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Published February 10, 2014, 09:12 AM

Canadian Wheat Board privatizes

The Canadian Wheat Board, for decades a powerhouse in North American agriculture, is gone. In its place is the still-evolving CWB.

By: Jonathan Knutson, Agweek

The Canadian Wheat Board, for decades a powerhouse in North American agriculture, is gone. In its place is the still-evolving CWB.

Whether that’s good or bad, or somewhere in between, depends on who you ask. What is clear is that agriculture on the Canadian prairies — and on the Northern Plains in the U.S. — will never be quite the same.

“We’ve had to shift our thinking, shift our mindset, to compete in the open market. We’ve done that,” says Dayna Spiring, chief strategy officer with CWB in Winnipeg, Manitoba.

Officials on both sides of the border agree that the bumper 2013 Canadian grain crop complicates a realistic assessment of the transition.

Marketing so much grain would be a challenge for any organization, regardless of its structure, say Canadian and U.S. officials who talked with Agweek.

But observers say they think the transition has gone relatively well.

“So far, at least on the surface, it’s been pretty smooth,” says Frayne Olson, crops economist and marketing specialist with the North Dakota State University Extension Service.

Shannon Schlecht, vice president of policy for U.S. Wheat Associates, which promotes U.S. wheat exports, says his organization “hasn’t seen too many hiccups arise” in the transition.

He also thinks U.S. producers and international customers are better off.

U.S. officials note, however, that the bulk of the transition, which began about 1½ years ago, is yet to come.

“There will be more growing pains ahead,” says Bing Von Bergen, a Moccasin, Mont., farmer and president of the National Association of Wheat Growers.

One other thing is clear, too.

Farmers on the Canadian prairies and the Upper Midwest raise the same crops, with the commodities they grow often competing for markets. So what happens at CWB will continue to draw strong interest on both sides of the border.

What’s changed?

For decades, the Canadian Wheat Board was the government-mandated sole buyer and seller of wheat and barley from the western provinces. Rather than selling their grain independently, Canadian farmers delivered their grain to the Canadian Wheat Board, which set a fixed price for the grain.

To its supporters, the set-up helped give Canadian farmers a collective clout they lacked individually.

To its opponents, including U.S. agriculturalists and conservative Canadian politicians, the arrangement distorted the free market and clouded “transparency” in export markets.

“Personally, I’m glad it’s gone,” says Doug Opland, a Des Lacs, N.D., farmer and president of the U.S. Durum Growers Association.

Both Canada and North Dakota are major durum producers.

One example of the criticism:

Under the old system, the Canadian Wheat Board sometimes “overdelivered on contracts,” says Jim Peterson, marketing director of the North Dakota Wheat Commission.

For instance, the old Canadian Wheat Board might send a customer a shipment of spring wheat with a higher protein content than specified in the contract, without charging the customer extra for the higher quality. Though customers liked the practice, it put competitors’ grain at a disadvantage, Peterson says.

On Aug. 1, 2012, after years of criticism both at home and abroad, the Marketing Freedom for Grain Farmers Act ended the government-mandated role and left the CWB as a voluntary organization.

Now, CWB is in a five-year transition period from a state enterprise to a private company. If CWB isn’t financially viable at the end of the five years, it will be dissolved.

CWB says

Officials with Winnipeg-based CWB say they’ll meet their deadline with plenty of time to spare.

CWB officials, in press releases and other media statements, consistently describe their organization as “farmer-friendly” and “farmer-focused,” and one that’s totally committed to privatization.

Spiring had the same message in a telephone interview with Agweek.

“We value farmers. We value their input. We want farmers to play a role going forward,” she says.

To further that role, western Canadian farmers will receive $5 worth of equity in the privatized CWB for each metric ton of grain they sell through CWB in the 2013 to ’14 crop year.

CWB isn’t saying how much grain it handles.

For now, CWB has agreements with grain handling companies in western Canada. CWB values those agreements, but realizes not all can be sustained over time, Spiring says.

So, the organization plans to build a “network of assets” that will include its own elevators in western Canada and allow it to move grain to both the East and West coasts, she says.

CWB will build the network through handling agreements, purchases, building and investing, Spiring says.

In November, CWB bought the grain handling assets of Upper Lake Group. One of those assets was Mission Terminal Inc., in Thunder Bay, Ontario.

In January, CWB purchased 10.2 percent of the shares of farmer-owned Prairie West Terminal Ltd. Prairie West has five west-central Saskat-chewan locations, more than 30 employees and handles more than 420,000 metric tons of grain annually.

Previously, CWB, through Mission Terminal Inc., a wholly owned subsidiary, owned about 2 percent of Prairie West Terminal.

CWB has a very good idea, internally, of what the network ultimately will like look, she says.

“We’re honing that as we go,” she says. “When appropriate, we’ll announce pieces of that plan publicly.”

Proud of what it’s done

The old Canadian Wheat Board had 400 people who worked in a nonprofit environment.

CWB has about 100 employees, as well as 90 more at its recent acquisitions, who operate much differently, Spiring says.

“We’ve had a group of people who have been able to adjust their thinking and run a for-profit grain company very successfully from year one,” Spiring says.

The organization continues to offer a range of marketing programs, including pooling, for a number of crops.

Pooling reflects an average price of sales over an extended time period across a number of geographic markets, rather than a specific day’s price in a specific market.

Proponents say pooling reduces price risk. But others say many producers want marketing alternatives that outperform the pool price.

Some like the change

Levi Wood is among the Canadian farmers who welcomed the end of the old Canadian Wheat Board.

Wood is a Regina, Saskatchewan, producer and president of the Western Canadian Grain Growers Association. The organization, a longtime critic of the former Canadian Wheat Board, stresses the need for “open and competitive markets, innovation and investment.”

Wood says the transition at CWB “has been pretty smooth. It will take time before we see all the results.”

Wood grows wheat, canola and other oilseeds. Because he was accustomed to marketing crops other than wheat, “adding wheat to my marketing isn’t a big leap of faith at all,” he says.

Other farmers on the Canadian prairies generally are accustomed to marketing non-CWB crops, too, he says.

Canadian farmers have plenty of options, including working with major grain companies, in marketing their wheat, Wood says.

“The real crux of the issue is that you’re able to make your own decisions. With the wheat board, our hands were tied,” he says.

Under the old system, farmers too often had to sell their non-CWB crops before they wanted to because of cash-flow needs. Now, with farmers able to time sales of wheat, too, producers have more flexibility in meeting cash flow, he says.

Wood says he and his organization were “against the (Canadian Wheat Board) monopoly. We were never against the wheat board or the people who worked there.”

Farmers who like the CWB’s pooling process can still participate in it, he says.

Some dislike it

Some supporters of the old Canadian Wheat Board say they’d be better off under the former model.

One of them is Bill Toews, who raises wheat, soybeans, flax and canola near Kane, Manitoba, a few miles north of the North Dakota border.

He acknowledges that some Canadian producers approve of the change.

“You’ll find farmers who say it’s great, that they have freedom now,” he says.

“But I’d say the freedom we had under the single desk (previous Canadian Wheat Board system) was vastly superior to the freedom of running around the country trying to find someone who will pay a few cents more per bushel,” he says.

Legal action involving the transition continues.

The Friends of the Canadian Wheat Board, a coalition of farmers and other Canadians, filed a $17 billion lawsuit against the federal government. In November, a Canadian court struck down parts of the lawsuit. In January, the Friends of the Canadian Wheat Board said it will appeal that ruling and seek to have all its claims reinstated in the lawsuit.

Other assessments

There seems little, if any, possibility that the old system will ever return.

“There’s no going back,” says Earl Geddes, CEO of Canadian International Grains Institute. The Winnipeg-based nonprofit organization promotes Canada’s field crops internationally and domestically.

“Once you’re out of it (government involvement), you’re out of it, period. Growers understood that,” he says.

Assessing the still-evolving system in place now is difficult because of Canada’s drought-damaged 2012 crop and its bumper 2013 crop, Geddes says.

“If you poll people, you’ll get both bad and good comments. I think it’s just different, mostly,” he says.

But the new model provides more pricing flexibility and “makes it easier to get (Canadian grain) into foreign markets,” he says. “You’ll move more grain.”

As to whether “net income per acre on a farm goes up or down, it will be some time before anyone can make that analysis,” Geddes says.

Peterson, with the North Dakota Wheat Commission, says changes at the CWB are encouraging, but that it’s too soon to assess their long-term impact.

US commodity groups

Several U.S. commodity group leaders are keeping a careful watch on developments north of the border. They say they haven’t seen anything alarming.

Changes at CWB haven’t had much effect on U.S. barley growers, says Doyle Lenz, a Rolla, N.D., farmer and chairman of the North Dakota Barley Council.

North Dakota, Montana and Idaho are major barley producers, as is Canada.

In the U.S., barley increasingly has become a specialty crop, one that’s grown under contract. As a result, U.S. companies generally contract to buy malting barley for beer from American farmers, lessening the role of potential Canadian barley exports, Lenz says.

CWB changes have had only a limited impact on U.S. canola growers, says Barry Coleman, executive director of the Northern Canola Growers Association in Bismarck, N.D.

North Dakota is the dominant U.S. canola producer. Canada is the world’s leading producer and exporter of canola, a contraction of “Canadian oil, low acid” — or can o a.

Even before the CWB changes, Canada supplied most of the canola used in the U.S. That hasn’t changed, and U.S. buyers want canola regardless of where it comes from, Coleman says.

South Dakota, though a major wheat producer, isn’t as affected by the CWB as states along the Canadian border, says Randy Englund, executive director of the South Dakota Wheat Commission.

Nonetheless, wheat producers in his state are watching the CWB transition, he says.

US questions

U.S. officials who talked with Agweek say they’re following a number of issues as the CWB transition continues. Their questions include:

• What level of access will U.S. grain have to Port Metro Vancouver, a major Canadian Pacific port in Vancouver, British Columbia? What level of access will Canadian grain have to U.S. ports in the Pacific Northwest?

The ability to export grain out of ports in both countries would help both the United States and Canada when their own Pacific ports are particularly busy, officials say.

• What barriers will Canada maintain to U.S. grain?

Currently, according to U.S. Wheat Associates, Canada’s grain grading system applies only to grain produced there, and an official grade isn’t allowed for U.S. grain. Also, Canada has a link between its variety registration system and the class of wheat that it’s graded at. So unless U.S. wheat is registered in that class, it can’t be delivered into that class, U.S. Wheat Associates says.

“The border is open, but it’s more open to Canadian farmers than U.S. wheat farmers at the moment,” says Steve Mercer, vice president of communications for U.S. Wheat Associates.

“Right now, it’s a one-way street,” Von Bergen, the National Association of Wheat Growers president, says of cross-border grain movement.

• If U.S. grain prices are more attractive than Canadian prices, will Canadian farmers near the border take their grain to elevators in the northern U.S.?

U.S. officials say some of that’s happening now, although it’s difficult to judge how much.

By all accounts, U.S. and Canadian grain industry officials talk regularly about issues related to the CWB transition.

“We have conversations all the time,” Von Bergen says.

He’s optimistic that U.S. and Canadian wheat officials will work through their differences.

Von Bergen also recommends patience.

“We think this will get done. But it will take time,” he says.

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