Monday, July 25, 2011
There are a number of issues presented as problems with the removal of the CWB single desk. They are presented as reasons why the government should re-think its position on the single desk because of the expected negative impacts. From my perspective, these are nothing more than red herrings.
The CWB provides funding for various industry groups, supporting research, market development and education. How will these groups be funded without the CWB?
First, let’s look at what the CWB does directly. The CWB supports both the Canadian International Grains Institute (CIGI) and the Canadian Malting Barley Technical Centre (CMBTC) with direct payments (they both receive funding from other sources as well). In 2009-10, the CWB provided a total of $2.3 million in financial support to these two organizations. This works out to $0.11/tonne of wheat and durum and $0.17/tonne on barley that farmers paid through the pool accounts.
Second, the Western Grain Research Foundation (WGRF) receives funding from producers via a check off by the CWB. The WGRF wheat and barley check-offs of $0.30/tonne and $0.50/tonne respectively are collected on the final producer payments made by the CWB. This approach, deducting the check-off from CWB final payments was adopted due to cost effectiveness but it is by no means the only way to collect funds of this nature.
Funding for all these groups – CIGI, CMBTC and WGRF – that has been provided either directly from the CWB (on behalf of producers) or from producers via a check off administered by the CWB, could easily be collected from producers through a check-off mechanism.
There are many check-offs already established, and on most crops. Currently, nine producer organizations collect check-offs through the services of Levy Central and the Agriculture Council of Saskatchewan, representing canola, flax, mustard, canaryseed, oats, and winter cereals. Others administer their programs independently, supported by front line buyers (grain companies) who make the deductions and forward the money collected to the organizations involved. Wheat and barley check-offs could easily be added to this group.
Even without the single desk, farmer-contributions to various organizations via the CWB will continue to support various research and market development efforts, as long as the need and the intent is evident. The loss of the single desk will not change any of that except the vehicle for collecting the money from farmers.
The vast majority of producer cars are loaded with CWB grains. With the loss of the single desk, will there be fewer producer cars loaded? Also, what will that mean to producer-owned short lines that are dependent on producer loaded cars?
In 2008-09, producers shipped 12,706 cars of CWB grains and 537 cars of non-CWB grains. Of the non-CWB grains, most notable were 416 cars of oats.
Producers load their own cars to avoid the cost of going through an elevator. The most recent report by the federally appointed Grain Monitor shows the average wheat elevation is $13.00 per tonne; on a 90 tonne car, this works out to about $1,200 per car. However, competition in non-CWB crops such as canola has driven elevation margins (costs to farmers) much lower. Avoiding non-CWB elevations does not provide as much incentive for producers to load their own cars, hence, fewer non-CWB producer cars.
Short line railroads are often closely associated with producer car loaders; in fact, the farmer-owners of many short lines are also the major shippers on the line, shipping producer cars. With the loss of the single desk, we will likely see fewer producer cars of wheat loaded as competition is expected to tighten elevator costs, reducing the potential savings and incentives to load cars. But there will also be opportunities that we have not seen yet; producer car loaders and short line operators would be well advised to develop relationships with potential marketing partners, terminal operators (such as Mission Terminal in Thunder Bay, currently the largest producer car receiver) and even end users, both domestically and in the US.
It’s important to also remember that the CWB has yet to determine its role in the new environment. Recently, the CWB has indicated that it is looking at different business models but it is not yet clear if it will play a role in producer cars and short lines. Depending on its structure and strategy, the new CWB could be very well positioned to present itself as a marketing partner for producer car loaders and short line operators. Considering its public stance on producer cars, it would be surprising if producer cars were not included in a significant way in its strategy; it has working relationships with all the buyers and operational relationships with terminals such as Mission Terminal, known to be the largest producer car receiver.
In a new market environment, as the single desk leaves and more competitors enter, the traditional flow of grain may change. Many companies not yet active in Western Canada are looking at entering this market and because they may not have an infrastructure to employ, any one of them could see an opportunity to originate grain through producer cars and short line railroads.
Take oats for example. Over the space of the last five reported years, total oat producer cars have trended higher, moving from 32 cars shipped to 416 cars. It appears that someone has found a market they can service with producer cars. With the removal of the single desk and with new players, there is no reason to think that this is not possible with wheat, or even other non-CWB crops.
Posted by John De Pape at 4:19 PM