Conservatives selling out farmers, and Canadians' food supply.
by Wendy Holm
This fall, western grain farmers will begin to feel the pinch from the Canadian Wheat Board's loss of single-desk selling authority. This might appear, for example, as a loss of protein and malting premiums. While weather-related market shortages will bouy Canadian prices in the short term, the price effect of the loss of market power will become apparent as markets return to more normal conditions.
Imminent — but perhaps not yet apparent — will be the reaction of international buyers in Europe, Asia and other discriminating markets to the dumbing down of quality. Our high-quality Canadian wheat will be blended with lower quality American grain to float the boats of multinationals. Eroding the market power of Canadian grain will occur at the expense of Canadian farmers.
By illegally stripping the CWB of its mandated authority authority, Harper has effectively extinguished the market power of Canadian farmers — and expropriated the goodwill our farmers have nurtured for close to a century for the high quality branding Canadian grain has.
By illegally stripping the CWB of its mandated authority authority, Harper has effectively extinguished the market power of Canadian farmers.
The impact will be permanent. And measurable.
This "dumbing down" in the grain sector is not unlike what Harper is doing in other sectors. Harmonization, once a quaint term describing barber shop quartets, now means a race to the bottom in terms of regulatory safeguards and public policy.
Supply management is the next bed time story. Just as a blind person could stand on the edge of a swamp and accurately track the lightening of the sky by bird sounds alone, so too can policy wonks anticipate a public set-up even in the face of political promises to the contrary. All the right wing pundits — those with more ink than think — begin twittering and buzzing and crowing and cawing about how government should finally do this or that because, well, "it's high time…"
In my province, conservatives have long wanted to get their hands on the crown corporations that ran our auto insurance, hydroelectric and ferry fleet. When in power (Liberals = Conservatives in BC), they take steps to hobble these once proud crown corporations to generate red ink, get some right wing think tank to crow about the waste of public money, then privatize them "to protect the public interest".
This is an expropriation of the public interest. It has to stop. The only way Canadians can recover democracy is to a) turf these thieves out on their ear and b) reform our voting system to include some sort of preferential ballot (she is my first choice, he is my second choice, and I really do not want this third guy) to ensure Canadian government is reflective of the wishes and aspirations of the Canadian people. So that our children's children's children have a right to anticipate that their grandchildren will indeed inherit a better world.
About Wendy Holm
15 Responses to “Harperites gunning for market control boards”
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Ms. Holm makes the leap that there will be a “pinch” involved in the loss of the Single Desk. I’m surprised that, as an economist, she doesn’t consider the reams of “real world evidence” that indicates the opposite. 1. Regarding “protein premiums”, the CWB “compressed” them – farmers with high protein subsidized farmers with low protein. Look at the CWB’s own data. In 2010-11, (the closest crop year with available data) the difference in the pool returns between 13% and 14% was $17.30/tonne.
But the CWB also has data on its website that shows the protein premium (14% over 13%) over that crop year ranged from $10 to $100, with the average around $60. Those with high protein didn’t see the premiums they should have. More “real world evidence” for Ms. Holm to consider. With the CWB now optional, farmers will see the real world of much larger protein premiums going forward. 2. Also, “real world evidence” showed that the “malt premiums” under the CWB were much smaller than they wanted you to think. The domestic feed barley price was at times higher than the CWB malt barley price (to the farmer) – many, many times for 6-row barley and too often for 2-row. Even when the feed barley prices were lower than the malt price, it was real close. The CWB malt price was often higher than the CWB’s feed barley price but that’s because their feed price was so low – and they didn’t sell very much anyway. Ms. Holm would do well to talk to people in the CWB – like those that have told me “we really struggle on barley”, and “the CWB really has no business being in barley”. Words of the CWB staff – not mine. 3. Ms. Holms referred to the price effect of the Single Desk. However, she has not done her homework; the Single Desk depressed prices with high costs – not just the administrative overhead of the CWB, but higher marketing and system costs. The “real world evidence” to support it is there, easy to find, if Ms. Holm wants to consider it. 4. As an economist, Ms. Holm should understand that buyers indicate the quality they want – protein level etc – and negotiate on that basis. If you can't supply, you don’t get the sale. The CWB often shipped higher quality than was requested or paid for; the buyers will certainly miss that but farmers who want to get paid for what they grew certainly won’t. 5. Most of the wheat exported out of Canada goes through the West Coast ports of Vancouver and Prince Rupert. Blending US hard red spring wheat is possible, but freight to these ports will make it expensive. And besides, it’s tough to argue that US hard red spring wheat is consistently lower in quality than Canadian hard red spring wheat. Blending the soft white wheat or hard winter wheat that the US grows predominantly is not in the cards – different types of wheat, different uses. 6. Removing the Single Desk from the CWB was not illegal, regardless of how Ms. Holms feels about it. Ms. Holm is an economist. We would all benefit from her insights and dispassionate professional views if she took the time to do the research required. As it is, her comments should only be considered as biased by her political views of the Harper government.
Straight Goods readers should be aware that Mr. De Pape is a former floor trader at the Winnipeg Commodity Exchange so his views on the virtues of the private trade should be taken with a grain of salt. His assertions about the grain trade and the Wheat Board are voluminous but inaccurate.
14 International Trade investigations of the CWB, usually conducted by the U.S. Department of Commerce found the CWB was a fair trader that achieved higher prices for Canadian farmers than the private trade did. These investigations involved full disclosure, under subpoena, with evidence given under oath and cross examined by parties with adverse interests. All sales from the relevant private traders and the Canadian Wheat Board were fully disclosed in all these hearings. It does not get more real world than that. For example, on feed barley one of these investigations found the CWB was returning premium prices to western farmers as compared to the private trade. Mr. De Pape’s bluster about having inside knowledge from CWB staff takes public quotes out of context. Mr. De Pape’s academic qualifications are limited compared to Ms. Holm’s and his knowledge of the law seems limited as well. In fact a Federal Court Judge has already ruled that the removal of the CWB was illegal. The Federal Court of Appeal has now handed this hot potato on to the Supreme Court of Canada where it will be adjudicated in due time. We are already hearing calls from US farm groups for Canada to lower its grain quality standards so they can export their wheat up here. In fact US hard red spring wheat is a very much a lower quality than ours due to our more moderate climate, our history of public interest plant breeding, and our system of varietal registration which focuses on quality. As Ms. Holm points out when the drought ends in the US and international prices revert to the mean, we will be able to assess the damage more clearly.
Caron:
Rather than simply attempting to denounce me and suggesting my statements are inaccurate, a more rigorous and valuable discussion would be on the facts themselves. In that vein, let's look at your statements.
You are absolutely correct that the US Trade Tribunals ruled in favour of the CWB. But assuming this is global vindication of the CWB and it's value to farmers is a leap of blind faith.
First, the Tribunals did not rule that the CWB "achieved higher prices for Canadian farmers". They ruled that the CWB was a "fair trader" into the US, and even got premiums at times (keep in mind, we're only talking a couple or few dollars per tonne). But good sales prices do not necessarily translate to good farmgate prices. (Which do you think is more important?)
The CWB system comes with a high cost, including (1) the CWB administration overhead, (2) higher handling charges than non-CWB crops, (3) higher "marketing costs" and (4) negative impact on other crop prices. CWB supporters refuse to consider costs, yet if you want to assess the CWB, you need to look at more than premiums or benefits. You need to look at costs. Even the Federal Liberals asked for a "cost-benefit analysis" but would never really talk about the costs. Even Ms. Holm – from the material of hers that I have read – has not addressed the cost side of the equation. (Perhaps you can explain why CWB supporters don't like to talk about its costs.)
I'd like to see the study or report on barley you are referring to. I've spent a lot of time in the barley market and the "conventional wisdom" is that the CWB system actually held barley prices down.
As for the law regarding changing the CWB, the Federal Court of Appeal overturned the earlier ruling by the Federal Court. You must have better information than me, saying "The Federal Court of Appeal has now handed this hot potato on to the Supreme Court of Canada where it will be adjudicated in due time". The best information I can get (from the Federal Dept of Justice and Minister Ritz's office) is that the Federal Court of Appeal ruled in the government's favour. It was not the Appeals Court that "handed this hot potato" onto the Supreme Court, rather it was the Friends of the CWB that requested the case be heard by the Supreme Court. But the Supreme Court has not advised whether it will hear it or not. (My sources, who's opinions I respect, don't think they will.) So to say that the Supreme Court will adjudicate it in due time, you appear to have an inside track on this information that even the Dept of Justice does not.
Regardless, Justice Robert Mainville wrote on behalf of the three-member panel: "I am of the view that none of the arguments advanced by the respondents or the interveners can sustain an interpretation that would preclude the minister from introducing in Parliament legislation which would fundamentally modify the CWB's mandate or which would lead to the repeal of the CWB Act."
"I have found no statement confirming or implying that the intention behind (a 1998 law) was to restrain the minister from proposing to Parliament legislation fundamentally modifying or repealing the CWB Act."
This basically states that, in the opinion of the Appeals Court, the Minister DID NOT act illegally. Not my opinion – theirs.
As for my credentials being limited when compared to Ms. Holm's, perhaps you're right but I would appreciate consideration beyond my 6 years as a floor trader. I have a bachelor's degree in agriculture and an MBA in Agribusiness (agricultural marketing). I have worked for over 30 years in the grain industry focused on grain marketing, handling and logistics, and risk management. My credentials appear to be appreciated by my clients, such as the Competition Bureau (on various grain company mergers and the purchase of BC Rail by CN), the Auditor General of Canada (on the special audit of the CWB), the World Bank, the Australian Wheat Board, AAFC, Transport Canada, provincial governments, various commercial grain interests, financial institutions, and progressive farmers. I have given testimony as a grain marketing "expert" in a number of commercial disputes (on the winning side every time). I am a professional associate of the Transport Institute and advisor to a number of boards.
Now that that's out there, perhaps you could share yourself with us, starting with your name and credentials. Makes for a much better discussion.
Reply to De Pape:
You are simply wrong on the International Trade Tribunals. The 1999 US Dept. of Commerce inquiry into feed barley found that the CWB was selling feed barley for more than western Canadian farmers were getting from the private trade. This was especially important for Alberta feedlots since a negative ruling would have meant tariffs on Canadian beef.
The 2001 in durum wheat sales found that in 59 of the 60 months under investigation, the CWB was getting selling durum into the US market at equal to or better than US prices from the private trade.
Each of the 14 also found the CWB was a fair trader. The assertion the CWB sold for less was commonly used by the anti-CWB side and has never been shown to be true. All these investigations were really just trade harassment from the Yanks and their mouthpieces in western Canada.
Your high costs of the CWB include costs involved in transportation and handling which applies to all grains whether sold by the CWB or not. Those costs on privately traded grains are kept secret by the private trade. Let’s also remember the private trade, aside from some small Canadian companies, is entirely controlled by a few giant foreign corporations.
As a private trader, and apparently a spokesperson for the private trade, you now have an opportunity to make a lot of money off the backs of farmers. The only question of interest now is how much you and your fellows will pass back to farmers.
On the court cases, my local paper carried a letter from Korneychuck, a farmer and former elected Director of the CWB on what is at stake. As I said, this will likely end up at the Supreme Court. The letter is worth reading: http://www.thestarphoenix.com/Precedent/7153717/story.html
“Bad Precedent
In the viewpoint article CWB, tyranny and economics (SP, Aug. 17), Herb Pinder, a member Viterra’s board of directors, said: “Property rights are at the heart of our enterprise system.”
If that’s really the case, he should be terrified of Stephen Harper and Gerry Ritz’s method of breaking the Canadian Wheat Board.
All rights and liberties are entirely dependent on the rule of law. If everybody, including in this case Parliament does not follow the law, everything including property is up for grabs by the biggest bully.
The law specified certain steps required to break the CWB. Rather than change or repeal the law as they could have done, Harper and Ritz chose to break the law. In doing so they sought to re-establish a concept that’s been dead for almost 800 years – that the Crown is above the law. In exercising what amounts to a royal prerogative to seize assets of our farmer run wheat board – specifically almost 2000 rail hopper cars, the building in Winnipeg, the lakers (ships for moving grain on the Seaway) and the contingency fund of more than $200 million all paid for or created by farmers – the government obviously wants to take us back to a time when royalty ruled and commoners bowed before it.
Like a 12th century royal, Harper recently boasted about his use of royal prerogative to pardon some criminals who broke laws he apparently did not like. This sets a very bad precedent with long-term implications. He should not get away with it.” – 30 –
Reply to Caron:
Concerning the 1999 “inquiry into feed barley” you said that the U.S. Dept. of Commerce “found that the CWB was selling feed barley for more than the western Canadian farmers were getting from the private trade”.
However, according to the CWB Annual Report from 1999-2000: “The US Department of Commerce determined that the operations of the CWB did not provide an indirect countervailable subsidy, nor was there a consistent pattern of Canadian prices being low.”
I’ve looked elsewhere too and cannot find any reference to "the CWB selling for more" – not even the CWB itself said that. Please share your source.
Also, keep in mind that the CWB did not sell feed barley into the domestic market (with the rare exception of when they found they owned small amounts of barley they couldn’t move offshore). So if they were selling for more, it was offshore. So why were the pools always so low compared to the domestic feed market? (Part of the answer is the high cost of the CWB.)
The other argument about this is – if the CWB was selling at higher prices (offshore) than the domestic market, then the offshore market was the better market. In an open market, the two markets will arbitrage – CWB supporters have often referred to this as the Law of One Price, to explain why markets will get driven downward. If the offshore market is higher and has a substantial appetite, in an open market it will force the domestic buyer to compete at higher prices. The Law of One Price.
Your history lesson into the tribunals is interesting but misses the point. Being deemed a “fair trader” is quite different than getting farmers higher prices – as we discussed earlier. If the CWB was consistently getting higher prices, why did every price comparison show that Western Canadian farmers weren’t receiving those “fair trade” prices?
The costs I am referring to are NOT the same transportation and handling costs for non-CWB grains. The CWB paid the grain companies much more for handling etc than they are able to make in the highly competitive non-CWB markets.
The costs I'm talking about include when the CWB pays demurrage because it messed up, it comes out of the pool accounts. If Viterra pays demurrage because it messed up, it eats it – it can’t charge it back to the farmers.
When the CWB earns dispatch, it reports it as income. And although it reports demurrage and dispatch as a net (demurrage expense plus dispatch “income”) it doesn’t include the real cost of earning that dispatch. The CWB would often boast about its dispatch “earnings”. But those “earnings” came at a cost that the CWB didn’t report. Dispatch is a PARTIAL REBATE of freight paid for and not used. It’s usually about half the freight expense. So if you book $10 million in extra freight time that you end up not using, the vessel owner may pay you about $5 million in dispatch (because you released his vessel sooner) – but you still have the $10 million expense. And since you didn’t use the freight time, the real story is you have a net expense of $5 million, not a net “earning” of $5 million. Not only was this misrepresented by the CWB, earning dispatch was actually a “management objective”. In reality it was an expense that the CWB passed on to farmers whereas the private trade couldn’t. When I discussed this with a senior grain company person, he replied “We would fire anyone who earned that much dispatch!” (By the way, when I brought this to the attention of senior staff at the CWB, they reluctantly agreed with my analysis and when I asked why they reported dispatch as an “earning”, the answer was “because some of the directors wanted to report it that way”. Since that meeting, dispatch is no longer reported as a managerial objective.)
Regarding Korneychuk’s letter, his opinion and the letter is based on an error. He says “The law specified certain steps required to break the CWB”. The Appeals court clearly disagreed. I’ll take the objective opinion of the Appeals court any day over the subjective opinion of Mr. Korneychuk.
Caron, I am happy to debate in the spirit of clarity. But I have little interest in arguing past each other – where you ignore my facts from outside sources, and you attack me on my credentials and relationships yet you won’t share yours, or even your identity.
Reply to Mr. De Pape: The source on CWB barley sales is: U.S. Department of Commerce – 1999.
The CWB sold feed barley to feedlots in the west – which was part of the focus of that inquiry. There are several places in the hundreds of pages in the US DOC finding where they observe the CWB was getting higher prices for feed barley.
It is also worth noting there were a number of Government of Alberta and Saskatchewan subsidies to cattle ranchers worth millions of dollars that were lost as a result of this inquiry. If the cattle people of the west had any sense they would have lynched the idiot anti-CWB types who triggered this whole US inquiry with their ignorant claims about barley sales.
On transportation I would rely on the Deloitte and Touch audited CWB statements which report a net benefit. Time will tell the results of the various court cases on the CWB; however, in a democracy HOW things are done is as important as what is done.
The whole question of CWB pool pricing verses spot prices is now moot, since the CWB single desk no longer exists and the Harper version of the CWB has no more market power than any other grain broker.
So private traders now have an opportunity to demonstrate just how good they are at delivering higher prices to farmers. So far it is not looking too promising. If it turns out as I expect there will soon be a whole bunch of very unhappy farmers.
To paraphrase an old Alberta publisher and editor: “Pray for Harper’s baby.”
Caron:
Thanks for the source. The full text of the DOC “Final Determination” can be found here:
http://ia.ita.doc.gov/esel/canada/99-a222.html#top (This is the page that the findings on the CWB start).
This document reports that R-CALF believed that the CWB “distorted market signals to Canadian farmers”. And that “the system of marketing feed barley in Canada imposes excessive costs on farmers, with the result that less feed barley is exported than there otherwise would be. Consequently, more feed barley is available on the domestic market, which artificially lowers prices paid by Canadian cattle producers.
I searched for any reference to the CWB getting higher prices. There were none. At best, this is what they said: “we find that the operations of the CWB did not provide a benefit to the producers of live cattle during the Period of Interest.
As for the CWB selling to the domestic feeders (which I personally have never seen in over 30 years), the DOC wrote: “the GOC removed domestic sales of feed barley from the CWB's jurisdiction in 1974.” And “Both the PROs and EPRs generally reflect prices in export markets rather than the domestic market.” And, “according to the Chief Commissioner of the CWB: The western Canadian livestock feeding industry secures virtually all of its feed grain requirements from Prairie farmers.”
The bottom line for the DOC regarding the CWB: “We determine that the operations of the CWB did not provide a benefit to the producers of live cattle during the POI. Therefore, we determine that the operations of the CWB during the POI did not provide an indirect countervailable subsidy.”
I’m afraid the DOC ruling does NOT indicate anywhere in the document that the CWB was getting higher prices for feed barley. Domestic prices were argued to be lower because of export restrictions by the CWB. The DOC failed to find evidence of lower prices – not at all the same as the CWB getting higher prices.
Regarding transportation – the CWB’s financial statements, audited by Deloitte, are factually correct. But that’s not what I’m talking about regarding dispatch earnings. An auditor will ensure that the numbers are factually correct, like asking “did you pay this amount?” Or “Did you receive this amount?” But they don’t ask “Did you pay too much for that freight?” That’s just not their mandate. If you are at all interested in this topic, I suggest you talk to anybody in the grain business – including senior staff at CWB – or anyone in the shipping industry.
Reply to Mr. De Pape:
You actually have to read the whole document – an exercise in tedium which could only be rivaled by reading the full hearing transcripts for those who did so. You can find the following quotes from the US Dept of Commerce Investigation:
“We observed that, during the POI, the average price in the U.S. was usually lower than the average price in the designated area.” Or a few lines BEFORE the quote you took out of context:
“. . . during the POI (the only period for which we have all the needed data), the Canadian price was often higher than the U.S. price.”
As those in the legal fraternity would say “Q.E.D.” on the CWB and barley prices.
You have confused the ending of the 1974 single desk for the domestic feed market with the ability of the CWB to sell anywhere on the planet, which it did. The CWB occasionally sold feed barley into the domestic market when they had supply and it was a better return for farmers than the export market.
On the transportation benefits of the CWB, you say I should talk to people in the shipping industry. This has always been highly entertaining – however they have their own commercial interests which run counter to those of farmers as do the interests of private traders.
The Deloitte and Touch audits identify the CWB’s transportation operations as a “net benefit” to farmers and do not support your innovative interpretation.
Response to Mr. Caron:
Your thesis is that the CWB got higher barley prices than the "trade". Indicating that the DOC document reports that "the Canadian price was often higher than the U.S. price" doesn't do it. You make a leap that this must mean that the CWB got higher prices but we all know the CWB doesn't sell into the domestic market. your suggestion that the CWB "occasionally sold feed barley into the domestic market…" is not enough to earn your argument a Q.E.D. In fact you say they did this when "it was a better return for farmers than the export market" – so in your own argument the CWB was a price taker, taking advantage of the higher domestic prices "occassionally". In this argument they cannot be seen as the price setter. How and why did the domestic prices get high in the first place?
Sorry but your argument that the CWB got better prices is not conclusive. Nor does it refute years of evidence that shows the opposite.
On transportation, I see you still have your blinders on. Your visceral mistrust of anything and anyone that, in your view, could get their hand in the pocketbook of the farmer, is blinding you. Certainly, everyone has their own commerical interests, but to suggest that people in the shipping business wouldn't explain how demurrage and dispatch works is simple paranoia. Please note I also suggested you talk to the senior staff at the CWB – they would tell you the truth, wouldn't they? You trust them, don't you? (Ian White would be my first choice.)
Moreover, you give the CWB's auditors far too much credit. Nowhere do they comment on the CWB's transportation operations as a "net benefit" to farmers, nor is it within their mandate to make such comments. The CWB itself does in the Annual Reports, typically pointing to the gains they made through tendering and terminal contracts etc (which is an indication that the CWB system supports excessive handling fees to begin with). But interestingly, the CWB doesn't even indicate earning dispatch as a net benefit from transportation operations. See page 29 of the CWB's 2010-11 Annual Report.
Check out page 67 of the Annual Report and you will see the comments the auditor made and what it's job is.
I understand that you, as a CWB single desk supporter, want to demonstrate how beneficial the single desk was. However, blindly disavowing any negativity does not help your cause. Where it is broken, fix it. Where there are weaknesses, strengthen it. The old board (at least eight of them) refused to accept that the CWB could change – or even should change. They blindly fought to protect the status quo on the basis of ideology and refused to see the CWB system's weaknesses.
And that is why the Single Desk is gone.
Lovely rhetoric and hair splitting – but in the end just that. Over the years, the CWB audits report a net benefit in transportation when there is one.
I must however take great umbrage at your claim that I have a “visceral distrust … of anyone … that could get their hand in the pocketbook of the farmer . . .”
On the contrary, I trust that people and organizations making their living putting their hands in the pockets of farmers will see that as a natural and good thing. It’s not surprising they bend every effort to convince farmers, and themselves, they are more than parasites.
But that does change the reality of their hands in the pocketbook of farmers, or the fact without the CWB farmers now have no collective bargaining power and almost no individual power within that private system when it comes to their grain.
So now that farmers and the Harper version of the CWB are completely subject to the whims of the private trade oligopoly, I am also confident that the private trade will use its market power to maximise its own returns and the extra money they take will come out of the pockets of farmers.
That is not visceral distrust; it is a simple recognition of the new reality.
Time will tell if the private trade stays true to form or transforms itself into the benevolent and generous servant of the people so delightfully portrayed in the fairy tales of business school promoters, the fantasies of Rand and Hayek, and spokespeople for the private trade.
As I said, so far it does not look very promising on the grain front.
2010-11 CWB Annual Report (page 29):
"Grain Transportation: Generated direct savings of $35.1 million through commercial grain-handling contracts. The CWB moved 12,271 producer cars for additional savings of $14.5 million.
Shipped 600,000 tonnes of wheat through the Port of Churchil."
2009-10 CWB Annual Report (page 41):
"Grain Transportation: Generated direct savings of $40.5 million through commercial contracts with shippers and tendering for grain handling.
Shipped 529,000 tonnes of wheat through the Port of Churchill, the second highest volume since 1977."
No mention of dispatch. This is not hair splitting; this is fundamentally important to any assessment of CWB marketing performance on behalf of farmers. By not investigating it further (by asking someone you trust, like people at the CWB) you are simply turning a blind eye to the fact.
You and I will never agree on this but I believe we are both writing here for the benefit of others that are reading this. Calling it "rhetoric" or hair splitting" does nothing to demonstrate to the those that might support your argument that your position is sound and reasonable. Saying that the CWB reported a "net benefit in transportation when there is one" as a response to my argument about how dispatch costs money, is an insult to other readers' intellegence – those that are looking to you for sound and reasonable critical thinking.
On dispatch, either prove me wrong, accept I'm right or admit that you don't know (and that you will investigate). Otherwise I believe this discussion has come to its natural conclusion.
Reply to Mr. De Pape:
Net benefit to farmers in transportation issues is at least a “four body problem” as the physicists would say. The four parts the auditors insist on are: demurrage (cost of late ships), dispatch (revenue from ships loaded ahead of schedule), freight (rail costs) and elevator / terminal handling costs. These would usually be part of “shippers and handlers.”
When the ships leave on time, the first two balance to zero and all is right with the world. When there is demurrage farmers are unhappy and when there is dispatch, ship owners pay it and move on to the next job.
These are just the costs of doing business. You may assert the CWB costs too much, but the private trade keeps its costs very secret, so making a comparison is difficult, although if the private trade actually had lower costs, I’m sure they would be publishing them.
Readers may be interested to know the farmer controlled CWB really cut demurrage costs and started to earn dispatch revenue for farmers when they successfully sued the two railways for poor performance. Once the railways were subject to this commercial discipline from the CWB, it is no surprise they pulled up their socks and actually delivered the grain on time.
Yours is not an argument that dispatch is not income. It is a statement contrary to what the auditors insisted on.
Let me give you a concrete example of what I’m talking about.
A few years ago, a major grain company that was both an accredited exporter (AE) and a terminal operator was working on some export business as an AE. They went to the CWB with a CIF price (delivered price) which was competitive with other sources of wheat (other countries) to begin working out the details with the CWB as part of the negotiations.
The CWB had the specific grain instore this particular grain company’s terminal and this was what was being sold.
When it came to load terms, the CWB specified 6 days of laytime (the amount of time specified with the vessel owner for the vessel to load). This is the foundation of demurrage and dispatch; if they take longer than the laytime specified, and they pay demurrage – take less time and they get dispatch. BUT the total specified laytime makes up part of the vessel rate.
The grain company argued with the CWB that they knew they could load the vessel in two days and wanted to use 2 days of laytime in the ocean freight contract. (NOTE: when you book ocean freight you are paying by the day (that’s why it’s called a time charter), the less time you book, the lower the cost. Therefore, using a shorter laytime would have meant a lower overall freight rate, which, by the way, would mean a higher fob price for the pool account.)
The CWB insisted on 6 days of laytime.
Since the delivered price needs to be competitive with other sources of wheat (you can’t simply charge the customer more because your freight costs are higher), the higher ocean freight cost (due to more days being booked) simply meant a lower fob price – a lower price for the pool account.
The grain company did what the CWB instructed and booked the longer laytime and paid a higher freight cost. The net sale price for the CWB was lower because of it.
In the end, the vessel presented and was loaded in two days, just as the grain company said it would. With 6 days of laytime specified in the charter party (freight contract), this meant that the CWB earned 4 days of dispatch.
Let’s do some math; if a 35,000 tonne vessel cost $40,000 a day and a trip takes 17 (including laytime), the total charter will be $680,000, or equal to about $19.40 per tonne. In this example, each day of laytime cost $40,000 – an extra 4 days cost $160,000, equal to about $4.57 per tonne.
But the CWB “earned” dispatch – equal to half the daily rate on the contract. So on this one vessel, the CWB earned half of $40,000 on 4 days, or $80,000 in dispatch.
BUT – those four days of laytime not used cost the CWB $160,000, so they really netted a loss of $80,000. Pardon me – Western Canadian farmers netted a loss of $80,000.
The auditor would never question whether they should have used 6 days or 2 days of laytime. They never work down to that level, it’s not within their mandate and they wouldn’t even be aware of the 2 vs 6 day discussion with the grain company anyway. They don’t question this kind of detail, just as they would never question a sale price on a contract – that’s just not their role.
Further, the cost of dispatch gets lost in accounting. Its true cost is simply imbedded in sale prices, effectively making them lower because of it. And again, the auditor never looks at that level.
This is an important point. Not only does dispatch come with a net cost as illustrated, the CWB has been known to actually pursue it (as in this case above).
Reply to Mr. De Pape:
What a ridiculous example. Your source is an un-named private company in competition with the farmer run Wheat Board. Do you believe everything salesmen tell you about the virtues of their product?
CWB sales were always monitored by the farmer-elected directors and management and were always made with the idea of maximising the net return to the pool accounts.
It is evident you feel a great kinship with the oligarchy Harper has allowed to take over the Canadian grain trade. Now we get to see how this plays out for grain farmers.
When you criticize this story because my "source" is "un-named", are we to believe that, to you, anonymity reduces credibility? What does that say about the fact that you remain un-named?
Accredited Exporters were used extensively by the CWB; often they would put together all aspects of the business under the "oversight" of the CWB. To suggest that this company was in competition with the CWB on this business Is ridiculous. You can't have it both ways; either the CWB had a single desk monopoly with no competitors, or they were in competition with the likes of this company.
And we both know the answer there. To say that the CWB was in competition with this company contradicts your basic position – that the CWB had a single desk monopoly with no competition.
As for CWB directors monitoring sales – I can't dispute that. But remember, according to senior CWB management, "some directors" wanted to make sure the goal was to "earn" more dispatch than what they were paying out in demurrage. It was a managerial objective as directed by the board. Management was instructed to "earn" more dispatch than demurrage – without consideration for the actual cost as I outlined earlier. I heard Bill Toews say in a farmer meeting that net dispatch earnings were extra cash for farmers and was an indication of how well the CWB was managing logistics. So even though he was wrong, he believed that earning dispatch was helping to maximize the net return to the pool accounts.
One last comment about un-named sources. I have been in this business over 30 years and have seen and experienced first hand a great many things. I only wish I could share what I know from my work with the Competition Bureau or the Auditor General (on the special audit of the CWB). Instead I only have my own experiences to share. Before you criticize about un-named sources, take note that I am not "un-named".
As for my position on the current market structure, I am on record saying that the govt needs to do more to help level the playing field so that we encourage more competition, not less. I have presented my ideas on how to accomplish this to Minister Ritz directly. The job's not done. That's why I fully support a voluntary CWB.