CALGARY – In the competitive world of the grain trade, the Canadian Wheat Board extracts top prices from buyers who know they must pay more for quality wheat.
“You have to be hard-nosed about it. The buyer has to understand what his alternatives for that quality of grain are,” said Ward Weisensel, head of corporate policy at the board.
Weisensel testified at the wheat board court challenge in Federal Court in Calgary Nov. 6.
He provided the court with a detailed account of how the board pursues customers and prices grain.
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The wheat board’s sales monopoly over most western grown wheat and barley is being challenged by a group of producers who say it violates their constitutional right to choose their own marketing system. The wheat board is able to do business through an act of parliament.
Weisensel told the court six sales desks sell to the Middle East, Asia Pacific region, Latin and South America, United States, Canadian domestic market and a barley and barley products desk.
Board sales include cash deals, sales to the Canadian International Development Agency which pays for grain with taxpayer money and credit sales.
Customers obtain a three-year line of credit through the Canadian government which is paid back with interest. When the board makes a sale on credit, the full value is paid into the pool account, said Weisensel.
The board handles direct sales and bids for contracts from buyers. Bidding is common in Japan which buys about 1.2 million tonnes of grain annually.
When making an offer, the price has to be competitive with what Americans offer for equivalent grains. Freight costs are included in the price, he said.
Weisensel said the board’s ability to guarantee quality, quantity and price is an advantage.
A buyer’s willingness to pay more for higher quality can provide premiums of $26 to $31 a tonne over the world price.
He cited one example when a price of $243 a tonne f.o.b. for Canada hard red spring wheat was offered to the Japanese. That same day, England was offered grain of equal quality for $235; Taiwan, $225; Italy, $222 and the United States, $210.
Weisensel said the board can sell the same type of grain for different prices to different customers because customers like the Japanese are willing to pay a premium for guaranteed quality. Prices may also vary due to freight rates and location of the port.
Sales advantage
“Only a single-desk seller can sell the same kind of grain at different prices on the same date,” he said.
Since the board is the only seller of Canadian wheat, buyers must meet the board’s prices to get that particular quality.
Weisensel also explained how the wheat board courts new customers through its market development division. Multi-national grain marketers don’t normally do that kind of market development. Instead the task is left to national commodity organizations, he said.
Final arguments on whether the board’s monopoly violates constitutional rights will be heard in Winnipeg during the week of Dec. 9.
