Monday, July 18, 2011
A business plan for the new CWB needs to be developed ASAP – by the CWB, not the government.
In the most recent CWB producer survey (just released), when given the option of a voluntary CWB, the majority of farmers voted for it. The government is simply saying, if you want a voluntary CWB, we can support it. But it would be wrong to say that it’s up to the government to come up with a plan for a voluntary CWB because they're the ones who want it. The onus is on those that want to see a voluntary CWB work to come up with the plan. Although a majority of the CWB board may chafe at the notion, it's not unreasonable to expect them to devise the best voluntary CWB business plan it can.
If CWB supporters don't see a future for a voluntary CWB, why expect Minister Ritz to?
All financial issues need to be dealt with as soon as possible.
The CWB has said that it should keep the government guarantee; others have said that would mean it has an unfair advantage since sovereign (government-backed) debt comes at lower interest rates. If there is a sincere desire to have a voluntary CWB and a level playing field, a middle ground needs to be found; perhaps there’s a way to provide backing for financing at commercial rates for an interim period. Where there’s a will, there’s a way; if the CWB is interested, it needs to say so.
The CWB has said recently that the federal government will need to assume CWB employees’ pension liability. I have no idea if the liability is “in the hundreds of millions of dollars” as indicated by Allen Oberg, chairman of the CWB board, but the CWB 2009-10 Annual Report does not show a liability of this order. In fact, page 101 shows the “fair value of plan assets” to be $93.3 million and a plan surplus of $20.3 million. Even when they combine the pension with “other benefits” the balance is still a surplus of about $11 million. Unless I’m missing something (which is possible), this is a far cry from a liability in the “hundreds of millions”.
Since the CWB is a “shared governance” agency of the government, it would seem reasonable for the federal government to be ultimately responsible for any shortfalls.
It would make a lot of sense for the CWB to begin discussions with grain handlers.
As part of its business plan, if it plans on providing marketing services to farmers, the CWB needs to know potential terms of engagement with grain handlers. I’m told that to date, the CWB has not approached the grain companies to engage in negotiations. I have also been told that the CWB executive and senior staff would like to but have been instructed by the board that they cannot. If so, this is a mistake. The CWB should be talking to all grain companies active in Western Canada in an effort to develop commercial relationships – sooner rather than later.
But perhaps the CWB has no plans on being a grain marketer on behalf of farmer-shareholders. If that’s the case, it’s a shame the CWB has not yet seen fit to advise the industry on this.
ICE futures contract design is nearing completion and will be ready for trading asap after legislation is complete and the Aug 1 date for an open market is a done deal.
This is a complete waste of time and resources. I’ll make a prediction: the results of this survey will show that the farm community is split on the single desk issue. Really, nothing else matters. It doesn’t matter if the single desk gets 20% support or 80%; a proportion of the farm community doesn’t want it and it is autocratic to insist that because some want it that all must suffer by it. On top of that, it appears that many farmers who want marketing freedom aren’t even going to participate in the vote. Some are sending their ballots to Minister Ritz as an indication of support for the government, knowing full well that their ballot will not be counted. Others are refusing to send the ballot in at all, as a form of protest. This does not bode well for the relevance of the survey.
The trade is getting ready
Although just about everyone in the grain business is getting ready and making internal changes to how they do things – new IT systems, new employees, new processes, revamped funding, new relationships and so forth, it is still too early to expect any overt changes in how they do things. As one person told me, “we’re just in a holding pattern until we know for sure what’s going to happen”. This refers to both the legislation going through and what the CWB will look like.
For the next few months, don’t expect to see any earth-shattering news about how the industry is going to look – a t least not until we know more about the CWB itself. Also, grain companies could offer contracts out past Aug1, 2012, but I think we will see very little in the next few months.
Also, although some companies not active in Western Canada are making enquiries, don’t expect them to take the lead on anything until the CWB is more clearly defined.
This “holding pattern” by the industry is not necessarily a good thing. As long as the CWB holds back on its future plans and strategies going forward, the grain trade is forced to wait before offering anything meaningfully to farmers. In the meantime, possible marketing opportunities may be lost. Pity.
Posted by John De Pape at 4:27 PM