De Pape is an owner of Integrated Malt Barley Management Ltd., a firm specializing in international malting barley markets. Additional details and background information about this commentary are available at barley@depape.ca.
Price transparency is a fundamental feature of a functioning marketplace. Without transparency, unnecessary costs and risks are added to the market.
Unfortunately, the Canadian Wheat Board’s proposed CashPlus program for malting barley doesn’t help.
One of the CWB’s favourite economists doesn’t get it. Richard Gray of the University of Saskatchewan recently said the CWB’s new CashPlus program provides farmers with a price as transparent as any commodity traded in the open market. That’s not the way I see it.
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With this program, the CWB wants to pay farmers a guaranteed minimum price based on the CWB’s selling price. Gray says, “For a farmer to know that the selling price to customers on that day is, say, $212 a tonne, is transparent.”
But Gray has that wrong. You see, farmers won’t ever know the selling price. That much is clear. Farmers will only know the Guaranteed Farm Price that the CWB puts out, and we know this will be lower, perhaps much lower. CashPlus will have lousy price transparency because the selling price will be hidden.
The CWB sells barley at different prices at the same time depending on the destination – what the CWB calls price discrimination.
When CashPlus was announced, the CWB suggested that right now, the guaranteed farm price for malting barley would be “over $5 a bushel” in west-central Saskatchewan. On the same day, both the offshore markets and selling price indications by the CWB to maltsters were well over $6 per bu.
So the CashPlus farm price could be a lot lower than some selling prices, by as much as $1 a bu. lower. And that’s where the problem lies.
A dollar a bu. difference could shift acres away from malting barley and into other crops even though better selling prices are available for malting barley. So in a time when Western Canada could become an even bigger player in the global malting industry, we are running the risk of sending signals to farmers that they should focus on other crops.
Gray suggests that CashPlus provides better transparency than the canola market because each elevator has a different canola price. Canola prices are different for each company because of different needs and opportunities, but they are all based on the market price that end users are paying. That’s the real market. After all, they’re the end users. Shouldn’t it be the same for a barley maltster? Shouldn’t we have transparent pricing in malting barley like we have in canola?
Under the CashPlus program, maltsters will have already agreed with the CWB on a price for the barley before they contract for delivery with farmers. If farmers don’t deliver, the maltsters will have the option to cancel all or a portion of the contract with the CWB. If so, they would also cancel their sale of the malt. This is just not good business.
But price means nothing if the barley isn’t coming up the driveway. The CWB argues that the malt industry and grain handlers want deregulation so they can buy barley for less. The truth of the matter is maltsters and exporters want to be able to pay true market value to farmers. But they know it’s just good business to provide proper price signals. CWB prices don’t have a good track record here. It won’t be any better under the CashPlus program.
The Malting Industry Association of Canada, the voice of Canadian maltsters, has made it clear that this program does not work for them. The grain handling firms have echoed that sentiment through the Western Grain Elevator Association.
The CWB argues that individual companies within these groups have told the CWB that CashPlus satisfies their operational requirements, but unless these companies come out and say so independently, we should believe these organizations when they say it doesn’t work.
If it doesn’t work for these maltsters, you can be sure it won’t work for any new ones either. At a time when the global malting industry is short on capacity, CWB policies are keeping new investment in malting flowing elsewhere, and definitely not into Canada. What a shame.
Make no mistake. This has gotten serious. The CWB is pushing hard to promote this new program. So much so that they have tied new crop business with maltsters to their acceptance of this program.
Rather than trying to fix things by pushing a program that will not achieve what the industry needs, the CWB is in a position to provide leadership by recommending the only real solution, which is to remove the single desk from the barley market.
