It’s one thing to change the regulations governing barley marketing on Aug. 1, 2007.
It’s something else altogether to change the reality on the ground.
That reality includes the fact that grain companies and maltsters have commitments in place, made under the single desk marketing system, that carry on through 2007 and well into next year.
“We have contracts on the books with the board going forward into 2007-08 and we can’t lose those contracts,” said Rob Meijer of Cargill Inc., which jointly owns Prairie Malt with Saskatchewan Wheat Pool.
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It will be crucial to maintain the confidence of overseas buyers of Canadian malting barley and malt, he said. A sudden, wrenching restructuring in the Canadian industry could shake that confidence.
“We can’t just change it overnight,'” said Meijer.
He suggested some sort of transition period be established to ensure a trouble-free shift from one marketing system to another.
“We need a transition structure in which the board will play a lead role in executing these contracts,” he said, noting the agency has considerable expertise and an excellent reputation with customers.
“We need the board to remain a partner for the benefit of the industry and our market, from the perspective of international reputation and commitment.”
Along with farmers, grain handling companies and exporters of barley and malt are facing a period of uncertainty.
While the government has announced plans to end the single desk on Aug. 1, it hasn’t presented a plan on how the new open market system will function. It has said it wants the board to remain in business, but has given no indication how it can do so.
As for the board, it was to decide this week whether to withdraw from barley marketing after Aug. 1, on the grounds that it couldn’t add value for farmers without the single desk.
A number of grain company officials said last week that from an operational perspective, they expect no problem taking over the board’s role selling malting barley to overseas and domestic customers.
“We are ready, plain and simple,” said Brian Hayward, chief executive officer of Agricore United.
The company is experienced in selling all sorts of commodities, from canola to oats to pulses, and it’s just a matter of “adding another grain code” to the company’s operating systems.
“From an accounting, a risk management and a logistics point of view, it’s really not a major change,” said Hayward.
His counterpart at Saskatchewan Wheat Pool is equally confident about making the change.
“It really doesn’t change significantly anything we’ve been doing,” said CEO Mayo Schmidt.
The Pool, like many other grain companies, is already involved in the export of malting barley as an accredited exporter of the CWB.
Accredited exporters search out customers, then buy grain from the CWB at the board’s buy-back price for that particular commodity and sell it. The board ensures that the sale fits in with its overall malting barley marketing strategy and meets its goal of maximizing returns to farmers before approving the transaction.
Roughly 25 percent of malting barley exports are made through accredited exporters, including about 50 to 60 percent of export sales and a much smaller share of domestic sales.
Schmidt said eliminating the board from the sales process will improve operational efficiencies and reduce costs for the grain companies.
CWB spokesperson Maureen Fitzhenry said while private grain companies can handle the logistics of selling and moving grain, that’s not the point.
The point is they can’t as individuals do what the board does in terms of putting in place an overall sales plan for Canadian malting barley and working to ensure all sales are made at the best price.
“That’s not to say we always get the most on every sale in every market, but over time, yes we do,” she said, noting that private companies will also take a margin on their sales.
As for the effect of an open market system on prices, at least one grain company executive said that while there’s no question there will be an impact, it remains to be seen whether that is positive or negative.
Keith Bruch, vice-president of operations for Paterson Global Foods, said as more companies compete to sell Canada malting barley to overseas and domestic buyers, there will be downward pressure on the price.
“Business will transact at values that both the buyer and the seller are comfortable with,” he said. “Will that necessarily be lower than the board’s pooled prices now? It’s a hard thing to say.”
He said some farmers may be happy to take a lower price if it means they can sell more quickly to boost their cash flow, especially in times of surplus supplies.
Today, the board controls the movement of barley as part of its effort to achieve the best price for farmers, he said.
“In an open market the buyers and sellers are free to determine the price and the timing of sales. The market will find its level and it will be reflective of international values.”
Officials from all grain companies predict that in an open market, there will be intense competition for good quality malting barley and they say farmers will be the beneficiaries.
“Producers will be able to market to the best bid,” said Schmidt.
Bruch added he expects the board will withdraw from the barley market if the government succeeds in dismantling the single desk.
“I agree with the board that it would be very difficult for them to compete in an open market for all the reasons that it has outlined,” he said.
Company officials said that if the board decides to remain in the barley market, they would be willing to negotiate agreements to provide logistical and other services to the board and perhaps even enter into marketing partnerships.
