Value Adding on the Farm

[TOM4CWB]

Parsley,

This was exactly my beef in 1996 when the CWB denied my export license.

I filled out all the paperwork, but the CWB was not satisfied that they knew exactly who was going to be the end user in the US. They will die before they give up that info!

Ken Ritter really got stung because farmers in district 4 know of cases where the CWB sent in salesmen after a producer applied for an export license, and the CWB significantly undercut the farmer trying to do the direct sale.

This fact left Ken Ritter speachless!

Ken Ritter knows there is a big problem, as does the CWB.

What does the CWB propose to do about this conflict?

Denying it exists isn't good enough any more is it?

[parsley]

Maybe thalpenny can answer this one.
J and C are organic farmers in Saskatchewan. They contracted with a flour mill in the East to buy their wheat in '94. To be delivered upon demand.

When they went to do the buyback, surprisingly, the CWB refused to give them an interprovincial license.... at any cost. Period. No license granted. A day later, the CWB "changed their mind" and issued the license.

J and C voiced their concerns to the CWB about J and C's legal obligations for fulfilling a written contract in the future. Particularly if the CWB denies licenses ..out of the blue. The CWB legal department replied that that the CWB can issue or deny licenses as they please and they do not have to give a reason.

Forward contracting is an invaluable tool for farmers. How do producers legally make contracts with their customers if they cannot fulfill them because of the CWB? Does this stance by the CWB help or hinder value-adding?
Parsley

[parsley]

A large group of farmers in central Manitoba are interested in contacting a Middle Eastern country that has shown an interest in identity-preserved wheat with certain characteristics. It's a country a lot of producers are uneasy with. But they have cash up-front for grain. Lots of cash.

One of the negotiaters of the deal, Henry, has family working there and consequently, has met some high profile contacts. He sees potential to make money.

Henry has worried over Howard Migie's supplementary material to Migie's March 6, 1997 presentation to the Standing Committee of Agriculture. Migie was the Director General.

In it, Migie says, "..in connection with an embargo on exports to the former Soviet Union. And this is a situation where it may not be in the interest of Prairie farmers but there was some overriding Government interest at stake"

It seems to Henry there are far too many "government interests" downloaded on the Prairie producer. He doesnt like the guys to put a deal together and then have the Canadian Government's CWB step in and shut it down with an embargo or red tape.

Would the producers be better to have the cargo destination leave from a different country ?

Parsley

[parsley]

CharlieP or halpenny,

In the 1980's there was a "situation" in Canada where the Federal Government ORDERED the CWB to provide export licenses for barley from Ontario. Would you explain what that was all about .

I'll Appreciate the information,
Parsley

[TOM4CWB]

To the CWB,

Is there a specific formula that the CWB uses to determine buy-backs?

Could the CWB explain why feed wheat and barley with specialty uses for human consumption purposes are not exempt when the CWB does not and can not legally supply these markets?

There are no Canada Grain Act Grades defining these intrinsic special values!

Are you sure what you are doing is legal?

[parsley]

Value added has consistently been tethered in the West. The CWB repeatedly states they will not issue export licenses to Designated Area farmers trying to value-add because it will negatively affect marketing by the CWB.

In this week's Oat, Wheat and barley, Jeff Reid, in his article New Regulations revive Ontario wheat, writes:

"..industry observers.....believe the Ontario wheat crop is poised to increase from its current 800,000 acres to more than a million ares over the next couple of years.

Certainly such a significant increase in production will result in the CWB having to battle it out with Ontario for international market share.That much increase in wheat will definitely have a marked effect upon marketing done by the CWB.

Only the CWB can grant export licenses for wheat and barley in Canada.The CWB makes sure that Designated Area producers don't impact upon CWB marketing by consistently denying export licenses. Should the same rule apply to Ontario producers?

thalpenny, should the CWB deny Ontario export licenses...... for the same reasons in my beginning paragraph, "because it will negatively affect marketing done by the CWB."?
Parsley

[TOM4CWB]

Thalpenny,

Since CWB Act section 39.1 now provides the CWB with the right to buy Ontario wheat under part III of the CWB Act, please tell us how the CWB fits Ontario Wheat into your marketing plans.

If production not offered to you by me is costing the CWB money, then why is not Ontario production that is not marketed by you costing the CWB money, and therefore costing western wheat and barley farmers money as well?

I fail to see the difference! Could you please explain?

[parsley]

I asked this question before..... of CharlieP or halpenny...and no answer:

In the 1980's there was a "situation" in Canada where the Federal Government ORDERED the CWB to provide export licenses for barley from Ontario. Would you please explain what that was all about .

Maybe Lee Melvill would field the question, since it would be nice to hear from you sometime...........( or are you imaginary?)
Parsley

[parsley]

I know perhaps it's frustrating that sometimes the demands for answers aren't met by me. I take full responsibility for this. There is a barrage of messages to this site, and some of the requests are burdensome as I do not work in the head office in Winnipeg. Consequently, I make some judgment calls on what is valuable and contributes to the intent of the site and what is asked of me as a moderator. I don’t volunteer to be a cyber punching bag. Remember, moderators contribute their time freely, and unreasonable demands should not elicit slander or negative comments.

This is lengthy, and I risk spawning another barrage of responses, but I feel compelled to address the points in this thread and clarify:

- CWB pricing to domestic mills is on a transparent, competitive North American basis. With approximately 30% of Canada's milling capacity in western Canada, and a higher milling rate in Canada per capita than the US (32.5 bu/person/yr in US versus 35 bu/person/yr in Cda) it's hard to make the argument that the CWB pricing inhibits value-added on the Prairies. In the past few years, new mills in Elie, Red Deer, and Regina and expansions to mills in Saskatoon and Lethbridge are testament to the fairness of the domestic pricing for these businesses.

- the CWB of today is not the CWB of the 1980's or 1990's.

- Pricing to any commercial mill (farmer-owned or otherwise) differently than to the rest of the mills isn't sustainable - too high and they are uncompetitive. Too low and trade challenges from the US or challenges from domestic competitors would result. The domestic Cdn market is farmers’ largest customer, and the CWB would like to see that expand, but not at the expense of farmers return for their grain. Remember, value-added, not value-subtracted.

- basil - the CWB isn’t a regulator for the sake of regulation. Export guidelines are for the sole purpose of ensuring returns to farmers are maximized and the value of the single desk is optimized for farmers.

- the current spread on CWES on the PRO reflects the fact that returns from markets other than the US are significantly lower. The US is taking about 10% of what Cdn farmers grow of CWES and this amount has been slowly shrinking over the past couple of years. So comparing the Producer Direct Sale values for CWES and CWRS to what the PRO is forecasting for values for CWES and CWRS could be confusing as these products are getting different values from different markets. No CWES is going to Japan, for example. The customer is always right, and the CWB responsibly is reflecting what the market is indicating overall.

- Fear over policy changes in domestic pricing is unwarranted. Current policy has been developed in conjunction with the Cdn National Millers Ass’n, and any change would not leave any mill uncompetitive on a North American basis.

- Mills in western Canada regularly source directly from farmers, and can pay a premium for sourcing if they so choose. It’s misinformation to indicate they don’t or can’t source the product directly. The pricing is through the CWB, but sourcing can be independent if the mill wants that. Regarding the reference to a Board order to mills in 1994 ( I haven’t researched this, so I don’t have the Board order that parsley referred to), I surmise that there were higher values for high protein wheat in other markets (likely Japan) so the CWB took steps to ensure returns were maximized for farmers.

- parsley’s example of pearling barley for a European export destination is another example of where the market value of the product will be captured for the benefit of all producers. The CWB Producer Direct Export program is not intended to restrict access to markets, but single desk selling isn’t in place to create huge arbitrage opportunities with the pool account for individuals. If the farmer negotiates a higher value than the CWB can get in the marketplace - by providing specific product, or other direct customer relationship benefit- the farmer keeps that amount.

- pgluca - the CWB Directors have considered dry matter pricing, and haven’t discarded this notion. The cost to revise computer systems to support this is considerable, so this will be revisited in the future. The CWB Directors want to ensure there is more benefit than cost to move forward on this one.

- regarding ‘subsidizing low protein wheat farmers’ - Very few customers directly want wheat over 14.5% protein. The value of 14.5 to 15.5 % is primarily the blending value to handlers, not intrinsic value to end-users. Therefore, the notion that there is intrinsic value to the highest protein from every customer is a bit of a stretch. Protein premiums are also a function of supply and demand - low protein in the US HRW crop likely indicates higher protein premiums for the coming year. The pooled returns at the end of the year reflect the appropriate grade spreads from all markets over the whole marketing period, regardless of when in the year the farmer delivered. Risk of the timing of delivery, and risk of not accessing higher value markets is removed by price pooling.

- Tom4cwb - one of the points you made was that you want the CWB to work to compete for your grain - high value markets will gladly go direct to farmers to pay less than the CWB charges - is that good for farmers?

- the formula for the Producer Direct Sales values to the US is based on Minneapolis cash values and recent comparable trading values for a particular product.

-tom4cwb - human consumption wheat or barley is part of the CWB’s mandate for marketing. Human consumption is determined by discovering the end use. This is why the CWB requires information about the destination on a Producer Direct Sale - to ensure it collects the appropriate value (feed or human consumption value) on behalf of the balance of farmers through the pool account.

- Regarding the speculation of an increase in wheat acres in Ont - I say it has more to do with the current market conditions and upside potential for wheat compared to other crops than any program revisions by the OWPMB. Speculation is for higher wheat acres in western Canada as well.

- Ontario wheat marketing is hardly comparable to western Canadian wheat marketing. The size of the crop is about 1 million tonnes per year, there is about 50-60% or more consumed domestically, and it is largely soft and lower quality wheat. They have pressure to move the crop quickly to make room for corn, as wheat is not the dominant crop in the producing area.

- Regarding the 1980’s situation regarding the federal govt. ordered the CWB to provide export licenses to Ontario, I have no idea.

Tom

[chas]

Thalpenny:Thank you for the information. I think most farmers are finding it confusing and fustrating when there are farmers talking get rid of the CWB because theres some conspiracy there to steal our wheat and barley and then lie to us about it. Answers seem hard to come bye and difficult to understand the fairness from one side of an agruement to other..I do appreciate your attempts to answer us to clarify some issues.
I have one question: Would an open domestic market not be more benifitical to farmers and Western Canada. Alot of farmers are of the opinion that the government set up the CWB to control the flow of wealth from agriculture in the West to Eastern Canada on the backs of Western farmers. In years gone bye value added industries where concentrated in the East to satisfy their needs for employment and wealth. Now I know some of these situations that fostered this to happen have changed in the last few years. I'm thinking that if the CWB was limited to just export of wheat and barley and the open market was allow to operate domestically would't that create a better atmosphere economically in Western Canada. Instead of exporting are grain and jobs just south of the USA border we would encourage industry to situate here and add value and jobs to Western Canada. Would this not give the competiveness for price that farmers are wanting, especially if the CWB cannot dump back into the domestic market. Respectfully Chas.

[TOM4CWB]

THalpenny,

I cannot beleive you are so insecure at the CWB!

The topic of competing for our grain should not be so scarry, you have every benefit and advantage that any organisation could have!

Look at Ontario, they see nothing wrong with fair regulated competition, and this attitude has completly changed the dynamics of their Marketing Board!

Meetings are constructive now instead of confrontational, and they are getting along with their lives.

Wouldn't it be constructive for us and the CWB to give this approach a try?

I cannot beleive Japan will discontinue buying wheat from the CWB, as long as you give good solid service and assure supply! And why couldn't you?

What is so wrong with contracting programs, and what makes you think you cannot continue supplying Japan if no-cost export licenses are issued to individual producers!

How can I ship a boat load every few weeks? You know no individual farm can, and as with interprovincial flour mills, you know how to deal with these issues, don't you!

Many can see you are not looking at these situations logically and it really hurts the credibility of the CWB when it is official policy to try continually to scare us and bluff us.

In the world of Pulse marketing there are higher quality high value markets, and lower value markets, but I don't see anyone unfairly taking advantage of anyone else, do you?

The entities who pool their marketing have a big advantage over those who refuse to co-operate in their marketing activities.

Why would the CWB be any different?

[parsley]

Chas, I really appreciate that you understand the actual situation we are facing in the West when you say "Instead of exporting are grain and jobs just south of the USA border we would encourage industry to situate here and add value and jobs to Western Canada." It is crucial that we keep jobs here. We hire a lot of students in the summer, even up to a dozen one summer. The CWB costs us, ...students, .....everyone, a lot of money by keeping us out of markets that we would value-add in.

Not only do we have a value-added noose, but the cost of administering the export licenses of Ontario and Quebec, and the administration cost of all those EMFA licenses and renewals are all downloaded on DESIGNATED AREA PRODUCERS......it comes right out of your pooling account.

I understand that the Alberta government has announced it is suing the federal government for $428 million in oil/gas royalties it says Ottawa has illegally collected since 1919. Maybe producers in the Designated Area can recoup the losses from the pooling accounts that the Federal Government legislatively has a duty to pay. Don't you think DA producers could use that money?
Parsley