Grain Industry Needs Clarity Now On Pending Open Market

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All the talk about an open market for wheat and barley as of Aug. 1, 2012 has both farmers and customers hungry for details on how it will work.

That was the consensus of those attending the University of Manitoba s Fields on Wheels conference Sept. 29 in Winnipeg, said conference rapporteur Owen McAuley, a Manitoba farmer and policy advisor.

We need to know very quickly what s happening here, McAuley said in an interview. We almost need to know by Jan. 1, 2012 so we can be writing contracts, so we can start filling customer demands. We just need some clarity.

McAuley said ending the Canadian Wheat Board s single-desk marketing authority could also have unintended consequences such as putting pressure on Ottawa to eliminate the cap on the amount of revenue the railways can earn from shipping grain to export terminals. Most industry observers believe that would result in higher shipping costs for grain farmers.

Agriculture Minister Gerry Ritz has promised to introduce legislation this fall to eliminate the board s monopoly by next Aug. 1. But domestic flour millers, who rely on a steady supply of wheat, contracted and priced well ahead of delivery, are uncertain who ll be making those deals on new crop wheat between now and next August.

Grain companies can t contract with farmers to supply them with wheat, nor can they forward sell to customers until the Canadian Wheat Board Act is amended or repealed, McAuley said.

McAuley said the board and Ritz need to co-operate. The board can t come up with a business plan in an open market if it doesn t know what concessions the government will extend, and Ritz can t go to cabinet if he doesn t know the board s plans.

This fight needs to be over one way or the other, McAuley said.

McAuley said Otto Lang, who was wheat board minister in the 1970s, questioned whether the government would give the board just enough concessions so it fails, or enough for it to succeed.

Either way, the government and board can t win, McAuley said. If a voluntary board fails, the government will be criticized. If the board gets what it needs, companies will complain it s unfair competition.

Own terminals favoured

Mark Hemmes, president of Quorum Corporation, the firm hired to monitor the performance of Canada s grain handling and transportation system, told the meeting under an open market more grain will be pushed through Vancouver, while less will go through Prince Rupert. Companies will focus on maximizing business through their individual terminals in Vancouver instead of their jointly owned facility at Prince Rupert.

Hemmes said grain companies are worried about the railways supplying enough cars early in the switch to an open market and how transparent the rationing will be.

Farmers and grain companies support the cap on railway grain shipping revenues, Hemmes said.

Few believe an offsetting operational or financial benefit would accrue if freight rates were left to market forces, he wrote in his presentation.

The cap keeps shipping costs lower than they would be otherwise. Grain shipping costs have not gone up as much as the consumer price index, Hemmes said. Other rail traffic has seen rail rates rise faster than for grain.

Canada s quality-control system and the board itself, which can only market Western Canadian grain, now keeps U.S. grain off Canadian railways. But in an open market American grain might move to Canadian railways, especially when the rates are lower than in the U.S., McAuley said.

Will that result in pressure to remove the revenue cap?

I would think so, he said. I can t imagine it not. We have to have a complimentary system to their (U. S.) process. The railways are going to be hamstrung if they don t.

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Wehavetohaveacomplimentarysystemtotheir(U.S.)process.Therailwaysaregoingtobehamstrungiftheydon t.

OWEN MCAULEY

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