Tuesday, July 7, 2009

Gerry Ritz May Need to Rethink His Position on the CWB

Since their days with the National Citizens Coalition, the old Reformers like Stephen Harper and Gerry Ritz, just won't give up their archaic views on dismantling the Canadian Wheat Board.

They dream about it, they lust after it, but maybe it's time they just gave up.

It might impede the American Corporations backing their campaigns against this Canadian institution, but it's time they thought about the small prairie farmers, and what the wheat board does for them.

If it ain't broke, don't rewrite the Grain Act
Winnipeg Free Press
By Laura Rance
May 25, 2009

If it ain't broke, don't rewrite the Grain Act Alternate ways to regulate buyers would cost more.

There's an old joke about a farmer who is granted just one wish from the magical genie.

After thinking about it for a bit, the farmer tells the genie he wants a good crop and high prices to happen in the same year. Usually, farmers either get high prices and a poor crop, or a poor crop and high prices.

The genie grants his wish. He returns a few days later to find his farmer sitting on a stockpile of grain and looking anxious.

He told the genie that while he appreciated the bountiful harvest and the high prices, he simply couldn't sell just yet because those prices were bound to go higher.

Tell that story to a group of farm women and the room will erupt with laughter. Many feel as though they are married to that farmer.

Farmers' legendary optimism combined with their lack of market clout is one reason the federal government built checks and balances into the Canada Grain Act of 1912. Farmers were vulnerable to buyers bidding so aggressively for grain they sometimes went out of business before the cheques were cashed.

Among those balances were requirements that anyone buying and selling grain had to be licensed by the Canadian Grain Commission and post security that would ensure farmers still received payment for their deliveries if the company unexpectedly went out of business.

Most farmers have been blissfully unaware of the system until they've had to use it. And for most who have, their losses have only amounted to lost sleep.

Since 1982, the CGC has intervened in 20 situations involving a licensee's failure to pay, and farmers have received most, if not all, of the money they were owed. In total, there's been $12.4 million paid out to somewhere between 700 and 1,000 farmers over the past 27 years.

A recent study of alternative options concluded the current producer-payment security system helps manage payment risk for 75 to 80 per cent of the farm cash receipts.

Of course, it comes at a cost.

The CGC requires licensed grain dealers to post about 1.5 per cent of their outstanding liabilities as security. So the 166 companies registered with the commission collectively have about $440 million tied up in security.

That costs the licensees an estimated $6.6 million with another $1 million in costs related to licensing, compliance and auditing -- costs that are presumably passed on to producers through handling charges.

Grain commission costs for monitoring and enforcement amount to an estimated $1.4 million, which brings the system's total costs to $9 million. That works out to about 23 cents per tonne (based on a 40-million tonne crop.)

Federal Agriculture Minister Gerry Ritz and some in the industry say the cost is too high. One of the proposed changes to the Canada Grain Act is to find a private-sector alternative to protecting producer payments.

Grain companies are understandably reluctant to tie up funds for payment security. Regularly submitting audited financial statements in to a government isn't so popular either.

Smaller companies have complained the system infringes on their ability to operate because it ties up too much of their operating capital. Some argue that restricts competition in the marketplace. But strangely enough, if there were no producer security provisions in place, the risk of delivering to a small undercapitalized buyer would be high enough that many farmers would be afraid of doing business with them.

So deregulation could in fact reduce the number of companies competing for farmers' grain.

A group of farm organizations commissioned the Producer Payment Security Mechanism report to see what else can be done. The study found that alternative options, such as an insurance-based model, a producer-financed security fund or a clearing house concept, are plausible. But none offers clear advantages either in cost or effectiveness. In fact, some would be significantly more expensive.

The clearing house financed by buyers and sellers would be voluntary, which is advantageous to some. But it would cost at least double and potentially four times as much to operate.

This report presents a dilemma for Ritz in his bid to "modernize" the Canadian Grain Commission. It underscores that a producer security strategy is crucial to stability for the grain sector and ensures there is competition. And it would appear that making participation mandatory and providing regulatory oversight by a third party are the preferred routes.

At a time when global leaders are looking enviously at Canada's record of capitalism with a degree of government oversight, leaving well enough alone might be the modern thing for Ritz to do.

Back to: The Gerry Ritz Story: Can't Fall Back on Comedy

No comments:

Post a Comment