UNLESS the current round of World Trade Organization talks collapse and render last summer’s framework invalid, the Canadian Wheat Board is in for radical change.
The federal government and the wheat board would be wise to prepare now for those changes, or else farmers might once again be left to foot the bill for additional costs foisted upon them by international trade agreements.
A stated goal of the next WTO round is to eliminate government guarantees that cover shortfalls should farmers’ year-end pay entitlements from the CWB pool fall below initial payments. This support has only been used once in the past 13 years, but it is an important guarantee for farmers.
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One can only imagine a scenario in which the CWB makes its initial payment and then, through a sudden drop in the market or other unforeseen incident, is forced to ask farmers for repayment of funds issued. Besides the financial difficulties this would create, the furour in the countryside would be a nightmare.
Another more costly change looms Ñ the WTO clause that would end federal government financial guarantees of wheat board loans, which now sit at about $6 billion.
This federal backing allows the board to borrow at the lowest interest rates possible. When it makes credit sales, it charges a higher interest rate and earns an interest spread, valued at $56 million in 2003-04, an amount about equal to the board’s operating costs.
On its own, with no capital assets to use as collateral, the CWB would not have access to such low interest rates. The alternative would be to provide the board with a fund that would backstop its borrowing.
But who should provide the money for such a fund, which wheat board president Adrian Measner estimated might require about $1 billion to be viable?
The initial payment guarantee and the loan backing has been an effective and relatively inexpensive benefit offered by the government. Ottawa cannot pull away from this responsibility and leave farmers to absorb some or all of the additional costs. Action is required.
There is precedent. In 1995, the federal Liberal government killed the Crow Benefit rail transportation subsidy and announced a one-time payout to farmers equal to $1.6 billion.
Once again factors beyond its control threaten to bring added hardship to an industry reeling from other problems.
If the government guarantee disappears, Ottawa has a responsibility to compensate farmers so they are not disproportionately burdened. For example, it could provide a fund that would operate outside government control. That might enable the board to offer initial payment guarantees and obtain attractive interest rates for borrowing purposes.
Whatever the solution, action is needed now to ensure appropriate measures are ready to be implemented.
