Monday, November 21, 2011
An account on the CWB’s books meant to back-stop the Producer Pricing Options (PPOs) has become a political football.
To offer farmers the Producer Pricing Options (PPOs), the CWB needs the ability to weather some risk. The contingency fund is a separate internal account of the CWB where gains and losses in these programs are accounted for separately so they don’t impact on the pool accounts. According to the CWB, “Surplus earnings from risk-hedging activities are deposited into the fund. This becomes a cushion against potential hedging losses in other years.”
However, the contingency fund has limitations; at each year end, it cannot exceed a pre-set maximum balance. In the event that non-pool activities of the CWB – things like PPOs, cash trading, and so on – leads to a greater year-end balance than the maximum, the CWB must distribute the excess funds to farmers – either those participating in the PPOs or the pool accounts. This has only happened once; in 2005, income from the PPO programs (after paying farmers what they had contracted for) would have put the contingency fund over the $50 million limit. That year, to comply with the limit, the CWB moved over $5 million to PPO participants and $7.5 million to the pool accounts, taking the balance down to $48.6 million, just under the $50 million limit. Following that event, the Fund limit was raised to $60 million – until recently.
In March of this year the CWB board asked Ottawa to raise the limit once again; the PPO program was quite large and the market has been quite volatile, leading CWB management to take a larger risk discount from the prices paid to farmers than usual (making prices to farmers lower than they otherwise would be), which, in turn has led to a growing forecast of the balance in the contingency fund. Ottawa agreed and in early November raised the limit to $100 million. Since then, it’s reported the limit will be raised to $200 million.
And this is where the mayhem begins.
In the Globe and Mail, Stewart Wells, a farmer-elected CWB director, said “They are expropriating money from farmers to use to float the grain company that Gerry Ritz is creating”, he said. (Is it just me, or does it seem hypocritical for the CWB board to request increases in the limit and then criticize the government for increasing the limit - for giving them what they asked for?)
Messrs. Goodale and Easter took the argument to Twitter where I had the following “conversation” with them (not all dialogue shown):
De Pape: Why don’t you guys mention that it was the CWB directors that asked to increase the Fund limit?
Goodale: They asked months ago for $100M, not $200M, and for mkt security reasons, not to pay for killing the single desk.
Easter: Not to $200 million. Ritz did that all on his own. He loves playing with farmers money to protect his friends.
De Pape: What makes you think the 2nd $100M is to kill it?
Goodale: Actually, government hiked the amount by 100pct, took control over the fund and thus diverted farmers money to fund killing the single desk.
De Pape: CWB asks for $100 limit, but needs even hier limit – Ritz makes it $200. What’s the right nbr?
Easter: Farmer elected directors abiding by oath have a responsibility to farmers. Who is Ritz working for?
De Pape: Stop being a politician for a moment – don’t change the subject. What should Ritz have done? What’s the right nbr?
Goodale: There is no “right number”. CWB’s contingency fund should not be misappropriated to pay for killing the single desk.
De Pape: “Misappropriate” is the same as “steal”. Ritz retracted. Will you?
(At this point, Mr. Goodale stopped “conversing”.)
Easter: In my view, none of the CF (contingency fund) should be transferred (to the new CWB). Was set up under the old board for new options. Old system should pay out.
De Pape: Who do you pay it out to then? Fund was established to provide value to all farmers – should continue to provide value to all farmers.
Easter: Should be paid out across the pool accounts that were at risk.
De Pape: Pool accounts were never at risk. The Fund was set up so gains & losses in PPOs wouldn’t impact on the pool accounts. Try again.
Easter: I recognize that but pay it across the pool accounts.
De Pape: What would you suggest if the Fund was in deficit? Should losses be covered by pool accounts?
Easter: It’s great we don’t need to worry about that because the current wheat board did such a great job.
De Pape: 3 yrs running (06 to 08) CF (contingency fund) had yr end deficits. Bad enough that $25 million was “borrowed” from the pools. Net on (PPO) operations by 2008 was $100 million loss.
Easter: Your figures don’t make sense.
De Pape: My figures come straight from CWB annual reports.
And that was it (so far). Goodale’s “misappropriation” shot at Minister Ritz is still out there – unretracted – and Mr. Easter has yet to make sense of the actual PPO results.
Additionally, Mr. Goodale’s blog states: “Rather than distributing that money to farmers, where it belongs, the Conservatives quietly passed regulations this fall giving themselves effective control over that cash.”
I called Minister Ritz’s office to see if I missed this new regulation. Turns out Mr. Goodale is wrong; there was no regulation passed this fall regarding the contingency fund. Perhaps he was thinking about the Oct 18th Order In Council which directs the CWB to ensure profits or gains from non-pool activities are credited to the contingency fund. Although Mr. Goodale suggest this gives the government control over the funds, in reality it just removes any discretion the board may have had over the funds.
Now put that together with Minister Ritz’s comments in Question Period: “Mr. Oberg continues to waste millions of dollars of farmers’ money on his own personal political agenda. Since it is unclear what additional liabilities he will leave behind with his scorched earth policy, we have taken this prudent step.”
It seems Mr. Ritz is concerned how the board of directors is spending farmers’ money.
In March, the board of directors asked for an increase to the fund’s upper limit; a prudent move. In October, the government issues a directive to the CWB to ensure the money that should go to the contingency fund actually goes there. They follow that with an increase to the upper limit of the fund beyond what was requested to effectively “make room” for the money being generated. The eight elected directors realize that means they don’t have full discretion over the loose change of the CWB anymore and screams injustice.
Why the liberals are opposing this is no mystery. To them this is just politics. If they can make the government of the day look suspect and dangerous, it serves their purposes much more than it serves farmers. And that’s a shame.
Regardless of what you think the ultimate distribution of the funds should be, it is clear that the government acted prudently to reign in the current board of directors, which has stated that it will use “all resources at its disposal” to stop the government. Looking at what they’ve spent already, there’s no telling what they would have done with access to the contingency fund money.
The dollars being argued about – the $100 million or the $200 million - are just the upper limits of the contingency fund. Even though the liberals talk as though they are hard numbers – real cash - the actual balance at the end of July 2012 could be much smaller (even a deficit, although I highly doubt it).
The CWB board asked for an increase to the upper limit, and then changed their minds. We need to ask why.
If the board wanted any excess income in the contingency fund to go to farmers (as they are saying), they wouldn’t need to increase the limit. They only need to increase the limit to keep the money in the contingency fund. Why did they change their minds?
Posted by John De Pape at 2:28 PM
Tuesday, November 8, 2011
The grain marketing universe is unfolding as it should for the federal government, the three most western provincial governments, Western Canadian agri-business of all shapes and sizes, and the thousands of farmers looking forward to entrepreneurial freedom. However, the wheels are falling off the efforts of single desk supporters, leading to what appears to be desperation.
Take the recent CWB Alliance news release; it is so absurd I thought it was a joke when I first read it. It is so farfetched, it smacks of desperation as it attempts to make the loss of the single desk seem scary to the general public by saying that the quality of Canadian food will drop and the price will go up with the loss of the single desk. The logic they use is utterly ridiculous. To be fair and not misrepresent it, the following is taken directly from the CWB Alliance news release called “End of wheat board means end of local food”:
"Without the Wheat Board human food processors will be free to import lower quality grains from the United States and Eurasia which are not subject to our high quality standards and blend them with local grain. These foreign grains are not grown from our own publically funded and developed varieties and many of them are grown in the heavily polluted lands surrounding the Chernobyl nuclear plant in the heart of Eurasia’s wheat belt. A lot of Europe’s grain is cheap because it is heavily infested with fungal diseases. In fact a lot of Canadian durum wheat now goes into Europe to blend off fusarium infected local durum. Without the Wheat Board this trade could well be reversed.”
First, "human food processors" in Canada are already free to import grains from whomever they want, including the US or "Eurasia". Always have been. In fact, Canadian food processors import from the US as market conditions allow. Suggesting that without the single desk, these companies would suddenly change their buying behaviour, shows the CWBA doesn't understand that the CWB has no control over imports.
Second, to promote the idea that Canadian companies would any time soon import wheat from the fields around Chernobyl is so ludicrous and so farfetched it can serve no purpose but to inject fear. Why pick Chernobyl? The major wheat production and exporting area in Eurasia is the EU-27 (which does not include Ukraine, where Chernobyl is located). They picked Chernobyl because they would like you to imagine eating bread made with radioactive, fungus-infested wheat; what could be worse?
According to the CWBA, US millers already go for the cheapest wheat. So, if wheat from Chernobyl is so cheap, why aren't the American millers importing it now? They don't because they buy local North American wheat because of the quality and price.
The CWBA just doesn’t get it. The consumer is driving the bus when it comes to food quality. I suggest that the they attend the upcoming Canadian Food Summit 2012 in Toronto where, among other things, “Galen Weston will discuss how more Canadians are recognizing the importance of a healthy diet, and how Loblaws supermarket chain and other organizations are leading and responding to this trend.” And how do you think they’re responding? With high quality, nutritious foods; if they don’t, they can pack up their tent and go home. Same goes for anyone supplying raw materials to them.
This idea of wheat coming from Chernobyl has no basis in reality and is only used as a scare tactic. I just did an internet search and found not one news outlet used the CWBA release in a story; seems they saw right through it too.
The CWBA should be ashamed.
The CWBA also believes the CWB gets premiums from domestic millers and that once the single desk is gone, millers will pay less. So, if true, once the CWB is gone, Canadian wheat will be even cheaper, making it even more attractive to domestic buyers. Importing wheat from half way across the world already doesn’t make sense and, according to the CWBA, it will only get less attractive. (Tell me again how wheat from Chernobyl will compete into Canada…)
I noticed on the CWBA Facebook page there is link to the CWBA Chernobyl news release. And, since you can leave comments, I did. I explained in detail how the CWBA release is factually wrong and incredibly misguided. I explained how wheat processing in Canada works now and showed how that wasn’t going to change because of the loss of the single desk. My posts were there for less than half an hour before the CWBA removed them and banned me from making further posts. So not only do they want to spread their form of warped propaganda, they don’t want their followers to know the real facts, or even enter into a reasonable debate or sharing of facts. I find this disgraceful.
And then there's Andrew Dennis, farmer from Brookdale, MB, who, in a video on the CWBA website says:
"...even for urban people, this is going to be that 2 or 3 hundred dollars a month food price increase that could be pretty harmful if this moves corporate.”
Where do they get this stuff!? DiscoveryFinance.com estimated the average monthly grocery bill in Canada is somewhere around $244 per person. With the average family size at 2.5 persons, this means the average family spends around $600 per month. Does he really think that the typical food bill will increase by 50% once the CWB is gone? C’mon, really?! This argument reminds me of a quote by Foghorn Leghorn (the rooster from the Bugs Bunny Show): “That’s mathematics, son! You can argue with me but you can’t argue with figures!”
I hope this disingenuous approach doesn’t get worse – at the same time I fear it will. Although more and more farmers and media appear to see right through these antics, there is no sign that it won’t increase along with the level of desperation.
I wonder if the CWBA, the NFU, the friends of the CWB, the eight remaining farmer-elected board members, the CWB media relations team, and members of the CWB-supporting media would ever agree to meet with other analysts and observers – like myself and others – and review all the “facts” being presented in an effort to finally put the misguided arguments behind us.
I’d do it in a flash.
Posted by John De Pape at 1:43 PM