If all the Canadian Wheat board did was sell wheat, it would be so much easier to figure out where you go from here. Not that it would be easy even then, of course. the board’s marketing clout has been felt across Canada and around the world, making it arguably the single most powerful institution in Canadian agriculture for the past 76 years.
Over those years, however, the CWb has collected myriad functions that you wouldn’t expect individual companies to take on (or individual farmers, for that matter) but that have nonetheless proved essential for the growth of the industry as a whole.
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Now it all promises to change, and change quickly. A majority Conservative government in Ottawa says it will introduce legislation this fall to end the CWb’s monopolies in wheat and barley on August 1, 2012. but as most observers will quickly admit — even the staunchest supporters of the government’s proposal — they’re dealing with a labyrinth of interconnected details, all of which must be got right.
This is where most farmers can expect to make money, or lose.
Quality matters
If Canada drops its quality standards, we could all be in trouble.
It was good news for Canada when Australia began shutting down its national wheat board in 1999. When the system finally collapsed, their country’s wheat went cold. Overnight, the Australian crop lost its quality premium and had to compete for buyers in a price-based market.
Will the same happen to Canada’s wheat? We asked Earl Geddes, maybe the person with the best understanding of how Canada’s quality system works now, and what may survive the year ahead.
“They were one of our key competitors in the quality wheat markets,” says Geddes. “Today they’re competing against low-cost suppliers like the Black Sea region.”
“How can you do that from Canada? The short answer is, you can’t.”
Geddes started his career farming in Manitoba’s Red River Valley, where he helped found the province’s general farm organization, the Keystone Agricultural Producers. Later, when health cut short his farming career after 24 years on the land, Geddes joined the CWB and held senior positions within the organization for 15 years.
Today Geddes heads up the Canadian International Grains Institute (CIGI), a joint venture of farmers through the CWB and the federal government. The organization promotes Canadian field crops to end-users around the world by providing technical training and research opportunities.
Speaking to Country Guide from his office in downtown Winnipeg, Geddes suspects changes to the CWB mandate are inevitable with the election of a majority Harper government. But he warns against throwing out the baby with the bathwater.
“What do we have today?” Geddes says. “We’ve got this brand image that’s second to none in the world… wheat, maple syrup and salmon, in that order, that’s what Canada is known for.”
That brand is critical, vaulting Prairie wheat above the commodity grain markets and helping Canadian farmers compete despite their landlocked location so distant from major markets.
“In Australia we saw the quality assurance and branding aspects collapse completely when the AWB failed,” Geddes says.
The situation in Canada is different and in many ways better. Here, the quality assurance system for grain has always been separate from the CWB, and is the responsibility of the Canadian Grain Commission (CGC). Although the role of the CGC is under discussion, those talks are on a separate path from changes at the CWB.
Less clear is who will take charge of promoting and marketing Canadianbranded grain, a job that has belonged to the CWB, and also to CIGI, which depends on the CWB for funding. Geddes says there are a number of areas — his staff have already identified about 20 of them — where the CWB provides crucial data, contacts or expertise.
That’s just one example of potential complications within a single relationship between the CWB and one other entity in the grain sector. As the direction of deregulation efforts becomes clearer in coming months, more jobs and more relationships must come under the microscope.
“No private company can afford to do this,” Geddes says. “It would be impossible to fund what CIGI does if you’re a private player, because everyone will pick off what you’ve done. Your competition will come in and take it from you.”
In other sectors, the private trade frequently works together through membership organizations that address what are known as “pre-competitive” issues — shorthand for the stuff everyone benefits from but nobody will pay for on their own.
Could this happen in the wheat and barley sectors? Of course — but the challenge is the extremely tight time-line between today and the scheduled changes to the CWB mandate.
“That infrastructure isn’t in place right now,” Geddes says.
“Can it be built?” he asks. “Certainly. But I’m not certain that it will be built in time.”
Making It In Canada
Supporters say the CWB is all that stands between farmers and domination by foreign multinationals. Curt Vossen begs to differ
High above Winnipeg’s famed Portage and Main intersection, another individual who is likely to emerge as a key player in putting Canada’s wheat industry back together makes his case for an exciting future packed with opportunity.
Curt Vossen is the president of Richardson International, the second-largest grain handler and merchandiser in Western Canada. The firm’s new name might be unfamiliar — it was rebranded just a few years ago from the historic Pioneer Grain moniker — but the company itself is well known in the business.
Founded by Winnipeg’s Richardson family, it is the largest privately owned agribusiness in the country. The company and the people who run it and own it are well known throughout the region. They’re widely seen to strike a good balance, taking risks to succeed while still sticking to their knitting and not getting drawn into expanding too quickly with a far-flung global empire, like some of the regional players who have failed in recent years.
When it makes sense, Vossen steers Richardson International into competition against some of the biggest and best companies in the world. But generally they’re not going to get drawn into vanity projects that don’t make sense.
During a recent conversation with Country Guide, Vossen said he respects his global competition, but he isn’t afraid to go head to head when he smells an advantage.
“I suppose that’s because of my earlier career working for one of these companies,” Vossen says with a smile. “You learn that they’re human just like all of us, and that they put their trading and merchandising pants on one leg at a time, just like you do.”
Where some fret that 2012 will see a flood of multinationals vying to take over the West, Vossen insists that nobody can predict exactly how things will play out after the CWB’s wings are clipped. There may in fact be more multinational presence. But then again, it’s just as likely that some of the smaller and more nimble operators like pulse processors and merchandisers already active in the region, may get involved in wheat and barley sales to their existing customer base.
One thing is certain, Vossen says. The Canadian grain trade can and will compete — and in no small part because of Canada’s unique challenges. In order to thrive, Vossen explains, Canadian grain companies have been forced to become exceptionally good at what they do — originating grain in the country, getting it onto rail cars quickly and efficiently and moving it to port position, through terminal elevators and onto ships.
“Why would those skills and abilities disappear?” Vossen says.
In fact, Vossen thinks the CWB itself could outcompete overseas rivals, especially in the early years after its monopoly is officially spiked. In the world of grain trading, where it’s a huge asset to know the people who make the deals, the board has excellent networks and market intelligence.
As for preparing Richardson International for the coming changes, Vossen is confident that it isn’t that complicated. Mainly, it’s simply a matter of ramping up in wheat and barley what the company is already doing in canola and other crops. Besides, Richardson went to school in Ontario during its wheat deregulation, learning how to compete against the same multinationals that now are vying for a bigger share of the West.
It’s not just OK to be a Canadian company based in Canada, says Vossen. In a lot of cases it’s a very good thing.
Worrying that you’re somehow not up to the job is counterproductive, he says, as is the pessimism that says it’s inevitable that the multinationals will come in and clean house.
“I get angry when I hear that,” Vossen says. “I have no patience for it. I don’t think that the Canadian grain industry is so weak that it requires protection behind some sort of wall or it won’t be able to survive. We can compete. We prove that we can compete every day. And we can do it from Winnipeg, as Canadians. We don’t need to pretend we’re something else or hire Americans to run our companies for us.”
Decision Maker
The proof will be in how they build their businesses, says Blair Rutter. Farmers will show they’re smarter than the CWB ever let them be
In a busy Winnipeg coffee shop Blair Rutter is pitching his case for a coherent and organized wheat and barley industry in Western Canada — but on a voluntary basis, naturally.
The affable and plain-spoken Rutter is executive director of the Western Canadian Wheat Growers Association (WCWGA), an organization he helped restore as the leading voice for an open market when it foundered several years ago.
“I believe in market,” Rutter says. “I believe that people allocate resources best to meet their own needs.”
In fact, Rutter believes ending the CWB monopoly will unleash a new wave of creativity and entrepreneurship.
Critics claim Rutter and the WCWGA are either naive or two faced when they claim the CWB can survive and even thrive in an open market.
Meeting with Rutter, however, it quickly becomes apparent that he genuinely believes it’s possible to create the conditions for both an open market and a viable CWB. He even concedes that the government will have a role to play in ensuring that this happens in some surprising areas like the need for a capital base for the organization and retention of borrowing guarantees from the federal government during the transition process.
“People think we want to see the wheat board die -we don’t,” Rutter insists. “We want to see a strong CWB, just in an open market.
“There will be bumps -there’s no question at all about that in my mind,” Rutter says. “But I do absolutely believe that those bumps will be greatly outweighed by the new opportunities that appear.”
Chairman of the Board
Now, even Allen Oberg agrees there’s a chance the CWB will survive. But it’s a chance… not a guarantee
The chair of the farmer-controlled CWB board of directors recently did something that has long been unthinkable. He conceded that there is in fact a Plan B for the organization.
In many ways, it had been strategic for Allen Oberg to hesitate. After all, the Forestburg, Alberta-area farmer and his board have seen this movie before, and doing negotiations by capitulating isn’t likely to win you anything. But those in the know have long said work was being done behind the scenes.
Now, Oberg has revealed key planks of the CWB strategy. At the top of the list is the ability to shed long-term liabilities like pension obligations. The board needs help developing a capital base, and its lack of grain origination and terminal elevator infrastructure must be fixed.
Unless the Harper government meets these conditions — especially the ones with ongoing price tags — Oberg says it will be difficult to see any path forward.
Even then, the organization that survives won’t be anything like what farmers are accustomed to, he says, and it may not return any more value to farmers than any other private company.
Still, in a grain-handling environment as overbuilt as in Western Canada, grain companies that depend on volume might be only hurting themselves if they ignore or shut out the CWB from the system.
First, though, the CWB needs a chance to survive. To Oberg, that means Ottawa has to help it get a solid financial footing.
“Those things need to be dealt with whether the organization is just wound down completely or if it’s transitioned into something else because all those costs will come to bear,” Oberg said. “If those costs were transferred to the new organization, that would be a recipe for disaster. It will have enough disadvantages as it is.
Up on the farm
A whole lot of things are about to change
Anyone who has been around Prairie grain farms over the years can tell you there’s no such thing as a typical operation. Each one is unique.
Take the single example of transportation rates. The CWB has for years used two policy instruments that alter freight rates at the farm level. There’s the Freight Adjustment Factor or FAF and a special delivery contract for growers in the catchment area for the northern Port of Churchill.
Both will be gone in an open-market scenario, and that could seriously impact individual farmers and their operations, says one industry insider who asked to remain nameless to avoid the unpleasant politics of the ongoing debate.
“Take a farmer in Nipawin (Saskatchewan),” he says. “They’re getting the benefit of both programs. Losing both is definitely going to have an impact on the economics of wheat production in the region. I don’t have the numbers at my fingertips but doubling rates isn’t out of the question. That could take them out of the wheat game until we get higher-yielding feed varieties. Their freight rates might go from $30 a tonne to $65 a tonne.”
All that uncertainty is definitely going to make pencilling out the 2012 crop more interesting than in recent years.
That’s not to say things are all doom and gloom however. As Blair Rutter points out, there will be new opportunities that appear, some expected and some unexpected. For example, growers in the region might want to familiarize themselves with the operations of a family-owned company called Wheat Montana. Since 1985 the Folkvord family has been cleaning and milling their own grain from their 12,000-acre operation on the Montana high plains and operating bakeries and delis that serve a five-state area as well as selling grains, cereal and flour across the U.S. Today they’re a multimillion-dollar operation that employs over 100 people.
Clearly this sort of operation won’t be for everyone — but somewhere on the Prairies there’s a farm family that is willing to try.CG
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“ We can compete. We prove that we can compete every day, and we do it every day, from Winnipeg, as Canadians.”
— Curt Vossen
