US Grading and Pricing

[chaffmeister]

The Warburtons program is quite unique in Canada for the reasons mentioned earlier. The most notable feature is that the farmers in this program get paid a premium - I'm told it's $20 per tonne (so Charlie, you're right as far as I'm concerned). In addition, the grain companies - Agricore and Paterson (right again Charlie) get an undetermined (non-public) amount that I will guess is between $5 and $8 per tonne, above and beyond the usual CWB handling tariff. This premium to the grain companies is to compensate for additional logistics, oversight, risk, and opportunity cost.

The premiums paid to the farmers flow outside the pool and are meant to reimburse the farmers for following strict production and IP practices - payment for additional work and risk, so to speak. It's for this reason that the CWB chooses to allow it (thalpenny, correct me if I'm wrong). In other words, the premiums paid are not for the wheat, they are for the extra steps to ensure compliance with the program.

Warburtons apparently pays the CWB "card price" which is the publicly stated CWB selling price and is a premium to most other sales which are negotiated - kind of like paying sticker price for a pickup. This is the amount that is pooled. The other premiums are not pooled as they are not in payment for the wheat itself.

The program tends to be for three varieties each year. At harvest, Warburtons takes in fairly large samples (5 kgs, I'm told) from each farmer. At their test lab and bakery in Brandon (right again, Charlie), they determine the best mix of the whole crop they have contracted and can achive throughout the year. Based on these tests, Warburtons then programs the shipment of the whole "crop" so that on each vessel and throughout the year, they get a consistent blend of the three varieties based on the proportions determined in their tests. This means that each farmer's crop is shipped according to the program throughout the year - basically, at harvest, each farmer knows exactly when he will need to deliver throughout the crop year to satisfy his contract.

Consistency is the key to the whole Warburton program. Through this program, they know that each vessel that arives in England will have the same proportion of varieties and each vessel load will provide the same baking characteristics as the others. This is something they feel they cannot get with the CGC based Canadian system.

So Warburtons buys the wheat from the CWB and then pays a premium to farmers and handlers to allow them to pre-arrange shipments based on the quality produced in any specific year.

Hope this helps.

cm

[charliep]

Braveheart,

Just a note to recognize your comments about the difficulties of doing the right things to achieve quality needs and then having this become the standard with no premium. Head scratching around this issue is one of the main reasons I am getting a little short of hair on the top of my head these days. Be it right or wrong, one of the things that gives me a buzz in my job is to start from customer needs/requirements and then to translate this into profitable actions for farm managers. As you say, a tough job for everyone. A reason I am an active participant in Agri-ville is because I pick up lots of ideas from people like you who are the front line doing the business. I want to keep discussion around this area going.

[ianben]

Thanks Tom and cm
It seems what the millers told us was over here was correct. They do like to do the blending with different individual varieties of known origin.
Looks like you guys are managing to get paid for doing this, over here they have told us unless we provide wheat with this assurance they will not buy it.
So we jump through the same hoops as you for the same premiums we had before!!!

Nice to hear from you again cm. Thanks again to you both.

Regards Ian

[parsley]

On Easter Monday, a producer told an interesting story to a bunch of us:

Across the border in the USA, a group of farmers are going to build a large hog operation. They have decided to sell all their grain that they produce themselves and instead purchase feed from Canadian feed mills because the price of Canadian feed is so low .

Hmmmm.

Parsley

[parsley]

The discussion around the Warburton's contract is pretty much accurate. One thing that isn't recognized is that Warburton's aren't contributing the higher values by their own good graces, as is evidenced by ianben's comments.

The fact that the CWB has negotiating power has helped retain these values. In other words, if there was no single desk, Warburton's could likely get all the variety and qaulity specific production they need for less than what they pay now. They could likely get farmers to participate by paying to cover the required use of certified seed, and a little for identity preservation to the farmer and the grain cos.

The pool account (all farmers) benefits as was described earlier, and the individual farmers who are taking steps (cert seed, meet quality specs, etc.) get rewarded.

One point I caught on to earlier in the thread that is a common misconception was someone referring to the 'CWB handling tariffs'. The CWB DOES not set handling tariffs at the elevator. The grain cos' have the obligation to publicly file their maiximum tariff with the CGC. Farmers can negotiate these fees for service directly with the companies. Make no mistake, the grain companies also charge hefty elevation and removal of dockage fees on non-board crops - but it's hidden in the basis.

Tom