Hemp growers say they are getting a raw deal on contracts after being asked to accept a lower price than initially agreed.
In late 2017, growers contracted by Fresh Hemp Foods (an umbrella company including Manitoba Harvest) received a letter asking them to adjust contract prices. The letter blamed market pressures for the move, including downward price pressure from an influx of cheaper hemp from places like China.
Why it matters: The hemp industry is celebrating relaxed regulations under the Cannabis Act, but contracting issues form a darker counterpoint on the status of the hemp industry.
“The encouragement to growers is for your assistance in correcting hemp seed costs in the supply chain for 2017 crop inventory and allow our supply chain to increase sales velocity at the broad range of retailers we work with,” the letter said.
Farmers who agreed to the lowered price were promised first take on 2018 contracts, quicker movement on 2017 grain and seed discounts. The initial price would be honoured for farmers who didn’t agree, the company said, but added that, “movement will be after discounted product is completed.”
Some farmers now say they felt strong-armed by the move, and felt they had little choice but to accept the lowered price, or risk future contracts.
Chris Dzisiak, chair of the Parkland Industrial Hemp Growers, says that companies have overcontracted acres, creating an oversupply and pushing down prices.
“The market’s thin and the companies that were selling seed weren’t worried about overproduction. They were just worried about selling as much seed as they could,” he said.
The co-op he heads up endeavours to have its grain used up year to year, Dzisiak said. At the same time, several buyers had yet to claim their contracted 2017 crop, the co-op reported in July.
The co-op significantly cut production this year and also had to raise the prospect of shifting terms as it scrambled for new buyers.
As of mid-November, the co-op had moved all its 2016 grain and was working through its current harvest supply.
“It hasn’t gone smoothly. It hasn’t gone to plan,” office manager Clare Dutchyshen said. “But, on a case-by-case basis, we’ve been able to go to each farmer and say, we can move your load on ‘these’ terms now or you can wait and move it at a later date.”
The Canadian hemp market is still reeling from encroaching international competition and the sudden downturn of South Korean demand — a market that flared suddenly from 2015-16 and cooled just as abruptly as hemp from other Asian countries started to move in.
Clarence Shwaluk, farm operations director with Fresh Hemp Foods, says about half of their growers agreed to lower price on at least some of their contracted grain. The lowered price reflected the “new normal” in the market, he said, and the company is currently contracting in the mid-50-cents-per-pound range, down significantly from over 70 cents a pound at the market’s peak.
“It wasn’t easy to go to the growers and say that we’re going to be in a tough spot,” Shwaluk said. “We basically went out and we asked for help. We didn’t demand that prices had to change, but we said, ‘If you’re able to help and you’re able to see the bigger picture, that we can co-operate and work on these markets together, then let’s try to work on something.’”
The same letter announced a marketing push from the company in an effort to bolster retail sales.
The crop is going through growing pains as it makes transitions from specialty crop to a more globally traded commodity, both Shwaluk and other industry experts argue.
The company is currently buying the last of its 2017 contracts, those that opted out of the price adjustment, at the honoured price, Shwaluk added.
“In the end, we were able to maintain markets,” he said. “We were able to continue to meet expectations from our buyers and be competitive in the marketplace and it did help us out in a way that continues to move product for us even today.”
Darren Czarnecki, however, says his contracting issues started well before 2017.
The producer from Gilbert Plains agreed to grow hemp for Fresh Hemp Foods in 2015, but says the company did not arrive to take possession of the grain for two years and was then reluctant to take the grain, citing quality issues.
Czarnecki, however, argues that the two-year delay contributed to those quality issues. The company ended up only taking two of three loads, he said, and the experience turned him away from both the company and hemp in general.
“They’ve got to have some skin in the game,” he said. “They can’t go around making all these contracts and never having any obligation to take the stuff. I would like to see, in the contracts, after ‘so’ long a time, they take some responsibility for the stuff.”
Growers do have other options to market their hemp grain, he admitted, but argued that, in practice, contracts from other companies would be largely similar.
“The prices they’re offering right now, it’s just not worth it,” he said. “It’s a higher-labour crop. There’s more expense and they want guys to grow it for 50 cents or whatever they’re paying. There’s easier crops to grow.”
Shwaluk says the company was fighting oversupply in that period due to two bumper hemp crops in a row. Fresh Hemp Foods stepped back from contracting acres in 2016 in an effort to balance out that oversupply.
As far as storage is concerned, Shwaluk maintained that most of the crop has not had quality issues.
There is an industry-wide backlog of conventionally produced hemp, Shwaluk said, and Fresh Hemp Foods also cut back on contracted acres this year.
“It’s going to be, I think, a little more challenging to gain contract acres at this price and we’re going to have to see some supply and demand balance out here over the longer term, but we have a large supply in Canada. The threat of offshore competition is still there,” he said. “It is becoming more and more of a global market and we just need to be responsive and play in a way that our consumers and our customers get a product that is priced where they can buy it and that’s competitive in the global market. And we’ve got to find a way to make it somewhat competitive for growers at well.”
The company has not yet released its 2019 contracts.