CWB in Trouble with US?

[TOM4CWB]

"USTR Extends Section 301 Investigation
on Canadian Wheat"


"WASHINGTON - United States Trade Representative Robert B. Zoellick announced today that he is extending the United States' investigation of Canadian wheat marketing practices from January 22, 2002 until February 15, 2002.

"Promoting American agriculture is a key goal of this Administration. This investigation into the marketing practices of the Canadian Wheat Board is important to American wheat farmers," said Zoellick. "We received a tremendous response to our request for comments on the investigation. Extending the investigation will enable us to thoroughly review and analyze all the information received."

The investigation was initiated in October 2000 under Section 301 of the 1974 Trade Act, based on a petition filed by the North Dakota Wheat Commission alleging unfair marketing practices of the Government of Canada and the Canadian Wheat Board. On December 21, 2001, the U.S. International Trade Commission released a report on Canadian wheat trading practices, which Ambassador Zoellick had requested to assist in the investigation. At the same time, USTR issued a Federal Register notice inviting interested parties to submit comments by January 14 on the issues in the investigation. In response, USTR received over two dozen sets of comments, totaling over four hundred pages."

QUESTION, WHY DID THE CWB DECLARE VICTORY IN DECEMBER IF THIS CASE WAS STRAIGHTFORWARD, THAT THEY WON?

WHAT WOULD HAPPEN TO CANADIAN WHEAT AND DURUM PRICES IF THE US PUTS A TARIFF ON OUR PRODUCTS?

[charliep]

I won't second guess the US or the CWB. A comment I will make is the US processing industry doesn't 100 % buy wheat and malt barley here because they are nice guys. We produce a needed product that has quality characturistics they want and is sold at a competitive price. Taking Canadian grain out of the picture would both increase their cost of sourcing grain and impact their ability to meet customer needs based on being to buy crop with certain quality characturistics. Wheat ex durum is probably the least impacted but the US has needed to diversify the regions they source from in the case of both durum and barley to the ensure the quality they require and move production out of areas where disease issues are becoming more of a problem.

[TOM4CWB]

charlie,

In talking to federal officials it appears that they believe the US would have to go to the WTO?

Just how does the trade law work on NAFTA in this case?

[AdamSmith]

Charlie,

Your points about US processors are true, but those same points apply to softwood lumber and the US went ahead anyway with imposing tarrifs. For sure US consumers are being hit by the action but at the end of the day the Canadian lumber industry will have to change the way it operates or be shut out of the US market for good.

The same thing is going to happen to Canadian wheat and all the bluff and bluster from the CWB will not change this fact.

The really sad thing about all of this is that it doesn't need to happen. There are plenty of reasons for Canada to reform/replace our monopoly wheat system and none of them have one thing to do with appeasing Uncle Sam. Canada should make the neccessary changes because it will benifit Canadians.

But all evidence points to Canada waiting for the hammer to come down before it will act and then we will be left with having Americans not Canadians determining the shape of our industry.

As someone who despeatly wants to see that monopoly ended, I find myself in the uncomfortable situation of wanting the Americans to finally get tough with Canada and the CWB because as I see it it looks to be the best hope for a quick resolution to this agonizingly slow process of achieving a non-monopoly system.

Just for info purposes here are a couple more news releases and a little something from the CWB. It realy makes you wonder if anyone at the CWB has even got clue one about what's coming their way?

An Informal Review of the U.S. International Trade Commission Report
1/15/2002


A CONFIRMATION OF UNFAIR ASPECTS OF CANADIAN WHEAT TRADE AND INJURY TO U.S. FARMERS

The U.S. International Trade Commission on Dec. 21, 2001, released the public version of a report on its general fact-finding investigation into the wheat trade practices and competitive conditions between the United States and Canada.

The report confirms the bulk of allegations set forth in this investigation including the non-commercial structure of the Canadian Wheat Board and a plethora of unfair Canadian policies and practices. These policies and practices have damaging consequences on American farmers, depressing both the volume and value of U.S. wheat sales. Unfortunately, as in past investigations, the CWB and the Government of Canada refused to participate in a meaningful way and to provide access to key pricing and sales data, thus limiting the usefulness of certain aspects of the ITC report.

The ITC report is an important part of a larger investigation (under Section 301 of the U.S. Trade Act of 1974) that has been undertaken by the Office of the U.S. Trade Representative. The report provides ample evidence of the incompatibility of the Canadian wheat marketing system with free trade and of the need for structural reform. The U.S. government needs to take action to bring the Government of Canada to the negotiating table to reach a long-term resolution to this trade problem. Quantitative restrictions, such as a proposed system of tariff-rate quotas, may be the only way to get Canada to take the medicine it needs to fall into compliance with the spirit of past trade obligations (CUSTA, NAFTA, WTO) and to negotiate with good faith in the future. The U.S. Trade Representative is to make a formal determination in the matter by Jan. 22, 2002.

KEY POINTS

Canadian system not just different, it's a monopoly. The ITC report contrasts the U.S. and Canadian wheat marketing systems, noting "In the United States, the middleman sector consists of numerous producer cooperatives and small and large trading companies. In Canada, the entire middleman sector consists of the CWB, which is empowered with both monopsony and monopoly powers in the marketing of Canadian wheat."

CWB not a commercial entity. The ITC finds "Market power is only one of the CWB's notable structural characteristics. As shown…, the board is in all significant respects an arm of the Government of Canada, with Government approval and backing of its borrowing and other financing, which reduces its costs and insulates it from the commercial risks faced by large and small U.S. grain traders."

Nor is CWB a producer cooperative. The ITC report identifies "critical ways the CWB departs from conventional producers' coop structure" including government financial backing and mandatory producer participation. The ITC estimates that the government-backing of the CWB gives it a 3 to 24 percent cost benefit over what private borrowers would pay. The report also underscores that an absolute right to the supply of western Canadian wheat "gives the CWB more control over its selling price because it only competes with foreign rivals."

Price pooling allows for price-discounting and cross-subsidization of sales. The ITC finds "the CWB's producer pool system (by which Canadian wheat producers are remunerated) gives the CWB flexibility in marketing." The report states, "Producers receive a Government-approved and -guaranteed initial payment early in the crop year, with subsequent interim and final payments as the crop is harvested and sold on world markets. Not only are such subsequent payments payable only to the extent the CWB makes money on its sales, but they are subject to a variety of CWB-determined deductions for freight and other expenses. Some of these deducted expenses are "phantom" expenses (expenses not actually incurred by the CWB ...). The resulting surplus revenue gives the CWB a price cushion in its negotiations with domestic and foreign buyers."

Elsewhere, the ITC report states, "Because the CWB is only required to make the initial payment, it potentially has greater flexibility to under price its U.S. rivals. Legally, no further payments are required after the initial payment, and even that is guaranteed by the Federal Government should the CWB make so little that it cannot cover even that payment. Thus, the CWB has no break-even floor below which it cannot price."

CWB has non-commercial advantage in contracts for future delivery. The ITC report finds "the CWB can forward contract durum wheat to U.S. and/or third-country purchasers in a way that no U.S. durum supplier can do given the high level of risk and price volatility facing small suppliers in a thinly traded market. The demise of the durum futures contract on the (Minneapolis Grain Exchange) is partly related to the presence of the CWB."

In other words, the CWB readily commits to contracts for future delivery because of its lock on Canadian supplies. This CWB sales practice removes substantial demand from the market and squelches the potential for any upswing in prices.

CWB has power and ability to lead prices downward. The ITC finds, "The lack of price transparency within Canada gives the CWB an inherent marketing advantage over U.S. competitors. This is particularly true in Durum markets, but also in HRS markets." The ITC report further states, "Canada's large share of the Durum market suggests to some U.S. industry members the possibility that the CWB's actions can affect Durum prices on U.S. exchanges. In this view the CWB is not entirely a price-taker in the U.S. Durum market but has some effect on prices by its decisions on how much to market."

CWB's deliberate over-delivery of protein affects sales. While only limited pricing and contract data on Canadian exports to third-country markets was available, the ITC found that "the CWB more frequently over-delivers (67% of the time) on contract specifications that it under-delivers." In particular, the report indicates that "a higher frequency of protein over-delivery in the higher ranges was found for the CWRS (Canadian Western Red Spring) wheats." A significant percentage of the CWB contracts for CWRS had protein over-delivery of 0.8 percent or more. This amount of a protein over-delivery is significant because it more than accounts for standard differences in testing and sampling. The CWB well knows the value of protein in bread wheat. While it gives protein away to select customers or markets, the CWB has actually begun paying farmers more for each additional one-tenth of a percentage point of protein delivered.

CWB benefits from substantial transportation preferences. The ITC report confirms that Canadian Government rail regulations place "caps" on the overall revenues received by Canadian railroads from the transport of CWB wheat. Shipments to the eastern and western ports for overseas export are regulated and the rates are below comparable commercial rates.

In addition, the report points to a $9 to $12 per metric ton difference in rail freight charges for shipments of hard red spring wheat and durum with identical origins and destinations. Regarding the fact that distance-based differentials in rail freight charges also differ by wheat type, the ITC report states, "No clear explanation for the difference between charges for HRS and Durum was provided by the CWB." The lower rates for durum would certainly have implications on the delivered cost of Canadian durum vs. U.S. durum.

Canadian market closed to U.S. wheat. The ITC report states, "Although the position of the Canadian Government is that U.S. wheat can "freely enter Canada," Commission staff interviews with U.S. wheat exporters to Canada indicated that U.S. exports of wheat to Canadian mills or elevators are difficult, burdensome, and infrequent. The excessive paperwork and regulatory review by Canadian officials that require carefully orchestrated on-site inspections by the (Canadian Grain Commission) to prevent 'commingling of Canadian and U.S. wheat' effectively create a prohibitive nontariff barrier to U.S. milling-grade wheat entering Canada for consumption there."

Elsewhere, the report reveals "the CWB sells wheat to domestic Canadian millers using a North American pricing policy that ensures that its selling prices to Canadian millers are competitive with U.S. prices. According to U.S. interests, the CWB will lower its price to Canadian wheat mills in order to eliminate any possibility of U.S. wheat or flour coming into Canada."

Usefulness of pricing data limited. The report states that data gathered from questionnaires "does not include data on sales, quality characteristics, and prices of wheat exported to third country markets directly by the CWB or through Canadian or foreign firms not located in the United States."

The report also notes, "Several large companies did not have available data for 1996/97 to 1998/99." This means the ITC was only able to review pricing data for two (1999/2000 and 2000/01) of the five years covered by the investigation. Furthermore, the report states, "Direct comparison between contracted and delivered prices for U.S. and Canadian wheats was not possible owing to differences in reported contracting terms…"

The complete ITC report is available on the Internet at
ftp://ftp.usitc.gov/pub/reports/studies/PUB3465.PDF. The executive summary can be found on pages 21-30 of the 180-page report.


.S. LAWMAKERS URGE STRONG ACTION IN SECTION 301 CASE
1/25/2002


Lawmakers from across the nation's fruited plains today called on President George W. Bush and U.S. Trade Ambassador Robert Zoellick to issue a positive determination on behalf of America's wheat farmers in response to the current Section 301 investigation into the operations of the Canadian Wheat Board. They asked the Bush Administration to "use this determination to put an immediate stop to unfair wheat imports."

"We are very gratified at the strong bipartisan support for wheat farmers," says Maynard Satrom, an Oriska, N.D., producer who serves as chairman of the North Dakota Wheat Commission. The NDWC is the petitioner in the trade investigation. Satrom says the investigation "has led to a growing realization that Canada's government grain monopoly is simply incompatible with free markets."

Fourteen U.S. Senators and 19 members of the U.S. House of Representatives signed a joint letter to President Bush. They cite injury to American wheat farmers by " a flood of unfairly traded imports of Canadian wheat."

The letter states: "This flood of imports has occurred not because U.S. farmers are any less competitive, but because the (U.S. Canada Free Trade Agreement) permits the CWB to engage in a series of anti-competitive practices that undermine the operation of free markets as well as free and fair trade. A recent study by the International Trade Commission documented these unfair activities. These practices, which are also used to unfairly capture market share in third countries, are precisely the sorts of activities that Section 301 was enacted to combat."

Together, the elected officials "strongly recommend … limits on unfairly traded imports of Canadian wheat (through tariff rate quotas or other appropriate measures) until and unless a longer term agreement can be reached to discipline the anti-competitive practices of the CWB."

On the subject of the requested tariff-rate quotas, NDWC Administrator Neal Fisher says, "Import restrictions may be the only way to get Canada to take the medicine it needs to fall into compliance with the spirit of past trade negotiations and to negotiate with good faith in the future." The NDWC is also urging for fundamental reforms to the Canadian wheat market system.

U.S. Senators who signed the letter are Kent Conrad (D-N.D.), Byron Dorgan (D-N.D.), Max Baucus (D-Mont.), Conrad Burns (R-Mont.), Tim Johnson (D-S.D.), Tom Daschle (D-S.D.), Paul Wellstone (D-Minn.), Mark Dayton (D-Minn.), Ben Nelson (D-Neb.), Mike Enzi (R-Wyo.), Larry Craig (R-Idaho), Mike Crapo (R-Idaho), James Inhofe (R-Okla.) and Maria Cantwell (D-Wash.).

Members of the House of Representatives who signed the letter are Earl Pomeroy (D-N.D.), Butch Otter (R-Idaho), Mike Simpson (R-Idaho), Doug Bereuter (R-Neb.), Tom Osborne (R-Neb.), Bob Schaffer (R-Colo.), Scott McInnis, (R-Colo.), George Nethercutt (R-Wash.), Doc Hastings (R-Wash.), John Thune (R-S.D.), Dennis Rehberg (R-Mont.), J.D. Hayworth (R-Ariz.), Lee Terry (R-Neb.), Ed Pastor (D-Ariz.), Richard Pombo (R-Calif.), Doug Ose (R-Calif.), George Radanovich (R-Calif.) Frank Lucas (R-Okla.) and John Doolittle (R-Calif.).

Senator Thomas (R-Wyo.) has sent his own letter in support of an affirmative determination to the President. Colorado Congressmen Mark Udall (D), Schaffer and McInnis also sent a letter to the USTR "requesting that the CWB be held accountable for its unfair trade practices."

The U.S. Trade Representative is to make a formal determination in the Section 301 investigation by Feb. 15, 2002.

Note: To request an email copy of the U.S. Senate and House of Representatives letters, send an email request to ndwheat@ndwheat.com or call the NDWC office at 701-328-5111.


Justin Kohlman
Manager, Media Relations

--------------------------------------------------------------------------------

At a glance
A public release today by the U.S. International Trade Commission (ITC) appears to reaffirm that the Canadian Wheat Board is a fair trader, as the CWB has maintained throughout this American investigation. The ITC news reported that Canadian durum prices exceeded U.S. Durum prices in 59 of the 60 months surveyed.

"We’ve always said that we sell for premium values and I’m pleased to see that this report confirms this fact," said CWB President and CEO Greg Arason.

In October 2000, the North Dakota Wheat Commission (a farmer advocacy group) successfully pressured the United States Trade Representative (USTR) to launch an investigation into the trading practices of the Canadian Wheat Board. The USTR asked the ITC to conduct a fact-finding mission.

The ITC news release is available on the ITC Web site at www.usitc.gov.

The USTR will make recommendations by January 22, 2002. This is the ninth trade challenge initiated by American groups against Prairie farmers since 1990. The previous eight challenges have upheld the CWB as a fair trader by all international standards.



AdamSmith

[Steve]

You sure can tell the US election is coming up and the politicians are after the farmers votes. They always accuse Canada's unfair marketing practices ( CWB ) and other subsidies and look who is calling the kettle black. If we read the US report about the CWB and believe it, then the board must be doing all these good things for the Canadian farmers that we can’t seem to see. So if it is true maybe that is one way we can compete with the US subsidies.

The CWB is a on going target for the US politicians, but they would find something else if the board wasn’t there, look what happen with the soft wood trade dispute. Like I said before the Canada and USA free trade is very fragile because of the large population difference.

I hope some day the US will wakeup and realize that Canada is not there problem but their dollar value is to high, and as a result their farm subsidies are also following the same line of though.

All these issues will slowdown after the election in November, but watch the US dollar slide and this will help US exports but not for Canadians.

[TOM4CWB]

Steve,

I cannot believe the CWB is innocent.

Conagra is now in the spotlite, some $4 million in CWB fines pending.

What happened?

AdamSmith can probably add, but my information was that Conagra was paying $4.25 plus for milling specifcation "feed wheat" which was not feed wheat in quality, even though by the letter of the CGC Act it probably was!

The grades the CWB and CGC use are failing us.

Now most US shipments are #2CWRS, but if shippers want the US movement, they must ship #1CWRS spec, and get paid for #2CWRS instead!

This CWB action may be by the CWB's interpretation of the law, legal, however it is completely against the principals of the Canada Grain Act.

This is only the tip of the iceberg of what is wrong with the monopoly.

The CWB can flex the CWB Act to make it read anything and get away with it!

The vindictive nature and absolute power of the CWB forces our grain handlers and grain producers to do things that would never happen commercially, simply out of fear that the CWB can destroy any of us without recourse.

These may be strong words.

However I believe they are justified because we are talking about an agency that the even the Supreme Court of Canada refuses to scrutinise or examine.
CWB actions without exception in the last 10 years, have been refused appeal to the Supreme Court of Canada.

Doesn't this say it all about the unhealthy ultimate power that the CWB holds, when the Supreme Court of Canada is afraid of looking at the CWB?

Do you really believe for a second that the CWB is really innocent?

[AdamSmith]

Steve,

There is an election every two years in the US. Don't get suckered into believing that this is just American politicing and it will just die down once this yrs. congressional elections are over. Your right about the CWB being a perenial target. But it's the CWB not wheat in general that is the target.

Read the point about the CWB's deliberate over-delivery of protien. That alone should cause Canadian farmers concern. Would you not agree?

What's different about this report is that the Americans are showing that they are stating to figure out the CWB. Past investigations have missed the mark because they never really understood what exactly they were dealing with. They confused government involvment with subsidization. But it looks like they have have finally figured out that the ones who are being subsidized are the buyers of our wheat and the ones who are paying for that subsidization are the Canadian wheat farmers.

That being said, the impact on the marketplace is no different than had the Canadian govt been providing export subsidies all along.

One other note, In order to gain entry into the WTO, China was forced to eliminate it's state trading entities. I doubt our left leaning farm press reported that interesting tidbit.

The more you look around the more evidence there is that Canada is becoming more and more offside and isolated when it comes to defending the CWB.

[AdamSmith]

Don't neglect to consider the fact that 59 months out of the 60 months that were explored by the USTR, the CWB prices were HIGHER than the US price. It deflates the arguments above considerably.

Tom

[TOM4CWB]

Thalpenny and the CWB,

Why does the CWB ignore CWRS deliveries to the US, and the fact that on average you do not extract a premium on these US, and therefore domestic Canadian milling sales, since the CWB has a single point pricing structure for North America?

Why do you ignore the fact that the CWB Producer Direct Sales (PDS) Buyback distorts the North American wheat market?

You ask why I claim this?

The USITC December 21, 2001 report documents and identifies clearly the substitutability of Canadian CWRS, US Dark Northern Spring red wheat, and US Hard Red Winter wheat. Upon checking the CWB producer direct sale (PDS) and Domestic Human Consumption (DHC) prices, they generally reflect the approximate correct basis spreads between the various US wheat class values, as reported in the USDA weekly export pricing reports. The CWB is meticulous in its efforts to track and emulate these North American pricing signals.

The fact is that the North American value is “world price” for wheat, and the CWB knows this.

Both US marketers and the CWB may price discount to various offshore markets, further both sell into the “premium” Japanese and EU markets. Both discount and premium values are already incorporated into the competitive US domestic price paid a US wheat grower or myself when I choose to sell my wheat in the USA.

The CWB is double dipping if the buyback is extracting value from a “designated area” grain producer, or conversely, as also many times occurs, unfairly subsidizing sales to the US domestic market through the buyback by paying the “designated area” wheat producers through the interim and final pool payments, on PDS made directly to this US domestic wheat market.

How can the CWB deny that their policies are not distorting the world wheat market?

Why when I bring these facts to hold the CWB’s accountable why do you complain;

“Your language that the CWB is using these PPO’s to steal from farmers and pad the pooling accounts, suggests that you have not fully understood the process before making what is an erroneous, outrageous and quite frankly offensive accusation.”

Until the CWB allows no-cost export licenses for PDS to the US like it does with Pedigreed Seed and Feed Wheat, even if the USTR doesn’t fine us, will these distortions magically disappear?