The Canadian Wheat Board will succeed in an open market, predicts president and CEO Ian White.
“I’ve got no doubt we can run a viable business,” White said in an interview in his office last week. “We hope it will be profitable in its first year. That’s what we’re targeting.”
The board always said the single desk was its main advantage, but White listed several other factors that he said would give it an edge, including its long relationship with Prairie farmers and international grain buyers, its pooling experience, and government-backed initial payments and borrowings.
With the board’s 69-year-old sales monopoly due to end Aug. 1, unless the courts overturn government legislation, how can it now claim it can benefit farmers in an open market?
“There’s no question in my mind that there was value in the single desk when you had a statutory environment,” White said. “In a commercial environment that doesn’t mean that you can’t actually have an effective business that operates for farmers in a different way… I think that’s entirely possible as we’re attempting to show now.”
Reaching grain-handling agreements with Western Canada’s country and port terminal operators is key to the board’s success, and White said deals are expected soon. Given the uncertainty of the new open market, he predicted many farmers will pool some of their grain through the board. Meanwhile, grain companies wanting to maximize throughput will handle grain for the board, said White, adding he is seeking handling deals with all the companies so farmers anywhere in the West can easily sell to the board.
Short- and long-term pools
The board will announce details of its wheat-, durum- and barley-marketing options this month. There will be short- and long-term pools, contracts linked to future prices and cash prices, White said.
However, single-desk supporters aren’t convinced the future will be rosy.
The board might work out suitable handling arrangements in the short term, but over time its grain company competitors will grab market share by offering less attractive terms to the board, predicts former wheat board director and Kane farmer Bill Toews.
“In the long run, the relationship (between the board and farmers) will get poorer because they just don’t have the leverage to provide something better than what the (grain) companies will provide,” he said.
The board has professional, competent staff, including White, who will do their utmost to make a voluntary board succeed, said Toews, but added the deck is stacked against it.
Not so, according to White. Government-guaranteed borrowings and initial payments for five years, plus working capital from the board’s contingency fund, will help a voluntary board get on its feet.
“So it’s not as if we’re just being cut loose to survive without any advantages,” White said. “We have the advantage of a period of transition.”
Using the board’s contingency fund of up to $200 million to bankroll the new board is a sore point with Toews and seven other former directors. They contend the fund, along with other board assets, including its Winnipeg office and 3,200 rail cars, were earned through the single desk and belong to farmers. The government should distribute those assets to farmers and then use government money to kick-start the new voluntary board, he said.
“It’s the equivalent of a hostile takeover of the single desk and its assets,” Toews said. “It’s just wrong.”
Eventually the wheat board, which is now a government agency, will be privatized and farmers’ assets will be transferred to an existing grain company that buys the board or the shareholders of a new company, said Toews, adding he doubts the board will morph into a farmer-owned co-operative.
Elevators main source
The board wants to work with producer car shippers and short line railways, but expects most of its grain will be shipped through elevators, White said.
“I think the selling feature that we have is we have a great amount of experience and knowledge and expertise in marketing and running pools,” White said.
Despite the increased risk of pools exposed to an open market, the board expects to top up initial payments using tools such as options, White said.
Farmers will be contracted to deliver specific volumes to the pools so the board will know how much grain it has to sell, he said.
The board is also talking to its customers.
“We have a very good understanding of what each of them wants to do,” White said.
The board’s sales offices in Beijing and Tokyo, which service customers throughout Asia, will remain open.
The board has laid off 23 staff since the Marketing Freedom for Grain Farmers Act became law in December. A few others have left on their own, and more staff cuts are looming, said White, adding the board is working to keep key employees and, so far, hasn’t lost any sales people.
“A lot of our marketing people are long-serving people who… have a lot of allegiance to this organization,” he said. “We expect to be showing them a good business plan going forward that they want to be part of.
“We think we can create a fairly exciting environment for them here that they’ll want to stay.”
Severance and pension costs are covered by the federal government, as will be windup costs should the board not be privatized after four years, he said.
White said it’s too early to tell if the pending open market has eroded the prices for Canadian grain.
“I think there will be more competition in some markets for the Canadian product,” he said. “The question will be whether that translates into lower prices and I don’t think we can tell that yet.”