You could say a lot about the federal government’s process for ending the Canadian Wheat Board’s single-desk monopoly this week, and many have. But you have to admit Gerry Ritz’s timing was impeccable. Or rather, he lucked out.
With commodity prices soaring due to the fiercest drought to grip the U.S. in more than half a century, Prairie farmers are also looking at a bumper crop that is likely to boast high quality as well.
There are lots of anecdotal reports of grain buyers showing up in farmers’ yards to offer grain prices that just a few short years ago, were unimaginable. Unlimited delivery opportunities have been promised.
Most farmers are sophisticated enough to understand this scenario is purely coincidental to the end of the single desk. But by the same token, in times like these, who needs it?
It’s the kind of market that makes a voluntary pool a tough sell, even though recent history showed that during the last market run-up in 2008, farmers did better marketing through the board than they did on the open market. Many of the farmers who used the board’s producer payment options that year priced out their grain too early and missed the peak. The farmers who were in the pool captured the full rising market.
It’s not that the Conservatives can claim any prowess when it comes to luck when it comes to making painful policy changes at a time when farmers are least likely to complain about them. Liberal finance minister Paul Martin and then-agriculture minister Ralph Goodale had similar good political fortune when they axed the Crow Benefit in the 1995 budget, pulling an estimated $800 million out of the Prairie economy in one swoop. Grain prices had spiked and farmers barely noticed the extra cost of shipping their grain to export, at least not at first.
What followed was a rapid adjustment as people tested out the assumptions of what would happen once export freight rates were no longer subsidized.
Some of those assumptions proved out, such as diversification into higher-value crops. Others didn’t, such as the notion that land prices would fall or that the livestock industry would benefit from an abundance of cheap feed grains.
The livestock sector found out grain farmers weren’t prepared to continue growing feed crops that sold for less than their cost of production, just to keep costs down for the livestock feeders. It was mighty unneighbourly of them, if you ask us, but in the face of a host of more lucrative crop-rotation options, you couldn’t quibble with their economics. The hog sector quickly became dependent on U.S. corn.
In both hogs and beef, production capacity expanded more rapidly than did market development, and both industries have suffered greatly due to their dependence on the U.S. market.
We expect there will also be a similar period of adjustment in the wake of “marketing freedom,” which has been estimated will come at a cost of $500 million. Given that the federal government has already put nearly $350 million on the table to help the new board make the transition, those estimates aren’t far off.
But what is done is done. The grain-handling co-ops are gone and the wheat board, at least as we knew it, is gone. Nearly a century since efforts began to win farmers some collective clout in grain handling and marketing, they are back to a system in which they operate as individuals.
Given that farmers were unable to hold the Pools or the wheat board together to compete with the big guys in the grain business, it came as a bit of a surprise to hear that some have decided to take on Cargill, Agrium and PotashCorp by investing in a co-operative fertilizer-manufacturing plant planned for the Northern Great Plains. The venture, hoping to take advantage of seemingly abundant, cheap, local supplies of natural gas, is seen as a way to give farmers some control over rising production costs.
A farmer-owned fertilizer plant might not sell for less than the going rate, but at least the farmer investors might get a dividend cheque in the mail to help pay their fertilizer bill.
“It seems like a bit of an opportunistic approach that manufacturers have taken, so a co-op seems like the perfect opportunity for Manitoba farmers,” Keystone Agricultural Producers president Doug Chorney told a reporter.
The co-op structure will give farmers an opportunity to play a bigger role in controlling the market dynamics for fertilizer in the northern plains, Chorney said.
What will farmers think of next? Owning their own grain companies?