The CWB Gets Into a Boatload of Ships

Is there anything that the Canadian Wheat Board does or says that does not come with controversy?  This week the Canadian Wheat Board announced that they are purchasing two lake freight ships at the cost of $65 Million dollars.  Much of the criticism came immediately from the Western Barley Growers and the Grain Growers but the CFA supported the concept.

There are several points and questions being discussed in many different coffee shops this morning.

  1. Is the purchase of assets outside the mandate of the Canadian Wheat Board?
  2. Why were farmers not aware of this shift in strategy, especially with the recent elections?
  3. Based on estimates, the cost to farmers is $1 MT over the next four years.  Some are arguing that this is in poor consideration of soon to be retiring farmers who will see limited benefits from the ships.  Others are saying that this money would be better put to use in farmers own pockets so that they could reinvest in their own farming operations.
  4. According to the CWB’s calculations, the ships will be paid for in 6-7 years and have an expected use of 25 years.  The estimated net benefit over the life of the ships is $250 million which is returned to the CWB bottom line.

As you have heard me say before when the CWB is in the headlines, farmer’s brain’s leak out of their heads.  Whether you are pro or anti CWB, it is hard to argue with the raw business numbers of this purchase.  What is being played out in the media is the politics of the CWB which I am not all interested in.  I think this is an interesting play for the CWB in the sense that if it works out it may lead to more transactions like this which will have a benefit to farmers.  When you leave the politics out you can think more rationally and clearly.  To me this is not a pro-choice or pro-single desk debate.  What should be discussed is the business justification of the purchase and evaluate it properly.

If the profits are returned to general revenue, then the benefits are to all farmers in Western Canada.  If the CWB’s is responsible for the marketing of farmer’s grain and if the savings are passed onto farmers then farmers are getting the benefit.  If the CWB is utilizing lake frieght already and now can utilize it’s own asset this is good business.  In my mind this is no different than a farmer buying a semi grain trailer because he is getting tired of paying custom haulers to deliver grain to the elevator for him.  It is also the same as packing plants owning trucking companies to better vertically integrate and achieve logistic cost efficiency.

Everyone is talking about the mandate of the CWB and that this is a breech of it.  It would appear after some research that owning ships is no different than rail cars.  They are movable assets and not real estate.  If the CWB purchased a grain terminal then that would classify as a breach of the mandate.

What’s your thoughts?  Leave your thoughts or questions in the comment box below and remember no politics.

 

Shaun Haney

Shaun grew up on a family seed farm in Southern Alberta. Haney Farms produces, conditions and retails wheat, barley, canola and corn seed. Shaun Haney is the founder of RealAgriculture.com. @shaunhaney

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18 Comments

Allen Kuhlmann

I see that at least one media person is using his brain! Your analysis of the issue is refreshing. Apparently common sense is not very common any more but there is still some. Good bit of work Shaun.

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Rob

I agree with your comparison to rail cars…these are just really big rail cars that float!

If the numbers do pencil out as promised, then it seems like a good deal…but I must admit that the first thought that came to my mind is that successful businesses stick to what they know and what they do best. Outsourcing freight (or any similar service) to a company that can focus on it usually leads to long term efficiency and reduced risk.

Rob

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Shaun Haney

Totally agree with your outsourcing comment but in this case it is my understanding that the CWB is not operating the ships. The operation is outsourced to the operating pool for the lakes. It will be interesting to look back in 10 years and see if this was a good idea or not.

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Laurie Wakefield

Exellent piece of unbiased journalism Shaun. Many issues look altogether different when one looks past the political rhetoric and idealistic smoke and mirrors.

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Greg Magyar

On a business scale it would be a wise move if the CWB can improve the bottom dollar for the farmer, however I would have to question the timing of their purchase . Many articles are stating there is an abundance of freighters that have been put into the waters in the last year and more to come. Is the CWB getting into a market that is all ready over crowded?

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Ron

Very well written article Shaun, I agree with Rob on the value of outsourcing, especially when the assets in question rely on other commodities to make the numbers work as I believe is the case with these vessels.

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Gerrid

Tough not to talk about the politics of grain when referring to “The Monopoly” but because you asked so nice Shawn here it goes.
A few reasons why the CWB should have asked farmers about ASSET ownership.

1) Precedent, today it’s a dollar a tonne for ships. Tomorrow will it be $5.00-$10-$20/ tonne for short line rail- flour mill- port facilities. What if they have a *good* business plan?
Remember the Sask wheat pool of the early 90’s? Ports in Poland, Robins doughnuts, hog barns, a fleet of trucks………….. What did that do to shareholder equity?

2) No clearly defined ownership. If I pay $1/ tonne for 4 years what does my farm get? I realize how selfish this sounds yet this is what it comes down to in many decisions. Yes it may pay off over the life of the ships but so might owning CN shares.

3)They never consulted ever…… I go to more farm and CWB meetings than most and this is the first I’ve heard of it. Maybe I should have said something when they got into their own quality assurance lab, but they said they had a good business plan. btw I’ve recieved their talking points on what is considered consultation. Your not asking but pretty weak if you ask me.

4) and on and on and on……..trying to keep the politics out of your blog
but if people are interested http://www.agriville.com/cgi-bin/forums/viewThread.cgi?1297875116

Thanks for taking an interest Shawn but theirs more to this story than you have written.

If you treat farming like a business, it is a very good way of life.
If you treat farming like a way of life, it is a very poor business.

Gerrid Gust

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Charlie

The 15% return on investment sounds to good to be true but under the conclusion of farmer grain and the pooling if the shipping company the boats will proable be kept busier then other shipping companies. An returns may be better.
As a Alberta farmer I would like to know how I benefit from the boat purchase. Non of my grain is shipped through the Great Lakes yet I’am paying $1 a tonne to buy boats. I already subisize the seaway that I done use, this whole thing is getting very expensive for the Alberta farmer. It is difficult to understand why a Manitoba farmers frieght rate can be the same or lower than an Alberta farmers rate.
How will the $10 million be returned to farmers each year, through the pool or through the contingency fund. I’am having trouble seeing value to me over tendering with shipping to move our grain.
If we are going to do business in this sort of way we need to incorporate with shares and pay dividends to farmer owners and do away with the Act all together.

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Fred

Sean I oppose this deal on buisness grounds.

The wheat board is speculating with my money. You may believe that this will be a $250 million benefit to farmers. I do not.

The wheat board has shown time and again that it can not be trusted to tell us the whole story. They lie to us about getting premiums and they lie to us about things like demurge and dispatch. As the old saying goes fool me once shame on you, fool me twice and same on me.

Here’s another old saying, if it sounds too good to be true it probably is.

I don’t want to own ships. That is not part of my buisness, it is not part of my farm and frankly I don’t want to take the risk. I take enough risks already. All sorts of things look good on paper and in theory, but reality is another thing entirely.

Sean if you want to buy ships, and you are so confident in the buisness plan then invest your own money. Put your own money where your mouth is. Please stop using mine and then feeding me a bunch of BS to try and justify it. I don’t appreciate it coming from the CWB and I don’t appreciate it coming from you either.

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Charlie

Your comment is awaiting moderation? I didn’t think you wanted me to get political and by all means I may be away to modern for you already. lol Sorry Shawn.

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Tom Jackson

Dear Shaun,

This is all about the confiscation of ‘designated area’ grain growers money. Something the CWB has become VERY skilled at; with it’s ‘slight of hand’ PPO contracts and Contingency fund pool account taxes ($40/t Jan 31/11).

This is a very simple problem… we are not supposed to be voting on each others property rights.

Just as in Federal elections… all folks vote… not just business or unions… 1st nations or immigrants. Everyone gets an equal say… if over the age of 18… if they are a citizen or landed immigrant in Canada.

The CWB allows just one vote per farm unit. This is not a democracy.

Gross Farm income Canada;

Income less than 50,000 – 52% of farms – 5% of income,
50,000 – 99,999 – 14% of farms – 5% of income,
100,000 – 249,999 – 17% of farms – 15% of income,
250,000 – 499,999 – 10% of farms – 19% of income,
500,000 – 999,999 – 4% of farms – 16% of income,
1,000,000 and over – 3% of farms – 40% of income.

$250,000 and more = 17% of farms – 75% of farm income.

Source 2006 Statistics Canada – Census of Agriculture.

One would expect in 2011… this will be even more concentrated to fewer farms for more income.

How can those who sell 40t of wheat… over 2-3 years… make a decision for a grower that sells 5,000t a year?

On the ships alone over 4 years:

$20,000 for one farm/grower; $80 for the other grower!

For any sane person to understand how we actually got to this point of insanity…

THIS does explain the problem and issue!

Some farm with $80 in the pot… has the same say as another farm with $20,000 in that same pot for paying for these ships!

Both own exactly the same amount of the Ships… and likely the grower delivering 12,000t to the CWB over 4 years is despised and hated by the CWB!

“It’s not politics, its raw frustration and emotion. Many people want the board to end so this isn’t about good business cuz buying the ships is good business, its about with a purchase like this it is obvious the CWB will be taking our grain for a long long time to come. And that adds fuel to the already huge fire.” Words of another farmer who thinks this ship purchase is inappropriate.

If you want a raw emotional response from grain growers… rub salt in this wound!!!

Reply
Adam

I think this is a good move by the wheat board, I am wondering if they are reacting to the problems created from the rail companies in their inability of shipping grain through to the west coast. I am wondering if they are trying to push more grain East, especially with the reduction of the feed market here at home it looks like more and more of our wheat will be heading off continent, and in order to get it there we need good infastructure, and these ships should help with that. I think there are 2 main advantages to owning them as compared to relying on a third party, first you don’t have to depend on that third party to move the grain (like we are now having to fight the rail company to get cars delivered to the grain elevators) and secondly the cost to own and run the ship seems to be way less than renting them as we don’t have the rental company trying to rip us off. I like the article, thanks for writing it, and I am looking forward to reading more in the future.

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Charlie

Shawn if the business deal is as good as we are told why not let the boats pay for them selves the same way as the rail cars did. There is no need to take $1/tonne from farmers who see no benefit from this purchase, or are the board of directors not sure the return on investment is there.

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Charlie

Shawn explain your last comment about not taking $1 a tonne from me, because thats not the way it is explained in the CWB annoucement.

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Shaun Haney

Charlie, My understanding was that they were not going to actually deduct $1 per tonne and this was just an example to represent the cost. I could be wrong though.

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Charlie

Shawn, I quest we are just arguing over which one of my accounts it will come out of the pool account or direct off my cheque.
If assets is the way the CWB wants to go, then the single desk must also go and the supportors of the board can become shareholders with their own money for assets and possible dividends. As for me I have had enough of farmer owner coops and how they were run in to the ground (AWP,SWP & MWP etc.)
The CWB Has cost my family farm about $100,000/year for several years now and this year it will be over $200,000. We have wanted out for 70 years now.

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