Agree or Disagree

[AdamSmith]

Canadian Wheat Board will wilt in deregulated market

Sun Nov 12 2006

Murray Fulton

THE federal government has recently released its task force report on how the Canadian Wheat Board (CWB) could be restructured to provide freedom of marketing choice for farmers while, in Agriculture Minister Chuck Strahl's words, "ensuring a strong, viable, voluntary CWB."
Though the task force report insists a new CWB "needs to have a high probability of success," the proposed changes to the CWB would not allow it to survive commercially.

The report calls for the elimination of the current CWB and the creation of CWB II, which would be owned by farmers through a co-operative or corporate structure. It would compete with the other grain companies in an open market, and would be allowed to acquire assets.

But there is no business case for a viable CWB II. It would be unable to obtain the strategic assets necessary to compete.

To function effectively, CWB II would require a way of getting grain from farmers on the prairies to the customers it lines up. It would also require in-depth customer knowledge, a loyal producer base and unique products and services.

Despite the assertions made in the report, none of these assets would be available to CWB II. There are at least four reasons for this.
First, without grain-handling facilities, particularly port facilities, the CWB II would be completely reliant on the existing grain companies to handle its grain.

It would be unable to provide guarantees to customers since the existing companies would much rather handle the grain themselves than for CWB II. And purchasing key facilities from the existing companies is not going to happen, since these players have no interest in allowing a viable CWB II to enter the market.

Second, the report argues that the current CWB's customer knowledge is an asset that would be retained under CWB II.

This argument is faulty. Once it is clear that the CWB is being restructured, the existing grain companies will hire the key sales and logistics people away from the CWB in order to have the expertise they require to operate in the new market. Unless the sales staff is indentured to the CWB -- which, of course, it is not -- the CWB will not retain special advantages in this area.

Third, a large loyal producer base is not a given. The requirement to purchase shares means that a cost-free option to participate in a CWB-like structure would no longer exist. The Saskatchewan Wheat Pool found out that changing structure and refocusing its business resulted in a sharp reduction in producer loyalty. A similar reaction can be expected to the change proposed for the CWB.

Fourth, the task force suggests CWB II can serve producers better than its competitors by offering pooled contracts and helping buyers with new products.

But if producers and customers want these services, surely the CWB II's competitors can use the same strategies. Moreover, pooling is virtually impossible to operate in an open market. This is why there are no pools in the grain sector in the U.S. and why we do not see pooled contracts in canola (some will argue that the Ontario Wheat Producers' Marketing Board operates wheat pools, but these pools account for less than five per cent of total grain sales).

Since CWB II will have no significant strategic assets, it will not be commercially viable. Given the expectation that it will not be viable, farmers will have no incentive to purchase shares in it and, as a consequence, CWB II is unlikely to even get established. Thus, the only marketing choice that a farmer will have is, "To which private multinational grain company should I sell?" The government's announcement that it will hold a plebiscite on barley marketing in 2007 is welcome news for those producers who feared the government would ignore the CWB Act and move unilaterally to end the CWB.

But with the failure to develop a plan for a viable CWB, the task force has clarified the question being voted on -- a vote for marketing choice for wheat and barley will be a decision to end the CWB.

It is time for choice proponents to be forthright and cease using "marketing choice" and "viable CWB" in the same sentence.

A paper further detailing the arguments presented above will be released on November 14 and will be available at www.kis.usask.ca.


Murray Fulton and Richard Gray are

professors of agricultural economics at the University of Saskatchewan.

[wmoebis]

I wonder what this discussion would look like if we producers still owned our Wheat Pools and United Grain Growers and shared in all profits from farm to port.

Are we not just reinventing the wheel?

[AdamSmith]

I Disagree;

Prof Fulton says “But there is no business case for a viable CWB II. It would be unable to obtain the strategic assets necessary to compete.
To function effectively, CWB II would require a way of getting grain from farmers on the prairies to the customers it lines up. It would also require in-depth customer knowledge, a loyal producer base and unique products and services.
Professor Fulton, like the current CWB can’t get past the belief that the CWBII must be a grain handling company in the traditional sense. That certainly isn’t what I envision. I do think the CWB II will have a tough time of it if they think they need to start at a point that lets them compete with Cargill. But if the CWB II models itself as a professional marketing service in the fashion of a mutual fund company with a modest goal of a 15-20% market share. They should be able to establish themselves and grow from there.
A handling agreement with the terminal operators would probably work tomorrow just like it does today, the only thing different would be that the CWB II would have to work co-operatively with the companies as opposed to ruling with an iron fist. And do- they not already have in depth customer knowledge and a loyal producer base, or is he letting the cat out of the bag here?
As far as a unique product, I guess that would pooling 2006 style not pooling 1935 style.
A low cost pool with a high initial like 95% of estimated returns, might just be enough to give them a great shot at that 20% market share. Sure they won’t do that with 500 employees, but with 40 they might, and ½ of that 40 would be driving into farmers yards with company pickups and establishing that good loyal producer base.

[TOM4CWB]

AdamSmith;

This is a self fulfilling self serving article... meant to strike fear, dispair, and confusion into grain growers. It is negative and distructive

The only way a positive outcome to this challenge is possible; is to create good will and assets that are formatable in the NEW Corporation.

This will only be possible with good will and trust through negotiations to present an positive option that will work.

Conservatives are the folks who made the promise... of a viable NEW Corporation that is a real option.

Talk is cheap, fulfilling responsibilities and obligations never is easy and requires sacrifice.

I must agree more than has been offered by the transition team is required to have a viable NEW CORP.

And more has been offered, the challenge is to have a progressive team... with enough good will and leverage... to consumate this deal in a positive light and create real value at the farm gate!

WHOM EVER DOES WIN THIS ELECTION... HAS AN AWESOME RESPONSIBILITY AS A DIRECTOR TO TRANSITION THIS MARKETER.

IT WILL BE LIKE WALKING A TIGHT ROPE ACROSS THE NIAGRA FALLS... POLITICALLY.

[wilagro]

I agree with Professor Fulton. I reached the same conclusions as soon as I read the 'task force' report. Total bunch of pie in the sky baloney written by anti-CWBers. A CON game is what it is.

[liberty]

Let's look at some of the more contentious issues the paper raises, and respond to them:

"(CWBII) would be unable to provide guarantees to customers since the existing companies would much rather handle the grain themselves than for CWB II. And purchasing key facilities from the existing companies is not going to happen, since these players have no interest in allowing a viable CWB II to enter the market."

What a pile of nonsense. There is, at present, tremendous overcapacity in the prairie grain handling system. Renting or leasing the space is a viable option, and the mainline grain companies would be eager to engage the CWB on this, given the need to utilize these facilities or lose loads of money. They would not shut out the CWB merely for spite. They have an "interest" in having a CWBII in the market: it's called profit.

"...the existing grain companies will hire the key sales and logistics people away from the CWB in order to have the expertise they require to operate in the new market. Unless the sales staff is indentured to the CWB -- which, of course, it is not -- the CWB will not retain special advantages in this area."

Again, more tripe. If you want to retain staff, any business person with a functional brain cell knows that you just have to pay competitive wages. Furthermore, I suspect that the CWB staffing levels are grossly inflated anyway, and that the job of the CWBII could be done with far fewer people in any case.

"...a large loyal producer base is not a given. The requirement to purchase shares means that a cost-free option to participate in a CWB-like structure would no longer exist. The Saskatchewan Wheat Pool found out that changing structure and refocusing its business resulted in a sharp reduction in producer loyalty. A similar reaction can be expected to the change proposed for the CWB."

This line of non-reasoning is making me progressively sicker. Producer loyalty has to be earned. It's hard work. It's much harder than the present method of brow-beating loyalty out of producers. Still, that's not a valid excuse for whining like some school kid who plays up an illness to get out of going to school. CWBII will have to get its farmer support lined up ahead of time, and it's not unreasonable to expect that producers should have to pony up some risk capital to share in the expected benefits. This kind of thing is commonplace in the rest of the businessworld; it's called a share offering.

As far as the SWP was concerned, its previous share structure was crippling the company financially; it was well on its way to losing market share in any case.

"...pooling is virtually impossible to operate in an open market."

Granted, outside the CWB pooling is not a big deal. But so what? Maybe it's not a big deal because of technological change and a huge increase in the ability of farmers to access non-pooling forms of marketing. Pooling was more suited to grain markets that existed decades ago, with primitive communications technology that made it hard for farmers to get the proper price signals to make competent decisions. With DTN and the internet, farmers have that information at their fingertips, 24 hours a day. Perhaps pooling is just an archaic notion of the past. If that's the case, let's get with the times.

[AdamSmith]

Wilagro,is it single desk or nothing for you? If it came down to CWBII or nothing, It sounds to me like you would choose nothing.

I said I believe the cwbII could function and survive as a much smaller more efficient entity for those who really like it and want to use it, like yourself. Do you believe it could or couldn't? or is it; the cwb is worthless without 100% of the market?

What should be done if (or when) farmers say they want the choice in a plebicite?

I think farmers will choose "Pie in the Sky" 2 to 1 over "The Sky is Falling, The Sky is Falling"

[wilagro]

Adamsmith: I would rather see the CWB KILLED entirely rather than have a so-called CWB II.

From reading the suggestions, the taskforce would rather have a stake driven through the heart of the CWB so as to totally nullify it and give little chance of success.

Farmers would very likely be better off supporting what "remains" of their respective "pools" than a crippled and problem encumbered CWB II.

It really doesn't matter anyway...the ADM's and Cargill's of the world will win in the end. WE have practically sold out to them already.

As Canadians, we have allowed our industry to be controlled by our competition...the U S of A. Hope that makes you sleep better now that even more of Canadian business will be controlled by foreigners.

[AdamSmith]

Wilagro;

Adamsmith: I would rather see the CWB KILLED entirely rather than have a so-called CWB II.

Wow, that's a pretty extreme statement.

I've heard that some CWB Directors have expressed very similar opinions.

I respect your right to hold that opinion.

But if a director or directors were to hold those opinions, I think you would agree that they are no longer of any value to the cwb and should resign. To not even try to make it work would be quite irresponsible and may even be grounds for removal by the minister.

I suspect that story that's floating out there is nothing more than rumor though. But if were to be true, I think you would at least agree that for the sake of all farmers who have delivered wheat into the 2006/2007 pools and for probably next year as well, that all directors must be prepared to separate the politics from the marketing job at hand.

[TOM4CWB]

AdamSmith;

I concurr.

To manage a multi-billion dollar responsibility... one CANNOT be making plans to destroy the corp. the director is elected to serve.

The management and directors that are not bargining in good faith... to accept offers of multi-millions in assets in exchange for a transition to a market choice environment...

Should resign NOW.

That means the upper CWB management that did this travesty should already be gone for the bad faith they have already exibited.

[wd9]

Disagree.

Blah blah blah, no message too short, please adjust min character field to 5 or so to prevent:
1 error has been detected, please correct the field in RED!

[food4u]

I have one question concerning this whole debate and that is--How did the CWB function from 1935 to the day it became a complete monopoly during WW2? It was a voluntary entity and did it not work with far more grain companies than we have for the movement their grain.

[TOM4CWB]

WD9;

Are you the "Town Clown"?

Seems like you have bin little skitzo ... or have you been "kung-fu" dancing... got in a spin... and lost your sense of lancing?

[wd9]

Nope, village idiot.

[Incognito]

http://www.prankplace.com/tshirts_villageidiot.htm