Monday, August 29, 2011
All this talk of how voluntary pools won't work has got me thinking. Allan Oberg, CWB chairman, has said it at all the CWB producer rallies and in the media. Others repeat the same mantra. Even the media itself, through editors like John Morriss of the Manitoba Co-operator, has tried to define the voluntary pool as impossible.
Thanks to a media that, for some reason, has failed to show both sides of this issue, all we hear is how it can't work because it's never worked before. They say voluntary pools in Australia and Ontario don’t work. They don’t even talk about the ones in Alberta and PEI. But they haven’t even talked to the people involved in these pools to get their views and to find out what is working. With a little research, they would find that although they’re not on the scale that the current CWB operates, these voluntary pools are providing value to those that use them.
The voluntary pool is the basis of the dual market. The dual market is an open market with the added option of pooling offered by an organization like the CWB. The CWB website refers to the dual market (the voluntary pool) as a myth. For example, the CWB reports that in the dual market of 1936-37, open market prices were higher than the initial payment of the pool, so the CWB received no deliveries from the 1936 crop. And, in 38-39, open-market prices were lower than the initial payment and so the CWB got all the wheat deliveries and ran a deficit of $61.5 million.
So, obviously, if we go back to voluntary pooling, the same thing will happen again, right?
I don't think so; before you can reasonably come to that conclusion, you must make the assumption that the pool and the market it is operating in, would be structured the same as before. This has a familiar ring to it; do the same thing over and over again and you should expect the same results. It would be insanity to think otherwise.
Doing it differently is something that hasn’t been considered. We haven’t heard how it might work – or what we need to make it work. It makes me wonder if CWB supporters even want it to work.
Considering what hasn’t worked and the benefits and options producers would want, I have designed a voluntary pool; I call it the Voluntary Independent Producer Pool (VIP Pool). And, yes, it’s structured and designed quite differently than the voluntary pools the CWB offered before 1943. Here’s what I believe the VIP Pool would offer:
· It will provide better than average returns over the crop year.
· It will provide cash flow when needed.
· Delivery into the system will be a function of dynamic system needs (not passively through a programmed schedule like contract calls). However, it will allow producers to have input into the timing of deliveries in conjunction with the needs and commitments of the pool.
· It will serve all farmers – big and small.
· It will work for producer car loaders.
· Producers will benefit from storing grain when appropriate and will deliver when appropriate.
· It will compete effectively with the spot market. (It will not be starved of deliveries in a rising open market like in 36-37, nor will it be overwhelmed with costly deliveries like in 38-39)
· It will encourage grain buyers to compete for deliveries through price incentives such as protein bumps, trucking premiums, better basis levels and grade promotions.
· It will allow individuals to reap the benefit of strong local basis levels relative to other regions. (For example, in canola we see stronger basis levels around Yorkton. Pooling canola deliveries in Yorkton with deliveries in, say, Calgary, adjusted only by freight (as with the current CWB pool) is not a fair or appropriate allocation of price.)
· It is a price risk mitigation tool and will not speculate; individual producers that want to take a position on the market (speculate), can do that independently outside the pool.
In a recent editorial, John Morriss said that you can run a voluntary pool without a wheat board, but you’d give up all the other things the CWB does. CWB supporters say that without the single desk, the CWB would not be able to develop markets and build customer relations, would not have a voice in grain industry policy, would not have an influence over grain transportation, nor act as producer advocate.
But let’s face it; you don’t need a wheat board with a single desk to do all these things either. What you need is an industry willing to work together toward common goals – and yet the greatest impact the single desk has had over the years is to divide and polarize the industry. Whether it’s because of the single desk itself or the culture of the community that embraces it, it doesn’t really matter. The industry will be well served by facing up to this fact when considering its future.
Everyone in the wheat industry can see how the canola industry has shown that working together is possible, through the work of the Canola Council of Canada, canola commissions and canola grower associations. If we can do it with canola, there is every reason to believe that we can do it with wheat, durum and barley.
If you’re sincere in wanting the benefit of pooling, you need to look at what needs to be done differently to make it work. I urge all involved – CWB supporters and open market supporters – to think what is needed to make voluntary pooling work.
When we were designing futures contracts at the Winnipeg Commodity Exchange, we knew that even if we designed a technically superior contract, if nobody used it, it would fail. And the flipside of that is, if people used a fundamentally poorly designed contract, it would succeed. It is completely up to the users. Similarly, a well thought-out voluntary pool will work if people use it.
If you're a producer and would like to know more about the VIP Pool, would consider participating in it (or something like it) and would like to see one offered, please send an email to email@example.com. Let me know who you are, where you farm, and what you want to see in a voluntary pool. When you think about it, what individual producers want is the best place to start.
And, as always, forward this on to all those you know that may find this interesting.
Posted by John De Pape at 1:34 AM