadian product is available.

Vader - You may be right on the larger commodity related processors such as flour although I might argue that the current CWB system protects existing industry players/is a barrier to entry of new participants. Very few new investers want to enter into a system where the rule it is my way or the highway. Much easier to build elsewhere/source product from western Canada on an as needed basis. Again, wonder around a store and look at where groceries like cookies, etc. are made.

The issue isn't the big mega plants. The point is the ability to attract smaller processors. Should it be the CWB who decides the fate of the domestic processing industry?

[TOM4CWB]

nejar;

In Australia the domestic market and processors is exempt from the AWB monopoly.

THe CWB can exempt domestic sales and proceesors at will instantly now without any change to the CWB Act whatsoever.

THe CWB Board of director chooses to threaten the very existance of the CWB by continuing the practice of not allowing western Canadian grain growers the statutory right to offer wheat and barley to buyers other than the CWB.

Section 32 1(a) CWB Act:
(a) "buy all wheat produced in the designated area and offered by a producer for sale and delivery to the Board at an elevator or in a railway car in accordance with this Act and the regulations and the orders of the Board;"

If western CDN wheat and barley producers chose not to offer their grain to the CWB (Sell to someone else), the CWB statute gives, no marketing authority to confiscate the grain not willingly offered to the CWB.

Yet the WTO is destroying the CWB because of illegal actions by CWB directors that refuse to obey their own bylaws. Simply put, the CWB Directors refuse to do their feduciary responsibility.

[charliep]

Why wouldn't the CWB exempt processors under 10,000 tonnes (or whatever number)? If the answer is because the Canadian National Millers Association or existing processors would find this unfair, then lets have a discussion about this.

When there is general agreement about industry participants of a need for change/more open marketing, why not allow it to occur? A case in point today is malt for the domestic brewing industry. Why not allow a 300,000 to 350,000 tonne excemption - farmers could deal directly with maltsters on all aspects of the transaction including delivery and pricing (maybe with CWB information support on what a good price should be).

[TOM4CWB]

Charlie;

Obviously exports of barley could not be easily handled if the CWB did not have pool account funds to place a defacto export subsidy on offshore and US Sales.

THis is recently why a malt plant went in Idaho: they can buy cheaper CWB barley from western Canadian bly farmers; if it is exported to the US... than if the bly is malted/processed in Alberta.

PLUS they can direct contract barley from barley growers in Idaho and Montana... while it cannot be direct contracted in Alberta.

[Vader]

There is nothing stopping a malt plant or a flour mill located in Canada from sourcing their wheat or barley outside of Canada.

[TOM4CWB]

Vader;

Transportation cost.

The reason an end use consumer processes in Canada is to be close to the supply of the raw product and reduce transportation costs.

Now when the Government of Canada asks the same price as the import value plus transportation cost to the manufacturing facility, this will destroy the manufacturer.

Manufacturers must have a competitive market place, which the government through the CWB removes.

CDN Manufacturer pays $3.50 for select barley.

CDN CWB Barley farmer gets paid $2.50/bu right next door to the manufacturer.

Both parties are dead in the water, as far as being competitive long term.

Then some Chinese maltster gets less costly malt cross subsidised from the domestic sale. Same goes for milling wheat.

This is the valid case the EU and US have against the Government of Canada and the CWB.

Why, VADER, should the CWB keep a monopoly that destroys our local economies through price discrimination and cross subsidies into export markets?

[charliep]

So your answer to the original question is a community based wheat/barley processing company should pay US price plus cost of transportation?

A interesting comment would be a community based noodle plant. They have done a business plan that show profit/market potential - may or may not be a good business but it is their investment decision. They think they can obtain prices over and above what the relevant cash markets can pay them - a local feed mill, an ethanol plant within trucking distance, the CWB pricing tools and the forecast CWB pool return outlook.

The CWB North American pricing may be above this price/contribute to better overall returns but this is irrelevant to these farmers. If you want to go this route, the farmers will also want to look at the lowest priced market in the world the CWB is making sales to for the same grain on the same day. The relevant question is how many dollars the farmers grain can be sold for and whether the noodle plant is a good investment.

If this is new business/not subtracting from the existing sales activity and the farmer is getting at least the CWB pool return outlook in terms of price, why not? I note the farmer can do a DPC/buyback and come close to a result they but why make them go through the complexity?

[Vader]

End use processors tend more and more to be close to their customers rather than close to the supply of raw material. Certainly this is so in the case of wheat products.

The government of canada does not set prices .........the CWB sets prices.

Yes the malt plant pays more for barley than the farmer gets because the farmers return is pooled and includes offshore pricing. Offshore prices are not subsidized they are determined by the competition in the market place.

I would say lets continue selling with the single desk but lets stop price pooling. Separate the domestic and export markets and let producers decide whether they can compete at export levels.

[TOM4CWB]

Vader,

When the government of Canada sets initial prices, they set in motion a whole chain reaction of prices and competitive responses in other grains.

Further, the initial prices determine the latitude of the CWB sales dept and where/what markets they will sell grain into. A high initial means cautious sales with careful risk management, if careful marketers are in control of the sales program approved by treasury.

A low initial means practically no oversight on risk management from treasury, with the latitude to sell into any market at the bottom of the market.

This "initial price effect" has a direct effect on prices distributed to "designated area" grain farmers.

[nejar]

I don't think anyone person or government agency has the right to take away the producers right to manufacture just because their opinion is that there probably is no market. Small business finds a way; always.

Remember the wingnuts who used to be notillers. Remember the other wingnuts in left field who were organic. Where are they now?

It's fundamentally wrong to take away rights in one part of the country and not in the other. Farmers marketing creativity is stifled and the whole system is satisfied with mediocraty. If the CWB is so good then it should be able to compete at least with just a few innovative farmers. Who knows what can happen. New small markets can pop up any where and no one is capable of predicting what those are. Ony innovative small business entpreneurs can figure it out.
The world has become a very accessible trading area for everyone. For one government agency to make it a crime to participate in this market is an injustice unparalelled in the free world

[Vader]

tom4cwb, I agree with you. Initial prices suck. We need to completely delink from the federal government so we can set our own initial prices without government interference. On low value grains like feed wheat the default program should be a 100% EPO or guaranteed delivery contracts.

[Vader]

nejar, get off you philosophical butt and go manufacture something. The fact of the matter is that without the CWB the playing field would be severely tilted in favor of the larger players. Because of the CWB all manufacturers purchase at the same price, a distinct advantage for smaller players. In fact CWB pricing policy makes central Saskatchewan the cheapest place on the continent to acquire raw grain for processing. Go do your homework.

[nejar]

Vader
"the cheapest place to buy in the world."
Sitting on my philisophical butt - What does that tell you about the CWB