The Canadian Wheat Board will be able to stay in business only if Ottawa puts hundreds of millions of dollars into a contingency fund to finance CWB operations, say board officials and some grain industry observers.
The federal government has signed on to a World Trade Organization agreement that calls for negotiations to end government financing and underwriting of state trading enterprises.
That will mean an end to Ottawa’s longstanding commitment to guarantee initial payments and to back up the board’s borrowings of roughly $6 billion a year, a policy that provides the board with significant savings in interest costs.
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CWB officials say those guarantees are essential and a sizable capital fund must be set up to replace them.
Many say the money should come from the federal government.
“I think there is a pretty strong argument for government input in terms of essentially buying out of that commitment,” said Brian Oleson, an agricultural economist at the University of Manitoba and expert in grain marketing organizations.
The guarantees have been in place for decades, he said, and it would be unjust for Ottawa to drop them without helping the board make the transition.
CWB chair Ken Ritter said there’s no way farmers can come up with the money needed to set up a fund.
“For us to borrow the kind of money we do, we’d have to have a pretty significant pool of capital in the contingency fund to interest bankers and money markets to lend to us,” he said, adding it’s up to Ottawa to provide compensation.
Ritter noted AWB Ltd., Australia’s publicly traded single desk wheat marketing agency, has a fund of about $1 billion.
In Australia, a producer checkoff on wheat sales was introduced in 1989 after the government said it would end the guarantees. The fund totalled about $600 million by 1999, at which time it was transferred to AWB Ltd., which replaced the Australian Wheat Board.
CWB director Art Macklin said financially strapped farmers should not be expected to foot the bill.
“I’m certainly not going to suggest that we institute a checkoff to take over from the government when the government has sacrificed western grain farmers in the interests of other sectors of the economy,” he said.
Through a spokesperson, CWB minister Reg Alcock declined to respond to the board’s demand for compensation, saying he has not yet discussed the issue directly with the board.
“All I can say at this point is we are planning on meeting with the CWB prior to the resumption of trade talks in September to discuss a number of issues,” he said.
A large government payment to set up a contingency fund could be challenged by Canada’s wheat trade competitors, particularly the United States, as an unfair subsidy.
“I think it would be the height of hypocrisy for the Americans to have a complaint of that nature, but it would be entirely consistent with their past performance,” said Oleson.
Barbara Spangler, executive director of the U.S. Wheat Export Trade Education Committee, said that the U.S. response to a contingency fund would depend on how it was structured.
“If the board was publicly traded, for example, and wanted to set up a reserve fund, that would be fine,” she said. “But if there was any government money, you get right back into the same issues and problems.”
