Viterra's Marketing Fellow Criticizes CWB

Column # 696 24/11/08

In the last week of the CWB director elections, the C.D. Howe
Institute issued a brief report arguing that the Canadian Wheat Board
does not do a good job marketing prairie grain. The main author of the
report is a University of Regina assistant administration professor,
Sylvain Charlebois.

The basis of the report was sharply criticized by the CWB. Ian White,
appointed CEO of the CWB by Stephen Harper, was blunt, "Farmers are
not well served by another report based on false assumptions and
oversimplified numbers."

In the never-ending line of studies for and against the CWB, it is
always interesting to look at the bias brought to the table by the
authors. In Charlebois' case, it is worth noting that he is not much
in favor of marketing boards of any type, having argued that Canadian
consumers and Canadian farmers are badly served by supply management.
(Supply management is a system that controls production in Canada of
dairy and poultry products, in order to allow farmers to make a decent
return from these industries.)

The C.D. Howe Institute, which commissioned Charlebois' study, is a
well-know think tank on the right wing of the political spectrum. It
has advocated for, among other things, the privatization of Canada
Post and a tax on Canadians based on their use of the medical system.

Charlebois' methodology in examining the CWB's performance is
problematic, but it may stem from a failure to understand the Board
and its function. In his opening paragraph, Charlebois describes the
CWB as "the sole buyer of Western Canadian wheat and barley". The CWB
is, in fact, a seller of wheat and barley on behalf of Canadian
farmers. Nor is the difference just a matter of language. A buyer pays
you for a product, markets it for a higher price and keeps the
difference as his margin. The CWB returns all monies from the sale of
farmers' wheat and barley to the farmer, minus selling and
administration costs.

In a brief review of some of Charlebois' other work, I found a similar
lack of care with language. In a 2007 paper on food borne illnesses,
he says, "While our food has never been safer, and is among the safest
in the world, we cannot deny that foodborne illness is a significant
public health issue for Canada. We estimate that one in three
Canadians gets sick from food poisoning every year."

But where, for an academic who should steer clear of unproven
statements, is the evidence that "our food has never been safer"?
Especially in light of Charlebois' statement that one in three
Canadians gets sick from food poisoning every year. If this is safe,
how bad would unsafe look?

In Charlebois' CWB study, he compared elevator prices in Montana to a
now defunct CWB program called the Daily Price Contract. He claims to
show that Montana farmers received better prices for grain than
Canadian farmers near the border. Problems with his methodology are
legion, but the most glaring is the assumption that American farmers
actually receive posted elevator prices. In the 2007/2998 crop year,
which Charlebois refers to, American farmers sold almost all their
wheat and barley early in the crop year, responding to what seemed
like high prices. Prices went much higher later on, largely because
U.S. farmers had no wheat to sell! Yet Charlebois assumes these prices
were achievable and fails to understand they would never have existed
if there was grain available in any quantity.

He also assumes that all Canadian grain could be sold for these
prices. In fact, only ten percent of our grain is sold to the U.S.
Eighty percent is sold to a variety of overseas markets, few of which
are as high priced as the U.S.

Charlebois' opposition to the CWB is known. Earlier this year, he
declared that, "The monopoly of the Canadian Wheat Board on the sale
abroad of barley and wheat should end. The current structure and
organization of this organization are incompatible with the economy of
the twenty-first century."

What is less well known is that Charlebois is the "Viterra Marketing
Fellow" at the University of Regina. Viterra, of course, is the grain
company that declared it would do better if the CWB were to lose the
single desk. Now the lack of rigor in Charlebois' study becomes more
interesting.

© Paul Beingessner beingessner@sasktel.net

Land Speculation Rises With New Found Wealth

Column # 695 17/11/08

I have never been a big fan of speculation, especially the kind that
drives up the price of things I need. Speculation is generally carried
out by folks with more money than they need looking for a place to
park it that will generate a bigger return than they can get in normal
investment activities. Speculators are different from investors in one
important way, though the results of their activities can often be the
same.

As I see it, a speculator is someone who jumps into a market they feel
is undervalued with the intention of making a quick buck when the
market begins to climb. A recent example would be the increase in
housing prices in Saskatchewan. Some of it resulted from the
province's economic boom, but a great deal came from out-of-province
speculators who saw the chance for a quick gain. Interestingly, if
there are enough speculators in the market, it becomes a
self-fulfilling prophecy. The attention to the market causes it to
rise, based on the anticipation of price increases.

Unlike speculators, investors might actually do something useful. A
friend of mine buys old houses, and lives in them while fixing them
up, then sells them at a profit. He is investing in the house, while
doing something to increase the value. He isn't just speculating.

Farm land prices have also risen lately, much of it based on
speculation. Rising commodity markets, especially those for food,
caused some speculators to conclude that farmland would be a good
place to park money. Higher crop prices would surely translate into
greater profitability from owning land. While this might be
pollyanna-ish, it does have the result of increasing the price of land
for legitimate farmers who wish to buy. When crop prices again fall,
the viability of the farm might come into question.

The havoc that speculation can play with farmland prices is one reason
many governments throughout modern history have restricted farmland
ownership to their own residents. While the problem in Canada might be
quite localized - restrictions have at times kept people from buying
land in other provinces - there is a whole new level of speculation
and investment occurring across the globe. This involves national
governments and private companies buying vast tracts of farmland in
other nations, in an effort to secure future and present food
supplies. Among these are China, Japan, Korea, Egypt, India and many
of the oil-rich Gulf states.

It has resulted in some strange and disturbing situations. For
example, countries such as Korea, Qatar and China are seeking land in
Cambodia to grow rice for export to their own countries. The Hun Sen
dictatorship in Cambodia is willing to oblige, while millions of
Cambodians struggle with malnutrition. Equally disconcerting, the
government of Jordan is cultivating land in Sudan to produce food to
ship back to Jordan. Sudan, of course, is home to one of the largest
and longest running famines in recent history - that of the Darfur
region.

There is some argument to be made that investment by these relatively
(and sometimes absolutely) prosperous countries will increase food
production and efficiency in less developed nations. But, depending on
the country, it is also possible that most of the benefits will accrue
to the investing nation. In the Sudan, ninety-nine percent of the land
is owned by the government, a government that cares little about a
substantial part of its population. It may simply use revenues gained
to further oppress those already in dire straits.

Private companies that see the opportunity to invest in land have
little interest in the welfare of the country that opens its doors.
There goal is to cash in on rising prices.

Furthermore, this "investment" by other countries and private
companies is aimed at moving food out of the producing countries. It
is hard to defend food exports from countries that face massive food
deficits in their own populations. It smacks of a return to the
plantation era where land and food production accumulate in fewer and
larger hands while former landowners become low paid serfs on the land
they once owned. Their own food insecurity can increase substantially.

There is an argument to be made for foreign investment in agriculture
in developing countries. But Jacques Diouf, the director-general of
the Food and Agriculture Organization at the UN thinks it is a bad
idea for foreign investors to buy a bunch of farmland. He feels it
might create a backlash in local populations that would result in a
halt to all agriculture investment. And well it might, and perhaps it
should, if the only result is to move food to countries that should be
able to pay for it on the world's markets.

© Paul Beingessner beingessner@sasktel.net

Support Our Food Providers

I can only second Paul's request that you contribute to his CWB election fund.
His election could be essential to the survival of the Canadian Wheat Board.

The Harper government, despite the refusal of Canadans once again to give it a majority government, has still not given up it's campaign to eliminate all of our social protections fought for so hard over the years such as the Canadian Wheat Board and Medicare to the not-so-benign interests of free-booter US corporations. U.S. voters in the recent election also wisely gave a decided NO to the blandishments of these same corporations to continue giving them free reign and unbridaled monetary policy powers which has led to the present US economic melt-down putting so many american workers and farmers thru a nightmare of hardship. People like Paul Beingessner are at the heart of what has made our country great.

Little Muddy

Canadian Wheat Board Elections

Hi folks,

A while back I sent you a letter asking if you wished to donate to my
CWB director election coffers. Many thanks to those of you who did so.
It is only possible to run an effective campaign because of your
support.

The election is being fought very hard on all sides. I suspect the
result will turn on a few hundred votes. For those of you in District
8, your support in getting out the vote is greatly appreciated. If you
have friends or neighbours whom you think might not return their
ballots, please give them a call and urge them to do so.

If you still wish to contribute, or had planned on it but just didn't
get around to it, there's still time! We plan to keep campaigning hard
until the end of the time period (Nov 28) as ballots continue to be
returned right to the end.

Cheques can be made out to Paul Beingessner CWB election, and sent to
Paul Beingessner, Box 74, Truax, Sk. S0H 4A0

Sincerely,
Paul


Labels: Paul beingessner

If They Love The Open Market

Column # 694 10/11/08

My neighbour Pete is a cattleman to the core. Like his father and
grandfather before him, he knows cows like the back of his hand. But
his usual smile fades a bit these days when the discussion turns to
the cattle industry. Whose doesn't? Calf prices are as bad as they've
been since the beginning of the BSE crisis, and industry analysts
claim there is no good news in sight.

If Pete were into hogs, he would likely be even grimmer, especially if
he were unfortunate enough to be a weanling producer in Manitoba. A
few months ago weanling producers were talking of having to euthanize
piglets for which there was no market. And that was before Country of
Origin Labeling was implemented in the U.S. Now that hog packers in
the U.S. know the details of COOL, they aren't much interested in
Canadian born or raised pigs. This will only get worse as the April 1
date for full implementation of the rules approaches.

You have to give it to American farmers. They worked for many years to
persuade their lawmakers and citizens that COOL was indeed a cool
idea. Industry watchers in Canada spent those years alternating
between "it'll never happen" and "watch out for this one". Don't
expect COOL to disappear any time soon either. American politics is
likely to become more protectionist in the future, not less.

Opponents of the Canadian Wheat Board's single desk have seen the
domestic American market as their fairy-tale ending for years. Higher
American prices, derived from feeding that large population, have been
the lure that has convinced some that they would be better off if they
could go it alone and beat their neighbours to that lucrative, but
limited, market. Pete has some advice for these farmers, based on his
lifetime in the cattle industry. "If these guys are so fond of the
open market, they should get into the cattle business."

His pithy statement, repeated twice for emphasis, captured a real
insight. Without access to American grain markets, the idea of an open
market for wheat and barley loses an awful lot of luster. And anyone
who thinks that access isn't tenuous hasn't been watching for the past
two decades. American grain markets have remained available to the
CWB, in fits and starts, but only because of continual legal battles
fought by the CWB.

American farmers are acutely aware that prices often swing based on
very small changes in supply. Before BSE, Canadian beef was a very
small part of the American market, yet the border closure caused
cattle prices in the U.S. to soar to record heights.

While the amount of grain we send to the U.S. is small compared to
American production, its absence would no doubt cause their prices to
rise, as millers would have to scramble to find the high quality wheat
that is in short supply there. Most CWB wheat and durum moving to the
U.S. now goes down in rail cars, directly to mills. An open market
would see an influx of grain trying to move by truck into American
elevators when prices were high. Of course, that is also when American
farmers are trying to deliver into a constrained system. The visual
effect on American farmers would be powerful.

It took a long concerted effort to limit Canadian hogs and cattle
exports to the U.S., but for their farmers the taste of victory is
sweet. You can expect our herds to contract to a far greater extent
that theirs because of it.

You can also expect American grain farmers to continue to push in
every way possible to keep Canadian grain out. Up until now, farmers'
greatest defense has been the money they've spent through the CWB's
court challenges. Changes to the CWB's mandate would end such efforts.
The transnational grain companies that will control the Canadian grain
trade in that event have little interest in keeping the American
market open, since they get their pound of flesh no matter where our
grain ends up.

Pete knows that. That's why he says we need the CWB.

© Paul Beingessner beingessner@sasktel.net

Lies Someone Told Me

Column # 693 03/11/08

Of all the lies told about the future of the CWB if it loses its
monopoly, one of the biggest is the idea that producer cars and short
line railways will somehow survive this sea change. They won't. At
least not the ones in Saskatchewan, which is home to all the short
lines that exist on grain dependent branch lines. There are, in fact,
seven of these. They are the Great Western Rail, Southern Rails
Cooperative, Red Coat Road and Rail, Fife Lake Railway, Wheatland
Railway, Thunder Rail, and Torch River Rail.

Other short lines on grain dependent branch lines operated for a time
in Manitoba and Alberta, but eventually failed. The striking
difference was the fact that the railways that failed in
Saskatchewan's sister provinces were owned by private investors. The
seven short lines in Saskatchewan are all community owned. And, while
they do move other traffic, all are heavily dependent on producer cars
for the majority of their traffic.

The short lines in Saskatchewan started life as attempts to retain
grain handling options for farmers. They were seen as means to an end.
Maintaining the railway would not only allow farmers the option of
loading producer cars, it would also allow for the possibility of
other economic development initiatives in the community. Alberta's and
Manitoba's grain dependent short lines were started and owned by
private investors wanting to make a buck. Without a substantial grain
elevator presence, which the short lines do not have, there is no buck
to be made owning a grain dependent short line.

There may be, however, survival, if the short line attracts enough
producer cars and other traffic to pay the bills and maintain the
track. While it has been a tough business, the older short lines,
Southern Rails, Red Coat and Great Western, have been able to do just
that. They have also succeeded to some extent in the economic
development game. Red Coat garnered a rail car repair facility,
Southern Rails gained a pulse processor, and Great Western operates
its neighbouring short lines - Red Coat and Fife Lake. The latter has
a kaolin mine.

But producer cars remain critical to their survival, and survival is a
year-to-year thing. Producer cars themselves depend entirely on the
CWB. Ten or twelve thousand producer cars of CWB grains move each
year, mostly from short lines. Though farmers grow millions of tonnes
of canola, peas, flax and lentils in Saskatchewan, virtually none of
these move in producer cars. Nor will they, since the grain companies
that control these crops don't want to lose the lucrative handling
charges they make by moving them through their country elevators.

With the CWB, producer cars work for two reasons. One is price
pooling. Price pooling works because the CWB has a monopoly over
export sales of wheat and barley. Its overwhelming position in the
market means it makes sales year round, into all available markets.
This allows farmers to have confidence in a pooled price. Without the
single desk, the CWB's dominance disappears, as it has to rely on its
competitors to handle grain for it both inland and at port. Its sales
would be limited and price pooling would be a scary prospect for
farmers who wouldn't know how large or small the pool might turn out
to be.

The second reason producer cars work now is the CWB's ability to take
part in the railways' car ordering systems. Small blocks of cars have
a low priority for the railways, but the CWB's size gives it
flexibility to allocate cars to producers. Without the CWB, a farmer
wanting to load his own car could still get one, if he could find a
terminal that would take his grain and allow him the advantage
producer cars currently allow (not something they do now). But he
would get that car at the railway's leisure. This is not a happy
prospect for someone selling into a spot market that needs timely
delivery.

Without a dominant CWB, producer cars might exist in theory. Their
practical use would be almost non-existent. And without virtually all
the producer cars they now obtain, short lines would rapidly fail.
Their debts and high track maintenance costs would ensure this. And
with them would go other community investments on their tracks and any
future economic prospects that depend on rail. That, sadly, is an
economic certainty.

© Paul Beingessner beingessner@sasktel.net