CWB Outlines Critical Business Requirements for New Organization

Oct 18, 2011 | Corporate Member News

The CWB has outlined six key business requirements critical to the success of any potential new organization that might be created if Prairie farmers’ current wheat-marketing structure is disbanded by the federal government.

Allen Oberg

“After extensive work by the CWB to analyze all possible alternatives for farmers, we identified concrete requirements for any new entity to succeed – and the federal government needs to address them,” said Allen Oberg, chair of the CWB’s farmer-controlled board of directors.

“This information was shared with Minister Ritz in July, but we continue to be stymied by the government’s inability to provide answers – despite its stated objective for a ‘strong and viable’ grain-marketing entity in an open market. While the Minister attempts to paint CWB directors as being uncooperative, we have in fact been taking these issues very seriously, without any meaningful response from government regarding these basic requirements.”

The CWB board of directors had invited Minister Ritz to attend its meeting in Winnipeg last week for detailed discussions, but he was unable to attend. Oberg said the offer for the Minister to meet with the full board remains open.

“Legislation will be introduced this week that will destroy the CWB,” he said. “Meanwhile, any chance for a successor organization is being crippled by this government’s reckless approach.

“We call on the Minister to live up to his promise to broadly consult with farmers – not just with his hand-selected group, but also among the tens of thousands of producers who have clearly stated their desire to retain the CWB single-desk.”

Sixty-two per cent of western Canadian farmers voted to retain the single desk for wheat in a CWB plebiscite conducted over the summer. Fifty-one per cent voted to retain it for barley marketing.

Oberg said consultations about the new legislation – and associated business requirements – should involve federal standing committee hearings held in Western Canada. He also urged the Minister to resist an anti-democratic process that would limit consultation and debate.

The six requirements (see the backgrounder below) were identified after extensive analysis by CWB staff and external business consultants KPMG. They were shared with government in response to the Minister’s request for the CWB’s views on implications of the government’s policy decision and what elements would be needed to establish a new organization. The Minister had also asked for assessment of costs to government of winding up the current CWB, which were also shared during the summer. In addition to outlining key requirements, the CWB expressed concerns to the Minister about the extremely short timeframe to establish a new entity, which seriously threatens its ability to compete.

“The government has provided no framework for a path forward,” Oberg said. “To run a business, you must have certainty about your capital and equity base, your means of borrowing money and managing risk, your ownership structure, your access to grain-handling terminals and the regulations that would be in place. None of this has been forthcoming.”

For more information, please contact:

Maureen Fitzhenry
CWB media relations manager
(204) 983-3101
Cell: (204) 227-6927
[email protected] 

Backgrounder: Six key business requirements for a new grain-marketing entity

1) Capital/equity. Government would need to contribute sufficient capital in the order of magnitude of $225 million, to finance grain inventories and conduct business operations. Under the circumstances and given the proposed timelines, it would not be possible for a new entity to raise equity from the private sector.

2) Financing/borrowing. Government would need to provide guarantees of borrowings by the new entity for a period of at least five years. In addition to a base level of equity, a new entity would require debt financing. It would not be possible for a new entity to access debt financing without government guarantees, given that any new entity would have no business track record to provide comfort to lenders.

3) Risk management. Government would need to provide a risk reserve in the order of magnitude of $200 million to replace its current guarantees of initial payments that are made to farmers (payments made before sales returns have been fully generated). A risk reserve would be necessary to enable a new entity to offer price pooling to farmers with initial payments that could attract sufficient grain deliveries.

4) Ownership structure. Government would need to act as the initial owners of a new entity with a share-capital structure. Under the circumstances, and in view of the short timeframes, a new entity would be unable to operate under any other ownership structure. An appropriate exit strategy would have to be put in place to enable the government to divest its shares in a new entity in due course.

5) Access to country and port grain terminals. Government would need to ensure regulated access to grain-handling facilities to ensure competitively priced access with service levels that would enable third parties to effectively compete.

6) Export access. Government would need to provide a new entity with regulatory authority to direct its own grain to port terminals of its choosing.

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