July 31, 2012 / 6:38 PM / 7 years ago

UPDATE 2-W.Canada grain monopoly, world's last, passes into history

* After Wednesday farmers can deliver grain on direct deals

* Only modest early sales to U.S. grain elevators expected

* U.S. farm group cheers end to “price distortion”

* CWB sees bright future; minister hears takeover interest

By Rod Nickel

WINNIPEG, Manitoba, July 31 (Reuters) - Western Canada’s grain-marketing monopoly, a system dating back to World War Two and the last of its kind in the world, ends on Wednesday, officially opening a new era of competition for grain in the breadbasket of the seventh largest wheat growing country.

Starting Aug. 1, the start of Canada’s 2012/13 crop marketing year, Western Canadian farmers can legally deliver wheat and barley to any buyer in Canada or the United States, not just through sales by the Canadian Wheat Board.

Canadian grain companies can also export without the CWB’s involvement, potentially redrawing transportation patterns and market shares.

It is not likely to be an immediate free-for-all, however, as there are probably only modest supplies left in farmers’ bins from last year’s wheat crop not committed to the CWB, and this year’s harvest of spring-planted grains is just beginning.

The rights to much of the new harvest are already determined, as grain handlers such as Viterra Inc, Richardson International Ltd and Cargill Ltd have inked forward contracts with farmers since Ottawa passed a new grain-marketing law in December.

“We don’t expect big shocks to the system,” said Elwin Hermanson, chief commissioner of the Canadian Grain Commission, which regulates the country’s grain-handling system.

“We expect everything to be orderly, (but) there will be new players marketing wheat and barley in Canada.”

Hermanson doesn’t expect farmers to truck much Canadian grain south to U.S. country elevators, since prices along both sides of the border should quickly even out.

Jim Peterson, marketing director of the farmer-run North Dakota Wheat Commission, also does not foresee many Canadian licence plates in lineups at U.S. elevators in the short term.

But the new opportunities for Canadian farmers in the United States rub some American growers the wrong way, since they do not have the same options in Canada, he said.

U.S. farmers have long been allowed to sell their wheat to Canadian elevators, but U.S.-origin grain is ineligible for the top grade designations under Canada’s system of ensuring consistent quality for buyers.

“That certainly is an area of concern for U.S. producer groups, (but) I wouldn’t say it’s at the level of a trade complaint yet,” Peterson said.

Canadian buyers are free to pay whatever they choose for U.S.-origin grain on an individual contract basis.


The end of the CWB’s monopoly - the world’s last major agricultural monopoly - also looks to impact the global wheat trade. Canada is the biggest exporter of spring wheat, used in baking, and durum, which is used for making pasta.

Some offshore buyers have already raised concerns that breaking the CWB’s monopoly may result in smaller supplies of top-quality Canadian wheat.

Peterson expects U.S. farmers to benefit on the global stage from an end to the CWB’s “price-distortion,” saying it used its assurance of supply to undercut prices on deferred sales.

The CWB has long maintained that it commanded a price premium for Canadian farmers, based on its monopoly clout.

The impact of the change is being felt in corporate boardrooms, with Glencore International PLC on the verge of taking over top Canadian grain handler Viterra, as corporate profits are expected to grow in an open market.

Grain marketers such as CHS Inc and a joint venture between Olam International Ltd and U.S.-based Lansing Trade Group have opened Canadian offices.

Canadian Agriculture Minister Gerry Ritz said that he was aware of interest in buying the government-controlled CWB, although he said it w as t oo soon to consider a takeover.

“We’ve already had a couple of entities come forward saying they would love to buy up the CWB,” Ritz said at a news conference to mark the last day of the CWB’s 69-year-old grain marketing monopoly in Western Canada. “They have a tremendous Rolodex of marketing (contacts) around the world and (prospective buyers) wanted to capture that.”

CWB, as it is now known, will compete to buy grain with the advantage of government guarantees of its borrowings for up to five years.

Chief Executive Ian White said that CWB, which collected C$6.3 billion ($6.3 billion) in net revenue in 2011/12, expects to pool 30 to 40 percent of Western Canada’s wheat.

“We have a brand new look, a solid business model and the support of thousands of farmers who have told us they intend to market grain with CWB,” he said. “That makes the future bright.”

But White would not say how much crop volume CWB has bought from farmers for 2012/13, or whether the company planned to sell assets such as rail cars, or make acquisitions.

Ottawa’s move to strip the monopoly sparked strong farmer emotions on both sides, leading to several court skirmishes.

Farmers who supported the Wheat Board’s monopoly plan to ask Canada’s Supreme Court to hear their appeal related to the question of whether the agriculture minister broke the law by not allowing farmers to vote on the decision.

But with an open market in effect as of Wednesday and the CWB already downsized dramatically, there may be only a faint chance that a court could return the company to what it was. “Things may have changed so much that the monopoly couldn’t possibly be restored,” said Anders Bruun, lawyer for Friends of the Canadian Wheat Board, adding that is why farmers are working on a C$17.5 billion class action suit for damages.

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