The Daily: The Road To CWB2

Following is an edited extract of the federal task force report that proposes eliminating the Canadian Wheat Board and replacing it with a new agency (CWB II), while permitting marketing choice for western farmers. …

Original post by From Daily Digest Publication

(CP) - After weeks of mounting pressure, Agriculture Minister Chuck Strahl announced Tuesday that Prairie barley farmers will get to vote on the future of the Canadian Wheat Board’s monopoly.

Original post by MICHELLE MACAFEE AND BRUCE CHEADLE

OTTAWA (CP) - The future of barley growers in the Canadian Wheat Board will be put to a plebiscite next year, Agriculture Minister Chuck Strahl announced Tuesday.

Original post by BRUCE CHEADLE

The report of the task force to kill the Canadian Wheat Board (CWB) is long on platitudes and short on specifics, but the federal government’s underlying agenda is very clear, says the President of the National Farmers Union (NFU). …

Original post by unknown

The Canadian Wheat Board is one of the only national institutions selling Canadian Grain that is set up to help farmers. To have a 2 tier system spells death. Farmers have enough trouble working on the farm. To think that all farmers …

Original post by Dean Harder

Until we can located the link to the actual report here is a verbatim but edited extract of the report from the Winnipeg Free Press

The Winnipeg Free Press Online Edition

Task force proposes grain marketing choiceTue Oct 31 2006

Following is an edited extract of the federal task force report that proposes eliminating the Canadian Wheat Board and replacing it with a new agency (CWB II), while permitting marketing choice for western farmers.

MARKETING choice means that wheat and barley farmers will be able to sell wheat and barley to any domestic or foreign buyer of their choice, including a transformed Canadian Wheat Board (CWB II). Marketing choice is a better term to describe the new environment than dual marketing. The latter term implies to some that the existing marketing approach (a CWB with monopoly powers) could co-exist with an open market approach. This is not possible. Marketing choice implies an open market in which CWB II, as an entity operating in that open market, will be a vigorous participant through which producers could voluntarily choose to market their grain.

To achieve this, the existing CWB will need to transform itself over a transition period into CWB II. For this ‘choice’ to occur, CWB II needs to have a high probability of success in an environment where it will have to compete for business. One of our focuses has been on creating the environment for a high probability of commercial success for CWB II.

Traditionally, the Western Canadian grain marketing system has focused on the sale of bulk commodities. The CWB was established to collect similar types of wheat and barley from a large number of small producers, pool the product, sell it on the basis of quality standards in domestic and export markets, and provide individual producers with a share of the proceeds. But now, farms are very different from one another, with different cost structures and different products. Their business plans, needs for storage and cash flow, and their marketing approaches are no longer homogeneous. Lower cost producers, often in new exporting countries, challenge western farmers and their traditional markets. Efficiency and competition in the handling and transportation system continue to be paramount to Canadian farmers in order to competitively get products to markets.
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Consumer demands, from North America and around the globe, for differentiated products are driving changes in the way grain is marketed. New uses such as biofuels and industrial usage are expanding the markets for grains but at the same time have different requirements than the traditional uses of food and feed. The days when millions of tonnes of wheat were marketed to state buying agencies on standard grades alone have passed. Users are more diverse, with some seeking more assurances on quality and safety factors and some buyers wanting to build closer relationships with their supply chain. Farmers, grain handlers and processors require more flexibility to make their own decisions and determine which approach makes the most business sense for their particular operation.

The future success of the industry, and the individuals within it, will depend on fostering an environment where innovation, entrepreneurship, investment, market responsiveness and individual initiative are encouraged. Producers are entrepreneurs who take on the risk, effort and cost of producing a particular product, with the objective of earning a return on their labour and capital commensurate with the risk. They are best placed to judge what combination of enterprises and marketing strategies makes the most sense for their particular operation in any particular year. Producers and other industry players should have the opportunity to explore new markets for wheat and barley as well as be able to develop new marketing tools…

Where does CWB II fit within this context? Rapidly changing markets create challenges for the sector but also new opportunities. CWB II can successfully find a role, if the organization has the will and the appropriate economic model to make it happen.

The Task Force believes that a CWB II that is owned by farmers can create value for them, while buying and selling their grain, maintaining some of its customers and reducing supply chain costs

The CWB is a shared-governance corporation which markets wheat and barley on behalf of western farmers under authority of the CWB Act. Producers own no shares in the CWB. In the process of changing to a marketing choice environment, the CWB will be transformed into CWB II. The ownership and governance structure of CWB II has to be determined. There are various approaches that could be workable, including a co-operative structure or a share-capital structure.

A significant segment of western farmers want CWB II to be a producer-owned and producer-controlled entity. The Task Force considered various ways in which producer ownership could be established, such as based on past deliveries to the CWB, past production of wheat and barley, past value of sales of all crops, or area of farmland owned. However, since what is being created is an entity to operate in the future, the Task Force believes that it would be more appropriate to establish ownership in a forward-looking fashion rather than on some historic basis.

Going forward and consistent with the theme of choice, the Task Force believes that farmers should have the option of becoming owners of CWB II or not. If they believe in the need for CWB II, they should show their support for it by investing some money in it to become an owner. This would have the added benefit of raising additional capital for CWB II.

The management of CWB II should establish the mechanics of a share offering. As an example for illustration, it could offer about 100 million shares at a value of $1 each to prairie farmers.

The capital value of CWB II that they would be buying into would be considerably greater than the cost of these shares, as some existing CWB assets would be transferred to CWB II, so farmers would have an incentive to buy shares. Those farmers who bought shares would have ownership and voting rights for the CWB II Board of Directors proportional to their shares. The Board could consist of, for example, 7 elected producers and 3 non-elected Directors. With the completion of the transition to marketing choice, the Board of Directors would be free to decide whether shares could be offered to non-farmers, and what mechanism they would establish for trading of shares.

A CWB II that is owned by farmers can create value for grain producers through buying and selling their grain, maintaining and sustaining its customers, and reducing supply chain costs.

The Winnipeg Free Press Online Edition

What was recommended*The government introduce legislation to repeal the Canadian Wheat Board Act and create a law providing for a new commercial entity, “CWB II”. The law would also outline transition measures.

* The government announce its intention to end the monopoly for barley marketing on Jan. 31, 2008, and for wheat marketing on July 31, 2008. That assumes the new legislation will have received Royal assent by then.

* The government direct the wheat board to prepare for “a successful transformation” to an organization without monopoly powers.

* The government develop a communications strategy that would begin soon after the release of the task force report to explain the implications of marketing choice and the steps to achieve it. The communications would be directed at farmers, CWB customers and Canada’s trading partners.

* The government appoint, for a two-year term, an interim CEO upon passage of the new Act to assume the management of the existing CWB and lead the transition to CWB II. It would also appoint an interim board of directors to serve until the shareholders of CWB II elect their own board.

* Prairie farmers be able to buy up to 2,000 shares in the new CWB, at a cost of $1 per share, during an initial three-month sales period. Over the following three-month period, farmers could buy as many shares as they wanted.

* CWB II be free to acquire assets and market a range of crops grown across Canada as well as crops “from origins other than Canada.”

* The government guarantee CWB II borrowings over a specified time to a limit of $200 million, with a restriction that the funds only be used for operating credit. This would provide assurances to farmers that they would be paid for deliveries to the new entity.

* The government assume the obligations of the CWB for severance costs related to reductions of CWB permanent staff, if any.
* Wheat board assets, estimated by the task force to be worth $109.7 million, be transferred to the new entity.

* Following a transition period, CWB II have no ongoing financial support and no regulatory powers. There would be no restrictions on who would then own shares, but western farmers should retain majority control.

The News Coverage:

Globe and Mail headline: Wheat board monopoly nears end-Agriculture Minister reviews new report on how to scrap powers of grain body.

Seen at

Globeandmail.com: Wheat board monopoly nears end