Tuesday, April 25, 2006

Follow the Money - just who would win?!

As promised....... here is Code for Disaster Part II and a message for the current Conservative government..... "Those who cannot remember the past are condemned to repeat it." George Santayana


Code for disaster, part two.

OPINION, Western Producer, March 9, Wendy R. Holm, P.Ag

Speaking at last week's Canadian Federation of Agriculture AGM, Agriculture Minister Chuck Strahl continued to defend Harper's "dual desk" agenda for the Canadian Wheat Board.

If implemented, this will take $30 to $45 a tonne out of the pockets of Canadian wheat and barley producers - $10 to $15 a tonne in lost price premiums and $20 to $30 a tonne in higher
handling and transportation costs. This would destroy the Prairie grain economy.

The CWB is established by an Act of Parliament, and in a minority government, any changes will require the support of other political parties.

It's time for politicians to stand up in the House and tell Harper they will not support changes to the marketing system for export wheat and barley that are not democratically determined by
producers.

If producers wanted to change the central selling authority of the CWB, all they need do is elect directors who share this view.


In every election since 1998, when the Board came under producer control, farmers have returned a majority of directors who support single desk selling. Support for the CWB consistently
averages more than 73 percent of producers.

The CWB already offers producers a number of flexible pricing options. Producers can choose to exit the price pool while still allowing the CWB to sell the grain and maintain a single sales
desk, or they can fix a price and lock in a basis at any time during the crop year. Despite these options, producers have overwhelmingly (99.2 percent) chosen to stay with price pooling.

More than a dozen studies since 1985 document that premium export prices received by western Canadian wheat and barley growers are a direct result of the CWB's single desk sales system.

Canadian agricultural economists Richard Grey and Harley Furtan note "the loss of the CWB single desk status will result in a cascade of events that will fundamentally alter the economics of grain production in western Canada."

First to go will be the price premiums gained on many export markets, reducing farm gate returns by an estimated $10 to $15 a tonne.

There are a number of reasons for this.

The CWB markets consistently good grain in large volumes and is respected and trusted by grain buying agencies around the world. By regulating consistency in grading and dockage and by organized delivery processes, the CWB protects grain growers from over delivery, achieving price premiums that could not be realized in an open system.

The CWB is the sole agent negotiating with customers who prefer high quality Canadian wheat and barley. Without exclusive selling rights, sellers would compete with one another to make
export sales, driving down the price of export wheat and barley and with it, returns to western Canada's farmers.

Monopoly selling also allows CWB to practice market differentiation, pricing grain at port and capturing for growers the highest profits attainable from each market. In a competitive system, f.o.b. pricing would mean the weakest market would set the price for all markets, and grower returns would suffer.

Being a single desk seller, the CWB can invest in long term market development of a particular customer, knowing that future benefits will be realized by Canada producers. In an open market
system, such investment would make no sense because any benefits could be easily captured by the competition.

In addition to achieving higher prices, the CWB increases returns to producers by reducing grain handling and transportation costs. Again, there are several reasons for this.

The CWB does not own grain-handling facilities but instead relies on agents to procure grain. Removing central desk authority would put the CWB in competition with multinational grain
companies who also act as agents for Canadian wheat and barley.

Why should the multinationals handle CWB grain at competitive rates? Their interests would lie in circumventing CWB sales, since the less board grain that reaches port, the more buyers
will have to turn to private market sales to source high quality export wheat and barley.

The industry would soon be dominated by multinationals, and Canadian grain companies and inland producer associations would be reduced to a much smaller presence in the market.

Large grain companies would have an economic incentive to strategically limit port capacity to boost margins, and excess capacity would erode margins at inland positions.

Price transparency would become a major problem for farmers. The grain sector is highly concentrated. Without a sizeable domestic market, it is unlikely a viable commodity futures market
would emerge. Firms would contract directly with producers and little basis level information would be available.

Presently, the CWB is able to leverage its significant volume to keep rail costs low. Without the board, a market based system for car allocation would inevitably raise transportation costs.

In North Dakota and Montana, a market based allocation system has resulted in freight rates that are nearly double those in Canada. There is no reason to think that the same would not occur here, reducing farm gate returns by $20 to $30 per tonne.

Unquestionably, the loss of the single desk selling authority of the wheat board would mean its collapse. As Justice Muldoon concluded in a 1996 Charter case, "the wheat board would not be
viable in a dual market."

If producers were able to enter and exit pools whenever spot prices appeared strong, the value of the pool would drop, making it unattractive to producers. Under such circumstances, the
price pooling mechanism could not survive.

That would mean the end of the CWB, and with it the economic future of Prairie communities.

It's time for Canadian politicians of all stripes to stand up in the House and tell Stephen Harper to keep his mitts off the CWB.

Wendy Holm is an Agrologist, resource economist and author based
in Bowen Island, BC.

She can be reached at holm@farmertofarmer.ca.



Saturday, April 15, 2006

Follow the Money -The Canadian Wheat Board

The continued attacks on co-operative marketing for farmers, has a long history. The Canadian Wheat Board brought her farmers strength and clout in the marketplace. Below is a commentary and short history of the Canadian Wheat Board and the issues facing it and Canada, from the most recent election.

It is Part I of a two part Opinion piece and is somewhat long but easy to read and important for both farmers and for the public. The Canadian Wheat Board has also had to suffer through many NAFTA and some WTO challenges from the US Government.

Farmers take heed- To understand why and what is REALLY going on, again, you just have to follow the money!

Dual desk code for disaster.

OPINION, Western Producer, February 9, 2006
Wendy R. Holm, P.Ag.


Although a vocal minority will no doubt portray it as such, it would be a mistake to interpret Stephen Harper’s minority victory as a vote against the Canadian Wheat Board.

The spin doctors will, of course, tell you different. But on this point farmers should be perfectly clear: abandonment of western Canada’s single desk system for the sale of export wheat and barley – a system supported by the overwhelming majority of western farmers - would turn the clock back 100 years, spelling disaster for the economics of prairie communities.

Back in the 1920’s, before the CWB was created, Canada’s farmers were at the mercy of brokers who drove grain prices down in the fall, when farmers needed cash to pay bills, and up in the spring, when granaries were empty and farmers were studying cropping options to cover last year’s losses.

By manipulating price cycles, brokers were able to transfer profits from the pockets of farmers to the boards of the Winnipeg exchange, putting smiles on the faces of commodity investors and pushing rural communities to the brink of bankruptcy.

In response, farmers set up cooperatives. United Grain Growers and the wheat pools of Alberta, Saskatchewan and Manitoba allowed farmers to balance supply and demand, pool economic returns, and ensure price equity for all producers. The single desk selling authority of the Canadian Wheat Board, created under William Lyon MacKenzie King, gave farmers the market leverage to ensure fair prices to producers. The Crow Rate, initially intended to capture back for farming a small portion of the land benefits received by Canada’s railways, ensured grain could be economically shipped to ports for export. The system worked well for close to 60 years.

Then, in the 1980’s, things began to change.

First to go was the Crow Rate. Transportation rates that averaged 14 cents a bushel are closer to $2 a bushel today. Then came deregulation of Canada’s railways, resulting in the abandonment of rail service to hundreds of small prairie communities. Subsequent consolidation by the grain companies closed small, local elevators with three to eight car spots in favour of those with 50 to 100 car spots, shutting down more than 50 percent of prairie grain holding capacity.

As hauling distances increased, larger trucks were needed. In Saskatchewan, for example, roads rated for 22 tonnes now regularly service trucks hauling 64 tonnes and more. With the taxpayer picking up the tab for wear and tear.

Despite these structural changes, independent studies dating back to 1997 by noted agricultural economists Richard Grey, Daryl Kraft, Hartley Furtan and Andy Schmitz continue to demonstrate the success of the Canadian Wheat Board. Farmers received a greater return per tonne marketing through the CWB than they could have realized thru any other system.

Yet today, long on rhetoric and short on history, Mr. Harper insists it’s time for a change.
Make no mistake: dual desk selling for export wheat and barley is simply code for breaking the pricing authority of the CWB. And the only ones who will benefit are the multinationals.
In concentrated sectors like the grain industry, a handful of powerful players dominate the market.


With the ability to manipulate prices to serve their own economic interests, why should agri-food giants like Cargill, Archer Daniels Midland, ConAgra, Louis Dreyfus and others compete in the prices they pay for export wheat and barley? It’s far easier to drive down the farm price and put those profits to work competing for shareholder capital.

This is simply how oligopolies (few sellers) and oligopsonies (few buyers) work. Market dominance allows them to buy low and sell high and industry capital costs prevent would-be competitors from entering the market.


Faced with concentrated markets pre and post farmgate, farmers are vulnerable. Globalization and trade deregulation exacerbates the problem, allowing multinationals to source cheap products from third world countries and pass otherwise prohibitive transaction costs, such as transportation, on to the buyer.

This has the effect of driving down prices paid to producers and inflating the price of feed grains.

A two-desk system for export wheat would destroy the CWB because short-term predatory pricing by concentrated grain buyers would bid grain away from the wheat board, breaking the back of the system.

Without the central desk selling authority of the CWB, farmers to the north, facing higher transportation costs, will be pitted against farmers to the south. Livestock producers will see prices for coarse feed grains escalate. Concentrated economic players will have their hands in the pockets of farmers across western Canada and farm communities will falter.

Welcome to the 1920’s. We’ve been here before. Those who fail to understand the lessons of history are bound to repeat them. Without political leaders prepared to listen to, understand and defend the economic and trade interests of Canada’s farmers, we are all sitting ducks.
In Canada, elections are lost, not won. On Jan 23, Canadians who had lost faith in the ability of the Liberals to govern presented the Conservatives a minority shot at doing it better.


Harper’s win had nothing to do with his unenlightened stand on wheat board, and it will be up to farm organizations and politicians of all stripes to defend the interests of prairie farmers should he make any moves in this direction.

Dual desk selling is code for destroying the market power of Canadian grain farmers and with it the economic future of western Canada’s farm communities. If we don’t stand for something, we’ll fall for anything. Think about it.
________________________________________
Wendy Holm is an Agrologist, resource economist and author based in Bowen Island, BC. She can be reached at holm@farmertofarmer.ca. The opinions expressed in this column are not necessarily those of The Western Producer.

Thursday, April 13, 2006

Follow the MONEY!


Just how farmers have managed to collect so many dedicated and focused enemies should concern all of us. I think it's really pretty simple. It's all about the money. Much of what happens in this world usually is.

The domestic market for milk brings over 4.2 Billion dollars per year to Canadian dairy farmers and their families. Include processing and the amount jumps to10 Billion. This is a scrumptious target for some to focus on. Currently, this money goes into the hands of the 19,000 dairy farms and their families in Canada. By extension, it is then spent in local communities, by farm families, as they pay their farm bills, feed their families and do the kinds of things any other small business owner would do.

So just who would win? Well, it won’t be the dairy farmers and their families. De-regulating the industry would result in a collapse of the farm gate prices to these families.

Since the supply managed farmers are the ONLY farmers in Canada, making a decent living right now, they are frequently critical, to the survival of our rural communities.
Processors might be happy for a while, especially as they’ll likely demand and get the raw milk , much cheaper. Producers would have no choice.

Milk is considered a perishable product. It is in a liquid form and is refrigerated on the farm immediately, as cows are milked. Tanks only hold two to three days’ of milk and then the milk MUST be shipped or dumped. Bills must be paid. In this set of circumstances, farmers would not have many options but to take what they could get.

Consumers won’t win! Remember the Australian statistics? (See earlier post.) Retailers in most Canadian provinces have no controls on their pricing ability. Likely, the skimmed off profits would accrue first to the manufacturers and then to retailers.

I also think there is another element to who wants to dismantle supply management. Big multi-nationals see supply management and its Canadian rules, as a road block to their ideas of efficiency.

"Efficiency" is just a big business code word for profit.. Large companies like the **Yum! Brand Inc. (see http://www.yum.com/ ) certainly haven't been shy in the past, to leap into the supply management debate. You see, if they destroy the farmers' marketing system, (supply management) they destroy the farmers' power in the marketplace. Marketplace power in this century, for most other farmers is non-existent!!! Hence the agricultural crises that are only deepening.

Governments need to take note of this situation and consumers need to understand what is at stake for all of us.

** Yum! Brands Inc. includes KFC, Taco Bell, Pizza Hut, A&W & Long John Silver. Before Yum! Brands Inc. existed many of these companies were under PepsiCo Inc. A stock split was the start of the new company in 1997. (see http://en.wikipedia.org/wiki/PepsiCo)

Tuesday, April 11, 2006

Canada's 39th Parliament ..."Take Note Debate"

I have watched many Parliamentary agricultural debates and question periods in my time. Mostly, the topics have been surrounding emerging issues from the WTO and supply management, to the issue of BSE. They have been effective for the issue of the moment, to highlight whatever current 'disaster' agriculture is attempting to bring to the notice of the people and the government of the day. In general, they do not last for an enormously long period of time and they have been a blip on the Canadian and political Psyche.

The challenge, that never seems to be addressed is the continued miserable returns, farmers in general are receiving for their products and the continued focus on world trade as the panacea for all agricultural ills. Included in the drive for the WTO to solve all, is also the one model for agriculture in Canada, that has remained profitable for most farmers and that is supply management.

April 6th, the 39th Parliament, had a special 'Take Note' debate and the topic was the farm crisis that brought 10,000 farmers to the Hill on April 5th. This debate in it's entirety was broadcast live on CPAC. I do not know how long it lasted from start to finish, as it was already in progress when we tuned in, but I watched this debate for over 4 hours!

I was encouraged by the breadth of topics discussed. Parliamentarians covered the current crisis, CAIS, supply management, markets, the Easter Report, immediate emergency funds, moving on a real agricultural policy, the CFA Farm Bill, the WTO, food security, food safety, the consolidated retail ownership and facts and figures for the industry were brought forward. All very enlightening, if any urban politicians bothered to listen.

Rumour has it that there were none of them present. They still do not understand the nature of the industry and it's importance for continued success for all of Canada.

Many Conservative MP's responses were taking on an note of bitterness about how the sector had been handled over the last 13 years. No doubt they forgot we began our travel down the global road with the Mulroney Conservative reign. Far too many of them still see the 'market' as the solution. The WTO will not save these farmers.

Surely, Canadians and farmers will soon tire of the strident accusation that 13 years of Liberal rule was the cause of farmers' current ills. The Conservative government will have to do far better than that to prove to rural Canada that they are paying attention.

Thursday, April 6, 2006

Now What Health Canada?




During the period set aside for input to the proposed changes to Canada’s Food Guide, dairy farmers in this country, raised their concerns with Health Canada. The issues are legion for consumers. Some of the key points about the suggested changes were analyzed by nutritionists and dietitians from Dairy Farmers of Canada and presented to Health Canada.

Their concerns are legion. Pitched battles have gone on between these two groups for decades. The farmers on the one hand trying to clear up consumer confusion and Health Canada on the other hand, using the shotgun approach to solve dietary disasters, that just keep on happening to consumers of this country.

One example of this surrounds the issue of calcium in milk and the need for Canadians, especially children and young women to consume more dairy products to prevent the Osteoporosis nightmare that seems to be facing us. Instead of raising a red flag and getting consumers real information about calcium, how it is absorbed and from what, they decided to allow every company who wanted to take advantage of this, to add this vital element to their product.

Now we have water with calcium, antacids, orange juice and who knows what else out there, confusing the nutritional picture even more.

When recent research suggested this approach has not been successful, the whole house of cards collapsed and left consumers (women!) with calcium deficiencies, who thought they were doing the right thing to protect themselves, upset and totally bewildered about their next steps.

So, for the record, below are some of the strong recommendations Dairy Farmers of Canada have made to Health Canada about the Food Guide. Let’s hope they are listening this time!

Format and Cover:

There is too much emphasis on soy products and on vegetarian eating on the cover.

Milk Products:

Fortified plant-based beverages don’t belong in the Milk Product category.

Fortified soy beverages should be put in the Meat and Alternatives group with the other soy products (tofu and soybeans) or addressed elsewhere in the 8-page document.

Not all plant-based beverages are fortified and this creates a risk for increased consumer confusion.

Fortified plant-based beverages are not as nutritious as milk. The calcium in milk is better absorbed.

Cheese is a nutritious part of Canadians’ diets and should be moved closer to the front.


Oils & Fats section:

Instead of writing down a specific amount of fat to consume, it is better to tell consumers to consume a variety of added fats and oils in moderation and to choose oils and fats that are not hydrogenated.

The message about butter is unnecessarily negative. Butter has a place in a healthy diet in moderation. Dietitians maintain that all foods can fit in a healthy diet and that the key is variety and moderation.

The issue of hydrogenated fats is not adequately addressed. Fast foods supply a lot of trans fats and many soft margarines are hydrogenated.

The message about high fat baked goods, snack foods and deep-fried foods needs to be better addressed in the Food Guide.