Let’s back up a little.
Prairie Malt (Cargill) is in the business of making malt for brewers. CWB or no CWB, single desk or no single desk, they are in this business. When a brewer wants to contract for some malt, Prairie Malt has two choices: (1) tell the brewer they can’t sell them any malt because they don’t know what’s going to happen with the CWB (at the time, the plebiscite hasn’t even taken place), or (2) negotiate a deal with the CWB and sell the malt to the brewer.
It’s a commercial decision, either way. Either you piss off your best customer (a certainty if you say no to a sale - and for no apparent good reason at the time of the sale) or you might get embroiled in a mess (a definite unknown). You suspect that, if the government goes ahead with the open market, there’ll be a transition but you are uncertain just how it will play out. The CWB probably figures the same.
With the information in front of you, you make the decision to sell the malt and price the barley from the CWB – just like you have done a gazillion times before. You certainly don’t tell your customer you are unable to do business.
Fast forward to today. The plebiscite results are in and the government is going ahead with the open market. Cargill has undoubtedly been in discussions with the CWB about these contracts. Cargill wants to make sure its price is secure on the barley it has “bought” from the CWB. I heard that the CWB has suggested that it would not honour its new crop contracts in an open market – basically it threatened to walk away from them. Maltsters would be totally exposed and looking at potentially large losses.
There’s a very good reason why Cargill has been talking to the government about this. Actually, there are a few.
(1) LIKELY, the CWB told Cargill its hands were tied – and that there was no way it was going to run a deficit (by paying competitive prices) in order to make sure farmers delivered on these contracts. (Which it should.)
(2) The government guarantees all CWB payments.
(3) The CWB didn’t decide to shut down the single desk – the government did. When the rules get changed midstream, you go to the rule maker. In this case it’s the government.
(4) If the CWB is “out of business” it can’t roll contracts ahead like its done in the past.
Cargill is trying to protect its bottom line, and when this much money is at stake, you can be certain it will use every arrow in its quiver if it has to. I've seen no evidence that Cargill is trying to enshrine the single desk. I’m going to guess that Cargill would be very happy to see the CWB raise the initial and the PRO on 2row malt barley to entice farmers to deliver. No delays to the open market, no fuss, no muss. But barring that, it would be expected to go to the agent of change causing this situation – the federal government.
Cargill asking for the delay is just another way of asking the government to force the CWB to honour its contracts.
It seems to me that most farmers were clearly on-side when the government compensated farmers when it took away the Crow. To me, this is exactly the same situation – except the injured players aren’t farmers, they happen to be maltsters. In both situations, the government changed the rules, and someone was going to be financially injured. In both situations, the government should make reparations. In my view, the best approach would be to force the CWB to honour the contracts and to pay competitive prices to do so. If it runs a deficit, so be it. The government guarantees are still in place.
I don’t know how this is going to play out, but you can be sure that the government better think about the market environment its creating. If Chuck makes the wrong decision on this one, it could impact whether we get any more malt houses built in Western Canada. It’s called “sovereign risk” and you can be sure multinationals assess it along with other forms of risk before they enter a new market.
Prairie Malt (Cargill) is in the business of making malt for brewers. CWB or no CWB, single desk or no single desk, they are in this business. When a brewer wants to contract for some malt, Prairie Malt has two choices: (1) tell the brewer they can’t sell them any malt because they don’t know what’s going to happen with the CWB (at the time, the plebiscite hasn’t even taken place), or (2) negotiate a deal with the CWB and sell the malt to the brewer.
It’s a commercial decision, either way. Either you piss off your best customer (a certainty if you say no to a sale - and for no apparent good reason at the time of the sale) or you might get embroiled in a mess (a definite unknown). You suspect that, if the government goes ahead with the open market, there’ll be a transition but you are uncertain just how it will play out. The CWB probably figures the same.
With the information in front of you, you make the decision to sell the malt and price the barley from the CWB – just like you have done a gazillion times before. You certainly don’t tell your customer you are unable to do business.
Fast forward to today. The plebiscite results are in and the government is going ahead with the open market. Cargill has undoubtedly been in discussions with the CWB about these contracts. Cargill wants to make sure its price is secure on the barley it has “bought” from the CWB. I heard that the CWB has suggested that it would not honour its new crop contracts in an open market – basically it threatened to walk away from them. Maltsters would be totally exposed and looking at potentially large losses.
There’s a very good reason why Cargill has been talking to the government about this. Actually, there are a few.
(1) LIKELY, the CWB told Cargill its hands were tied – and that there was no way it was going to run a deficit (by paying competitive prices) in order to make sure farmers delivered on these contracts. (Which it should.)
(2) The government guarantees all CWB payments.
(3) The CWB didn’t decide to shut down the single desk – the government did. When the rules get changed midstream, you go to the rule maker. In this case it’s the government.
(4) If the CWB is “out of business” it can’t roll contracts ahead like its done in the past.
Cargill is trying to protect its bottom line, and when this much money is at stake, you can be certain it will use every arrow in its quiver if it has to. I've seen no evidence that Cargill is trying to enshrine the single desk. I’m going to guess that Cargill would be very happy to see the CWB raise the initial and the PRO on 2row malt barley to entice farmers to deliver. No delays to the open market, no fuss, no muss. But barring that, it would be expected to go to the agent of change causing this situation – the federal government.
Cargill asking for the delay is just another way of asking the government to force the CWB to honour its contracts.
It seems to me that most farmers were clearly on-side when the government compensated farmers when it took away the Crow. To me, this is exactly the same situation – except the injured players aren’t farmers, they happen to be maltsters. In both situations, the government changed the rules, and someone was going to be financially injured. In both situations, the government should make reparations. In my view, the best approach would be to force the CWB to honour the contracts and to pay competitive prices to do so. If it runs a deficit, so be it. The government guarantees are still in place.
I don’t know how this is going to play out, but you can be sure that the government better think about the market environment its creating. If Chuck makes the wrong decision on this one, it could impact whether we get any more malt houses built in Western Canada. It’s called “sovereign risk” and you can be sure multinationals assess it along with other forms of risk before they enter a new market.
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