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April 1, 2014 - No. 35

Consequences of Harper Government's
Wrecking of Canadian Wheat Board

No to Nation-Wrecking! Public Right Yes! Monopoly Right No!

Consequences of Harper Government's Wrecking of Canadian Wheat Board
Public Meeting in the Heart of Grain Country Sends Message to Ottawa
Grain Shipping Bill Diverts from Destruction of Public Monopoly as Source of Chaos
Grain Companies Profiting from Marketing Chaos - Canadian Wheat Board Alliance
Farmers Bear Enormous Costs from Agriculture Minister's Failure to Plan - National Farmers Union
Grain Farmers Paying the Price for Post-Single Desk Logistics Failure - National Farmers Union

Consequences of Harper Government's Wrecking of Canadian Wheat Board

Public Meeting in the Heart of Grain Country Sends Message to Ottawa

Meeting of prairie grain farmers, Raymore, Saskatchewan, March 9, 2014.

The Canadian Wheat Board Alliance hosted a large meeting of prairie grain farmers March 9 in Raymore, Saskatchewan. By an almost unanimous vote the meeting passed a motion demanding the Federal Minister of Agriculture immediately conduct a vote on the restoration of the farmer-controlled single desk Wheat Board.

Long-time Saskatchewan MP Ralph Goodale addressed the meeting and observed that the prairie price of all grains had declined by almost 50 per cent and this amounted to an estimated loss of $5 billion dollars to the western farm economy. One audience member angrily pointed out "we can't afford another year of this!"

Stewart Wells, a former farmer-elected Director on the Wheat Board, explained to the meeting that with the single desk farmers got 85 per cent of the port price for grain while the latest information shows that although international grain prices remain high, the grain companies and railways have reduced western farmers' share to less than 40 per cent.

Kyle Korneychuk, spokesperson for the CWBA, said, "Farmers have now seen in their bank accounts and grain bins how the Ritz system of grain marketing works. I think that is the reason they gave such a firm message to Ottawa and the Opposition politicians attending the meeting that they want to exercise their right to vote on the marketing system they have to live with."

Liberal Ralph Goodale, along with the NDP Official Opposition's Agriculture and Deputy Agriculture Critics Malcolm Allen and Ruth Ellen Brosseau got the message loud and clear during the meeting that farmers wanted a vote now.

"Local MP Andrew Scheer did not respond to our invitation, however both Goodale and Allen promised to take the message that farmers want a vote on the single desk back to Ottawa" said Korneychuk. Allen observed that "more and more farmers are coming to see the private grain trade as the problem and the single desk as the solution and they want a vote now. We will do our job and take that message back to Ottawa."

Korneychuk went on to say, "I was pleased to see Ms. Brosseau, who hails from rural Quebec, taking such an interest in western problems. She clearly indicated to me that she understood that the single desk Wheat Board was as important to western Canada as supply management is to Ontario and Quebec dairy farmers."

Korneychuk concluded that the meeting was sending a clear message to Ottawa. "If Ottawa can step in and seize the assets we built up in the farmer-controlled Wheat Board without compensation and issue orders to the railways with threats of draconian fines to back them up, as they did on Friday, there is no reason they cannot honour a democratic vote by farmers to re-instate their farmer-controlled single desk Wheat Board. Farmers want a fair vote."

Raymore Resolution

Whereas the pre-2011 Canadian Wheat Board played a key role in coordinating grain shipments, and

Whereas the single desk selling advantages of the pre-2011 CWB returned 85% of sales values to farmers' pockets, as opposed to the 40 to 50% returned from the private trade at present,

Be it resolved that this meeting go on record asking the federal government to immediately conduct a vote of farmers regarding single desk selling of western wheat and barley.

(Canadian Wheat Board Alliance, March 10, 2014; Photos: R.E. Brosseau, R. Goodale)

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Grain Shipping Bill Diverts from Destruction of Public Monopoly as Source of Chaos

On March 26, Agriculture Minister Gerry Ritz and Transport Minister Lisa Raitt tabled Bill C-30, An Act to amend the Canada Grain Act and the Canada Transportation Act and to provide for other measures, known by its short title as the Fair Rail for Grain Farmers Act. As has become the method for governments that champion an anti-social agenda, the name of the bill purports to uphold high ideals to deliberately mislead the public as to the actual content of the bill. The title and content of the bill claim that it is the rail monopolies that have caused the backlog in grain shipments by their unfair treatment of grain farmers, and now, lo and behold the Harper will swoop in to defend the farmers. Of course, nothing could be further from the truth. At best, the logic this bill presents is akin to saying that the cause of poverty is lack of money -- a facile explanation meant to dismiss or frustrate those who are actually trying to sort out the problems they face in life.

The bill's proposed changes include the setting of minimum volume requirements for grain shipments by Canadian National Railway and Canadian Pacific Railway and enshrining penalties of $100,000 per day for non-compliance -- these fines were introduced earlier in March through an emergency directive issued by the federal government. The bill also proposes to have the Canadian Grain Commission regulate how much a grain company will pay farmers if the company does not meet the contracted delivery dates. Another proposed change is to increase inter-switching limits from 30 km to 160 km. This would permit farmers to use rail companies up to 160 km away to ship their grain.

Farmers' organizations point out that the potential for a massive backlog in grain shipments should have been on the government's radar months ago. This year's grain harvest in Western Canada was 76 million tonnes, 50 per cent higher than average. Besides the government's refusal to take timely action, farmers' organizations have been pointing out that the source of chaos in grain shipments is not the rail companies, but the Harper dictatorship's destruction of the Canadian Wheat Board's (CWB) public monopoly that, amongst other things, kept both the rail and grain monopolies in check.

Ken Larsen of the Canadian Wheat Board Alliance wrote on March 8:

"The Ritz/Raitt command to the railways to move a million tonnes of grain a week or else is full of irony. It will not change the fact the prairie crop has been stranded which has pushed farm prices down by half. It was perfectly predicable and the government was certainly warned.

"Since there will also be a huge carryover of old crop into the new crop year that also means prices for western farmers will not recover for a long time unless there is a massive crop failure in the near future. This mess is the consequence of Agriculture Minister Ritz and his Prime Minister's reckless and thoughtless destruction of the CWB.

"Certainly there were logistical problems under the farmer controlled CWB, however the farmer controlled CWB identified the root problem and decisively fixed it in 1998 when they successfully sued those responsible and tuned up the system for the next ten years.

"As the March 8, 2014 Regina Leader-Post reports, Ottawa is not even enforcing its own laws:

"'Among the last reports prepared by a still-independent Canadian Wheat Board was the second study by rail analyst John Edsforth, both of which pointed out that Prairie farmers were overpaying by as much as $275 million a year to transport their crops, compared to what is considered fair under the federal grain transportation law. The government response was to kill the wheat board.' Emphasis added

"Without some organization with the legislated power to manage grain transportation logistics as the farmer controlled CWB did so well, this problem will not be solved, even by orders carved in stone tablets and brought down from the Prime Minister's office by his Cabinet.

"Ottawa does not want to recognize that the grain companies are the proximate cause of all this. As yesterday's blog and many other articles and sources demonstrate, it is the grain companies who now get the lion's share of the money farmers once got for their grain. In fact, farmers now get less than 40% of the grain cheque and the railways and grain companies are now taking the other 60%.

"The numbers from the farmer controlled CWB confirm just how huge the grain robbery this past couple of years has been. For example, consider the CWB annual report on the 2009/10 crop year when farmers ran the show.

"Gross revenue of $5.1 billion, minus the $630 million paid to the grain companies and railways to move the grain, leaving farmers with $4.3 billion, or 84% of the grain cheque.

"At 84% back to farmers I think we are very safe to say that the bar set by the farmer-run CWB sure beats the 40% farmers are now getting.

"So irony rules the day in Ottawa. We have a Federal Government who claimed farmers working together offended their dogma about markets and killed the Wheat Board.

"Yet now they have gone to a command and control dictat ordering what amounts to a not quite innocent third party (it really hurts to say that of the rail ways) to fix a problem created by the Federal Government allowing the grain companies to do what they want to farmers.

"In the end this order from Ottawa will not put an extra dime into farmers' pockets. That ship, as they say, has sailed until we get the single desk back."

(With files from CWBA, CBC, CP, Globe and Mail, Bloomberg News)

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Grain Companies Profiting from Marketing Chaos

The Canadian Wheat Board Alliance (CWBA) has released a one page summary [see below] exposing how the private grain trade and the Harper government are misleading the public on who is responsible for the chaos at Canada's grain ports.

"We followed the money" explained Kyle Korneychuk, spokesperson for the CWBA, a prairie wide farm group. "Our calculations demonstrate the grain companies have taken over $1.6 billion in excess profits from wheat alone so far this crop year."

Using data from Ottawa-created grain broker Canadian Wheat and Barley as well as posted tariff rates and grain export volumes to the end of January from the Canadian Grain Commission and the Canadian Transportation Agency, the CWBA fact sheet shows the private grain companies are using the system to make record profits at the expense of farmers.

"Mr. Harper's threats to the railways are a smoke screen. In fact the farmers' share of the international price of grain has gone down from 84% under our singledesk Canadian Wheat Board to around 40% today. It is the grain companies who have taken the lion's share (about $170/metric tonne) of the international price at the west coast because the railways are constrained by legislation from taking much more than 12%," Korneychuk observed.

Korneychuk noted "farmers are being hit by the grain companies twice. First they are not getting their share of the international grain price and now that rumours are floating around that Canadian grain will start to move in greater volumes, the futures price is going down which will be another excuse to pay farmers less."

Korneychuk heaped contempt on the announcement of fines for the railways saying the penalties of $100,000 a day "mean nothing" to a company like CP, whose CEO Hunter Harrison is the highest paid executive in Canada, earning $49.1 million in salary, stock options and bonuses in 2012. "It's chump change. Harrison makes about $180,000 per day, so he could pay that $100,000 a day fine personally."

Korneychuk concluded "Ottawa and others are attempting to make a fairly simple situation appear complicated. When you follow the money it is painfully evident the Harper government is responsible for allowing the private grain trade to steal billions of dollars from farmers. Farmers have a right to vote on the marketing system they must pay for and the time for that vote is now."

Quick Facts: The Grain Marketing Chaos 2014

"A bushel of wheat is offered at Vancouver for CAD $11.38/bushel and bought in the country for CAD $4.69/bushel for a difference of CAD $6.69/bushel. In metric tonnes, the price at Vancouver (port) is $246 CAD/tonne above the average country price for #2 CWRS 13.5..." - February 26, 2014 CWB Market Research Services newsletter

Farmers are now getting about 41% of the grain cheque.

The grain companies are taking 48% -- making the largest profits in their history.

With our Wheat Board farmers got 84% or more of the grain cheque.

Follow the money: The railways, primary elevators and terminals are guaranteed a profit by "regulated tariffs" which allow them to take a total of $77 per metric tonne (less in Alberta, more in Manitoba depending on rail cost).

Regulated tariffs apply to grain movement in-country. Once grain is in the terminal it is the private property of the grain company and that is where the excess profits are made.

Our calculation uses tariffs set by the Canadian Grain Commission and Canadian Transportation Agency for wheat:

- port price at Vancouver is $417/metric tonne (mt)
- minus farmers' price in-country $171/mt
- leaves $246/mt for the grain companies and railways

Now subtract the following:

Rail (average) -$40.00 (varies with distance to port)
Primary elevation -$15.50
Primary cleaning -$05.70
Port Terminal elevation -$10.15
Port Terminal cleaning -$05.72
sub total $77.07/mt - regulated profit for getting grain to port
$246 minus $77.07 equals $168.93/mt ($4.60/bu)

THEREFORE: $168.93 per metric tonne is being scooped up by the grain companies as the excess profit they make purchasing wheat and durum from farmers in-country and flipping it to their customers at port.

According to the Canadian Grain Commission total exports of wheat and durum as of Jan 26/14 are 9,697,210 mt.

Multiply that by the excess profit and we see the grain companies have

made $1,638,149,685.30 (over $1.6 billion on wheat alone) as of January 26, 2014 because the single-desk CWB is gone.

This money would have been returned to farmers by the single-desk Canadian Wheat Board.

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Farmers Bear Enormous Costs from Agriculture Minister's Failure to Plan

Although grain movement has been down since the beginning of November, 2013, Minister Ritz and Minister Raitt announced that railways would be required to double the grain volumes currently being shipped just as those companies were ready to gear up anyway.

Ian McCreary, former CWB director and National Farmers Union (NFU) member, asked "Why now? Why wait four months to announce concrete actions that could have been taken much earlier?"

The railways will have four weeks to ramp up to ship a combined total of 1,000,000 metric tonnes a week or be penalized up to $100,000 per day for non-compliance.

McCreary describes the problems with grain transportation as a big picture issue. "The fact is that with no organization to hold the railways accountable for service levels, the companies provided the amount of service that was convenient for them."

The transportation chaos is exactly what McCreary warned the Conservative government about on November 2, 2011, at the legislative committee on Bill C-18. He clearly explained that without mechanisms to: "allocate the constrained capacity of the west coast handling facility in an economic way that allowed the optimal customers to be transferred to the other port , everyone is going to want to push through the west coast. You will have tremendous economic pressure on the west coast."

McCreary further predicted what would happen to grain prices when port capacity became overburdened, saying, " When the export embargo by the Soviet Union [1980] was in place, what happened to the cost of moving grain through U.S. west coast terminals? For those who watch markets, the difference between a rail offer and a port offer on dark northern spring wheat following the introduction of the freight embargo was $3 a bushel...That's right. It was $100 a tonne."

It turns out that McCreary was equally correct in predicting the direction of the price differential between elevator and port. The CWB reported on February 26, 2014 that farmers are receiving an average of $4.69/bushel for wheat, and wheat at Vancouver port has a price of 11.38/bushel. Thus, grain companies received $6.69 per bushel ($245 per metric tonne). Elevator company costs (freight and elevation) are about $70 per metric tonne, leaving the elevator with about $175 per metric tonne. By year-end, demurrage [additional charges paid to ship owners for use of a vessel beyond the contracted period -- TML Ed. Note] is estimated to approach $100 million -- the highest that Canada has ever paid. However, those demurrage costs would be fully paid for with the first 569,000 metric tonnes shipped, which is less than one week's grain movement.

Ken Larsen, Director of the Canadian Wheat Board Alliance, pointed out that when Minister Ritz was questioned about being warned about this crisis two years earlier, Ritz answered, "We saw this coming" - referring to his ‘Crop Logistics Working Group'. "For a Minister and his advisors to have seen this coming and to have done nothing until now is egregious mismanagement," said Larsen. "Rail transportation on the Canadian prairies doesn't work without healthy government oversight, and that lack of oversight is sinking farmers more deeply in debt."

According to Larsen, this isn't the first time farmers have faced delays in getting grain to port and loaded onto ships. "In 1997/98, the newly elected farmer-directors of the CWB were confronted with poor grain movement at a cost of $18.7 million in demurrage in 1996/97," he stated. "That time, the railways pleaded that there was snow in the mountains."

Larsen continued, "The CWB launched a level of service complaint with the Transport Commission and won, then sued both CN and CP for poor performance. CN threw in the towel and paid an undisclosed sum and CP lost its case and had to pay $15 million to the CWB."

"In the following year (1998/99), however, the CWB collected $6.6 million in despatch (net after demurrage was paid) from ship owners because ships were loaded more quickly than anticipated. Because the CWB had no retained earnings, those despatch dollars were always returned directly to farmers. The previous year (1997/98) net despatch earnings were $4.465 million. This trend of earning dispatch for farmers' benefit continued until Ritz killed the CWB," Larsen commented.

"Now farmers are bearing the costs of Ritz's lack of planning to transition the Canadian Wheat Board's grain transportation coordinating function to another body. No one is in place to make sure that grain is transported to port and available for ships to load in an efficient and orderly way," noted McCreary. "This is a preventable failure, and it's costing prairie farmers multi-millions."

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Grain Farmers Paying the Price for Post-Single Desk Logistics Failure

Farmers should not expect prices to go up, or more grain to be moved, anytime soon, as Agriculture Minister Gerry Ritz is only calling for more numbers, reports and discussions among railways, elevator companies and grain companies while farmers' costs mount and prices tank as a result of Canada's wrecked grain transportation system. "More people taking notes will do nothing to make up for the lack of an authority to co-ordinate the shipment of grain by rail to ports," said NFU board member and Saskatchewan grain farmer, Glenn Tait. "This is a service the CWB used to provide for the benefit of farmers."

As the largest shipper of grain in Canada, the farmer-controlled CWB was able to coordinate grain shipments by rail according to customer demand, elevator and terminal capacity, and shipping requirements. Now that the private trade is controlling the export system, there has been a backlog of 30 or more vessels waiting at anchor since before Christmas. Ships often must shuttle in and out of terminal berths to load partial cargos, with each ship charging in the neighbourhood of $10,000 per day in demurrage fees to cover the wages, fuel, food and the cost of being idle when they could be shipping other valuable products. Tait stated, "As a result of the disorganization at the port, rail cars are being used as storage, not for transportation and farmers are paying the cost."

"The elevator companies will recoup demurrage charges from farmers by deducting this cost from grain prices. When the CWB looked after logistical matters, freight costs from the prairies to western ports were in the $50 per tonne range. Today, we are seeing costs of $100 per tonne or more deducted," Tait continued. "The total losses from demurrage alone so far are in the millions of dollars -- money that will never be spent by prairie farmers, or anywhere within the Canadian economy."

The base price of wheat has fallen to around $4.00 a bushel from over $7.00 a year ago -- for the same quality of product. This 40% nominal drop in grain prices is understated and has been masked by an almost 10% decline in the value of the Canadian dollar in the past year. In some areas, elevators are not even taking delivery -- an effective price of zero.

"Many farmers who have contracts are unable to ship grain through no fault of their own -- yet they are the ones paying the late delivery charges," said Jan Slomp, NFU President. "The price gap between what farmers get at the country elevator and what grain companies get when they sell the grain is widening. The railways, elevators and shipping companies are pocketing the difference, in the millions of dollars."

"The farmer-controlled CWB worked with industry and government to co-ordinate and promote trade and transportation. It won important victories on behalf of farmers for better rail service and better rail rates," said Ken Larsen, NFU member and Alberta grain farmer. "Blaming the railways or grain handlers is like blaming coyotes for eating mice. By ending the CWB's single desk authority, it was Ritz that turned the coyotes loose."

"Will farmers have to cap production at 75% of this year's yield because that is all the private trade is capable of moving through ports in any given year? Investing in improved genetics and agronomics or creating fake markets by signing new trade deals will do nothing to solve the logistical problems of moving our grain to the ocean efficiently," observed Tait.

"The current disastrous state of grain transportation is just another example of government bungling that lets corporations extract more money from farmers," Slomp concluded. "We know that without oversight there will be a bottleneck every year. Millions of tonnes of grain are harvested every fall and must be moved to market. We need a coordinating authority that has the teeth to discipline the grain transportation system. Otherwise we risk losing Canada's capacity to be anything other than a third-rate supplier of last resort."

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