The news that international grain companies may have recently sold 550,000 tonnes of Canadian wheat to Saudi Arabia struck some farmers as odd.
After all, isn’t making big wheat sales the point of having a Canadian Wheat Board sales monopoly? If grain companies can do the business themselves, why have the board at all?
But people in the grain industry say the use of accredited exporters fits easily within the CWB’s regime and the sales they make don’t duplicate marketing efforts.
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“It’s an extra set of eyes,” said longtime grain industry official and insider Barry Senft about the CWB’s use of accredited exporters.
Reuters reported earlier this month that Saudi Arabia bought 550,000 tonnes of Canadian hard wheat from international trading houses Noble and Toepfer
People in the grain industry say accredited exporters have a limited but vital role within the monopoly marketing system, generally helping make sales to small or risky markets that the board would otherwise have trouble reaching.
“The board has offices in Beijing and Tokyo, but we can’t have offices everywhere there could be a potential sale,” said former CWB chair and farmer Ken Ritter.
With the board selling wheat and barley to more than 70 countries and hundreds of customers, there are situations that are ideal for grain companies to take over, and some which require it.
Gord Flaten, the CWB’s vice-president of marketing, said the board does about 60 percent of its sales entirely with its own staff, with up to 70 percent of malting barley sales done in house.
But accredited exporters come into the picture in two main areas:
n When companies find sales the board hasn’t found and take them to the board.
n When sales are to buyers or with conditions that the board finds too risky.
“We like to do business directly where it makes sense,” Flaten said.
“We like to be close to the customer and be negotiating all the details of the business right to the delivery to the customer … but it doesn’t make sense in some cases.”
Those include sales to customers who insist on taking possession overseas or subject to inspection after it has left Canada.
The board won’t agree to such sales because once the grain is on board a ship, it is beyond Canadian Grain Commission oversight and subject to too many uncertainties for the board to accept.
However, a grain company may be willing to take on the risk to make a margin on the sale. The company will take possession at port – it is not officially an agent of the board – and then deliver the shipment to the customer.
The board sets the price for the grain sold to that market, and the company can negotiate a premium on top of that.
The company is contractually bound to sell the grain it has bought to the specified market.
“In all of these places, the CWB is still pricing grain to all of the accredited exporters and our contracts are destination specific,” Flaten said.
Ritter said the risks faced by accredited exporters are real.
“There have been occasions where shipments have been rejected,” he said.
He would not identify specific cases but said they were well known.
The other main role of accredited exporters comes from their close connections with customers in their markets. Foreign customers often want suppliers to deliver features besides grain quality, so some turn to accredited exporters to get an all-in-one package of grain, logistics and support.
Sales methods
Sometimes the customer goes directly to the accredited exporter to get the grain and the services. Other times the wheat board approaches the accredited exporter to take the grain and deliver the services.
There are also parts of the world where close in-country contact between buyers and grain marketers is valued, including the Middle East and Africa, which has a sophisticated and ancient trading culture.
Many buyers in those regions want to have their business partners close by and known to them.
Accredited exporters are also often used when a buyer wants a small amount of a number of commodities and it would be difficult for the board to arrange just the wheat or barley component.
“It’s much cheaper for us to piggyback on that business (already being conducted by a grain company),” Flaten said.
The recent Saudi sale, which CWB officials would not confirm and neither Senft nor Ritter had any direct knowledge of, may have surprised some because of its reputed size.
However, the use of accredited exporters takes place daily and is part of the task of moving the Prairies’ yearly mountain of crops.
“If there’s a deal that can be made, the AE (accredited exporter) goes to the board and gets a code, and if there’s a margin in it for them, the deal is done,” Senft said.
