Farmers look beyond tough times with Wheat Board privatization
For decades, Prairie farmers had just one buyer when it came time to sell their wheat and barley: the Canadian Wheat Board.
So when the federal government revoked the CWB’s monopoly two years ago, ending its 77-year mandate as the only marketing agency for wheat and barley grown in Western Canada, many thought it would wither and die in the face of competition from grain giants such as Cargill Inc. and Glencore Xstrata PLC.
But CWB Ltd., as it’s now known, has defied skeptics. Not only is the board profitable but it also has managed to build a network of grain elevators, terminals and even a railway.
“We’re now just over two years in to the deregulation and we couldn’t be happier with the position we’re in,” said Ian White, the CWB’s chief executive officer.
The Winnipeg-based CWB remains government-owned but under the terms of the legislation that revoked the monopoly, it has until 2017 to become a private company.
Mr. White said he thinks it will be privately held by 2016. He did not provide details but said the privatization will have two components; farmers who deliver grain to the CWB will become shareholders in the company and the board needs to find outside investors to complete its grain network. A public share offering is not being considered, he added.
Talk of a hurried-up privatization for the CWB comes after a tough season for farmers. Prices for wheat, canola and other grains have plunged amid large global harvests, while prices for fertilizer have soared on tight supplies. At the same time, many growers are struggling to sell last year’s crop, a bumper harvest left sitting in bins after a long winter that slowed rail transportation and inflamed tensions among grain traders, railways and producers.
The CWB has a long and controversial history in Western Canada. It was created by the federal government in 1935 to protect farmers from falling grain prices, and it has been loved and loathed by farmers ever since. Many farmers welcomed the board as the only seller of Canadian wheat and barley, arguing the board’s size gave it clout in international markets. But others balked at having no choice of buyer, convinced competition would lead to better prices for farmers.
Under the new system, farmers are responsible for marketing their own grain. There are plenty of private buyers, such as subsidiaries of Cargill and Glencore, and farmers now bear the risks and win any rewards. Several grain companies now compete to buy the crops. Growers can lock in forward contracts or sell at prices that can change daily. And they get paid when they deliver to the terminal.
The rail transportation snarl this past winter highlighted some of the drawbacks of the new system. Railways complained they missed the co-ordination of a single marketing desk. Meanwhile farmers complained the grain companies were offering too little for their crops.
It’s this resentment toward grain companies – and railways – that has led a group of farmers to attempt a takeover of the CWB. Farmers of North America (FNA) is trying to drum up support among its 10,000 members to take control of the CWB. The Saskatoon-based group says railways and grain companies are taking advantage of farmers by offering poor prices and services, and that a co-operatively owned company would increase competition for the purchase of crops.
At the same time, FNA is planning to build a $1.7-billion farmer-owned nitrogen fertilizer plan in Belle Plaine, Sask.
FNA spokesman Bob Friesen said pairing a fertilizer plant with a grain handling and marketing operation “makes sense” and would offer members better returns on their crops while offering cheaper fertilizer.
“You can make a compelling business case that you should do both from one location,” he said.
The fertilizer plant, which is expected to be open in 2017, requires a major investor and operator. Mr. Friesen said one partner has already agreed to buy the fertilizer not taken up by members, which means 80 per cent of the expected production is sold.
It’s not clear if the FNA plan will succeed and for now Mr. White is focusing building out the CWB’s network. That includes buying three elevator companies and building three elevators. The board also expects to have two new ships in service on the Great Lakes next year. And it has bought a short-line railway in Saskatchewan and operates port terminals in Thunder Bay, Ont. and Trois-Rivières, Que. One major gap is the West Coast where the CWB has yet to build its own operation.
“If you’re going to have a proper grain network in Canada, you have to be able to go both east and west,” Mr. White said.