There has been quite the media hullabaloo lately over rumours that a large multinational based in the U.S. might be closing in on a deal with CWB, the much abbreviated version of the former Canadian Wheat Board.
Whether this rumoured deal is a partnership or acquisition depends on who’s talking, but in reality, it doesn’t much matter.
If you are a farmer trying to sell grain produced on the Canadian Prairies, what’s more important: having another globally competitive company — and we might add a major processor/customer — vying for your grain, or another undercapitalized player waving the Canadian flag?
Partnering with a major processor that has an interest in tapping into the Canadian brand creates some interesting opportunities for wheat farmers, including the potential for a direct route into value-added premiums.
The problem with the recent FNA bid to buy CWB outright, a proposal that has apparently been rejected, was that there was a small likelihood a company financed primarily by farmer shareholders could succeed on its own over the long term.
Likewise for the NFU’s appeal to the Prairie provincial governments to buy the company. The Prairie provinces have no interest in being in the grain business, even temporarily. The only capacity in which governments belong in the grain business is regulatory.
If farmers — including FNA members — are truly interested in maintaining CWB as a Canadian institution, they can be investing in that notion right now at the rate of $5 for every tonne they deliver. Our hunch is that farmer activity in that department has been on the dark side of anemic.
While there is no doubt political mileage to be gained from the optics around “giving away” assets, the value of the previous Canadian Wheat Board to Prairie farmers wasn’t in its hard assets. The building in downtown Winnipeg, Mission Terminals, two lakers, rail cars and grain terminals under construction are indeed assets and they no doubt have value, but they are also leveraged. Any buyer will take on a lot of debt.
The real value of the CWB was in its single desk and the role the former board played in grain transportation and logistics. Those assets, albeit intangible and difficult to measure, weren’t given away, they were taken away through legislation.
And truth be told, most farmers see more value in their new freedom to manage their grain assets the way they see fit than they did in the single desk and price pooling.
The problem is that the value is so far only theoretical. Other companies may have been able to take on the board’s role as marketer, but nothing has taken over its other role in co-ordinating and disciplining deliveries into the supply chain.
For example, it is unlikely that basis levels would have been as wide as they were last winter under the previous marketing regime because the board’s contract system only allowed farmers to deliver as elevator space became available. Under the open market, farmers can — theoretically — sell their whole crop all at once, but when enough try, the result is a wider basis and a lower price at the elevator.
As farmers know, last year that basis got extremely wide. Last week a coalition of Saskatchewan commodity groups published an analysis that put the cost of last year’s transportation system meltdown at $3.1 billion, with potential for another $2 billion for the current shipping year.
The coalition presented a series of recommendations to the Canadian Transportation Act Review Secretariat that are built around four principles fundamental to a properly functioning system: fostering more competition, market transparency, positioning the system for growth and better representation for producers’ interests.
These are the core issues that deserve farmers’ attention, not who winds up running another little grain company.
If Prairie farmers want to get their knickers in a knot over a headline, it should be the likes of this one: “Landlocked Central Asia gets shorter railway link to Persian Gulf,” a Reuters story about three countries co-operating on a brand-spanking-new 925-km stretch of railway, linking the landlocked post-Soviet region and the countries lying along the Indian Ocean and the Persian Gulf.
Marketing freedom is meaningless without market information and access. Likewise for trade deals if you can’t deliver the goods. Our competitors in the former Soviet Union have that figured out. Canada is in danger of literally missing the boat.
Correction: A coalition of Saskatchewan farm groups submitted nine recommendations for reforming Western Canada’s grain handling and transportation system to the Canada Transportation Act Review Secretariat, not the Canadian Transportation Agency as reported in the Dec. 11, 2014 issue.