The federal government left lingering questions last week about the costs of moving away from single-desk grain marketing and who will pay the tab.
David Anderson, parliamentary secretary for the Canadian Wheat Board, said in a parliamentary debate that farmers “should not be left alone” to deal with the extraordinary costs of winding down the monopoly.
He said the government will assist with those costs while being responsible with taxpayer dollars.
However, Canadian Wheat Board chair Allen Oberg said that sounds a lot like cost sharing.
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“That’s what I read into that, which is a very different message than we were hearing from government earlier on.”
Oberg said farmers shouldn’t be picking up the costs of an initiative forced down their throats by the federal government.
Agriculture minister Gerry Ritz sounded more definitive than Anderson about who will pay the transition costs.
“We’re cognizant of the fact that this should not come out of the pools because we don’t want to be saddling farmers with these costs,” he said in an interview. “We want to be sure that the new entity has a chance to survive without carrying a huge mortgage right off the start.”
The wheat board has put together estimates in conjunction with KPMG suggesting the transition to a voluntary board could cost as much as $500 million.
CWB chief financial officer Brita Chell said the expenses associated with moving from a monopoly controlling 20 million tonnes of grain a year to a much smaller voluntary entity are going to happen quickly.
“There is going to be costs incurred during this crop year. We need to clean up the balance sheet so that we can have a clean starting point at Aug. 1.”
There will be five categories of expenses:
• Renegotiating debt instruments — The new entity isn’t going to need the $1.26 billion in borrowings that was on the books at the end of 2010. There could be costs associated with getting rid of that old debt and negotiating new loans, depending on market conditions.
• Renegotiating operational contracts — Arrangements such as terminal agreements and freight cont racts for moving grain through the Great Lakes were negotiated when the CWB was a much bigger entity.
“We aren’t going to have that kind of volume in the future,” said Chell. “We will have to either get out of those contracts or renegotiate those contracts, and as with anything there’s always penalties and costs associated with that.”
One big contract that may have to be renegotiated is the deal with Algoma Central Corp. to spend $65 million on the construction of two new ships. Chell said the new voluntary CWB may still need the vessels, but there is a chance the contract would have to be broken, which again would involve penalties.
• Liquidation of fixed assets — “In a smaller organization we wouldn’t have a need for all those desks and chairs and big computer systems,” said Chell.
The CWB had about $130 million worth of computer systems on the books as of July 31, 2010. These are customized systems related to pooling that would be worthless to other companies, so there could be a significant hit to the balance sheet if it had to get rid of them.
• Other considerations related to finalizing the pool accounts after July 31 -It will take a few months to wrap things up, which will entail labour and other expenses.
• Paying out severance costs and pensions for some of the CWB’s 430 employees who will be losing their jobs.
Ritz called the KPMG estimates “staggering in scope” and “unbelievable.”
“I don’t think the wind down costs will be anything like what the wheat board is predicting,” he said.
A senior Agriculture Canada official who did not want to be identified said the CWB’s estimates were based on the organization ceasing to exist rather than continuing as a voluntary board as envisioned in the legislation.
Renegotiating contracts and maintaining some CWB staff would minimize those costs.
There may also be discrepancies in what the CWB and the government thinks are reasonable expenditures, such as those related to severance packages.
That is why the federal government will be hiring an accounting firm to go through the CWB’s books and developing its own cost estimates. The firm is expected to travel to Winnipeg in the next couple of months.
