opinion
Canada’s barley export program is in a mess. Potential sales to Japan are being lost, even though the Japanese are ready to pay premium prices.
In the last crop year, many farmers failed to deliver the amounts called for under their contracts with the Canadian Wheat Board. Now, says CWB chief commissioner Lorne Hehn, “we will not sell barley until we see it.”
That reflects a regrettable breakdown in trust and communications between the board and at least some farmers.
If the board had moved faster to give farmers a detailed explanation of last year’s barley marketing, perhaps today’s problem would be less severe. After all, the board did what it was supposed to – it responded well to fast-changing supply and demand forces for feed barley.
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The crop year began with sales to Japan and the U.S. But as world supplies tightened, the board redirected sales to the higher-priced Japanese market, increasing Canadian producers’ revenue by more than $14 million.
Last spring, however, barley deliveries to the board slowed drastically. Many farmers chose to abandon their delivery contracts, paying the penalty for non-delivery and taking direct advantage of high prices.
If farmers had delivered what they promised, the board says it could have met all its sales commitments to Japan. Instead, the barley price pool was reduced by loss of an expected 400,000 tonnes of high-priced sales. Heavy demurrage costs were also incurred as ships waited up to 50 days for barley.
This unfortunate experience shows a need for the board and farmers’ organizations to review the whole system of delivery contracts. The issue also raises questions about the basic concept of price pools.
Price pooling brings many benefits, and works smoothly to even out the normal ups and downs of prices over a year. But when prices surge upward in the middle of a crop year, that means deliveries in the second half are averaged with lower-priced first-half sales.
Some farmers see this as not getting full value for their grain in the second half of the year.
If the difference between spot prices and expected pool returns is substantial, those producers will be tempted to do what they can to avoid the pool.
One way around this would be to let the board start new price pools when markets jump or fall to new levels.
Would two six-month pools be more or less equitable than a 12-month pool? Ultimately, it’s up to farmers themselves to decide such questions. With open communication and constructive debate, the unfortunate barley experience could still lead to adjustments that will enhance producers’ support of their own marketing system.
