Director sees costs to CWB loss

Canadian Wheat Board director Kyle Korneychuk says the announced end to the single-desk selling agency for Western Canadian wheat, durum and export barley will cost farmers, and ultimately rural communities money.

"There will be less money in Yorkton," Korneychuk told a gathering of Canadian Association of Farm Advisors in Yorkton Thursday.

In spite of that statement the Canadian government has announced plans to end single desk selling by Aug. 1, 2012, he said.

The CWB sells farmers' grain in 70 countries around the world. It returns all profits to farmers - between $4 billion and $7 billion a year.

There is, however, evidence the majority of farmers do not want change, said Korneychuk who farms in the Norquay area. After calling for the federal government to hold a farmer vote on the issue, a suggestion the Conservatives ignored, the CWB held its own mail in vote, said Korneychuk. The vote showed 62 per cent of voters wanting the CWB to continue being the single-desk seller of wheat, and 51 per cent in favour of them handling export barley.

In terms of economic impact Korneychuk said the loss of the CWB will mean more than just lost dollars to farmers.

As an example, he pointed out that the CWB is Canada's largest exporter of bulk products. The scale of exports means the agency has a major economic impact, and allows it to leverage handling deals which put money in farmer's pocket.

"If you split that up five, or six ways will that be efficiency? I don't think so."

The savings the CWB can currently leverage is lost, suggest Korneychuk.

"The money will be the same, just farmers will get less The money gets divided up among the grain companies and transportation companies," he said. " That means less money in Yorkton."

In spite of its size in Canada, Korneychuk said the CWB "is a small player in the big picture," pointing to 2009 sales of $7.8 billion, compared to Cargill Grain at $116.6, ADM $69.2, Bunge $42 and Louis Dreyfus $20 billion.

If the CWB is dismantled "farmers will deal directly with these guys," said Korneychuk, adding such companies are interested in selling grain, but not specifically Canadian grain.

While grain companies are going to take some dollars now coming to farmers through the CWB, so too will the railways.

"Transportation is going to be a big key," he said, adding as it is farmers are paying far more than they should.

As it stands the rail transportation reviews which are supposed to be held every five years are not being held, so even though the system has rationalized and down-sized, rates reflect the older system, said Korneychuk.

"Farmers are paying for people that aren't working now," he said, adding it has been suggested rail companies should see a 20 per cent profit on handling grain. The CWB estimated it is 54 per cent at present.

With the CWB out of the picture Korneychuk said to expect the transportation to worsen, in particular access to producer cares, which save farmers a $1,000-plus per car, and the end of the Port of Churchill.

In the case of producer cars, a CWB pamphlet states, "Farmers who load producer cars save $1,000 to $1,500 on elevation and cleaning costs per car shipped. In an open market, railways and the grain companies would exert increasing control over the movement of western Canadian grain. Neither would have any incentive to facilitate the use of producer cars. As the use of producer cars declined, so would the viability of locally owned shortline railways. Without an alternative business model, more shortlines would be forced out of the market."

The northern port should be a concern locally, added Korneychuk. "Especially for Yorkton the Port of Churchill is very important."

The CWB provided 96 per cent of the port's business last year, which put local area grain on ships at a saving of $8-to-$12 million, said Korneychuk. In 2010, 600,000 tonnes of CWB grain shipped through Churchill.

As a comparison the freight charge on a tonne of grain from Tisdale to Churchill is $31.33, compared to $37 to Thunder Bay and $47.80 to Vancouver.

Since grain companies own Pacific and St. Lawrence port facilities they will not use Churchill and that will likely force the facility's closure, he reasoned.

"Churchill's dead," he said. "The grain trade will want to maximize their own facilities." He added that is not good for farmers. "Simple math, Churchill's a bonus to farmers."

Korneychuk said the CWB has had one general goal as a marketing agency; "to get the best overall return for farmers from the sale of wheat and barley."

In that process Korneychuk said the agency will not hit all the highs in terms of price, but they don't take all the low prices either. The returns are then pooled and farmers share an equal return per tonne based on grade and other factors.

Farmers have lost sight of the fairness of the pooling aspect of the CWB, said Korneychuk.

"It's the state of society. We really don't care how everybody else is doing," he said.

Korneychuk said there are some who see prices at elevators in the United States and question why it is higher. He said as it stands the U.S. is a CWB market, taking about 10 per cent of its sales of wheat. He said farmers need to ask themselves if they did hit higher markets stateside "what do we do with the other 90 per cent?"

In political terms Korneychuk said the border is not likely to remain a friendly crossing for cavalcades of farm trucks heading south either.

Korneychuk said in a commodity there are high-value markets, such as Japan, but to move all the Canadian crop sales also have to be made to low valued markers such as the Sudan.

It comes down to trying to sell the most grain to the highest markets while working to maintain relationships with other markets which are often needed to move all the grain produced, he said.

While Korneychuk said there is a purely economic reason for maintaining the CWB, there is also the fact the agency gives farmers a direct sale in marketing.

"We have elections every two years," he said. Farmers can " elect who they want and it will mean something."

Farmers will never have that sort of direct say if marketing is handed over to large international grain companies, he added.

Korneychuk added the CWB "is not a government agency," nor is it "funded through taxpayer dollars."

As for sales revenue, Korneychuk said the CWN "doesn't retain any earnings," with the funds dispersed to farmers.

Korneychuk said while the CWB board, elected by farmers, feel there is value in maintaining the agency, it is an argument they have not been able to make directly to federal Minister of Agriculture Gerry Ritz, who has not accepted invitations to meet with the board. "He's (Ritz) never met with the full board He doesn't even respond to our requests," he said.