Good morning, Mr. Chairman and committee members.
Thank you for the invitation to be part of your deliberations as you discuss very important issues respecting the wheat and barley industry and its implications for farmers and the entire wheat and barley value chain.
The task force recognized early in its deliberations that while the issue of marketing choice is primarily a matter centred on how farmers such as me will market their wheat and barley, it has large implications for the Canadian Wheat Board obviously, but also for the entire value chain. It cannot be presumed that nothing would change except for the farmers or for the Canadian Wheat Board. The task force, by necessity, had to consider how the elimination of the monopoly powers of the Canadian Wheat Board would affect the entire industry. There will be a number of cause and effect situations that may happen, and while it would be foolish to predict how each and every business will react, we did have to consider whether certain business conditions would bring value to farmers and at the same time would not hamper competition for farmers' grain.
First, some context for our business model. My remarks this morning will centre on perhaps one of the more interesting components of the task force report. It's interesting I think because farmers, I believe, are genuinely hungry for information about what a new Canadian Wheat Board might look like and how it might operate in a market choice environment.
It is important to stress that the business model we propose for a new and restructured Canadian Wheat Board is but one option for a new model.
The task force was always cognizant of the need to ensure that our recommendations need not only provide a reasonable probability for a successful launch and a sustainable business model for the new CWB, but we had to balance this with the need to ensure that future enhancements to the competitive regime in grain marketing, handling, transporting, and processing would still proceed and that we would not see an erosion or flight of capital from the industry. In fact, we believe that creating a climate for even more investment in the industry in all areas is not only healthy for farmers and the industry, but necessary to ensure the western Canadian grain industry remains competitive with existing and emerging international competitors.
The task force felt it was important to suggest at least one option, even though, as will be obvious from a careful reading of our report, it ultimately must be up to the board and the management of what we call CWB II to consider what its business model and business plan should be. The task force did not want to presume or be too prescriptive about these matters, as ultimately it must be up to the CWB II to position itself and determine what its value proposition will be to competitively and effectively bring value to farmers.
Now I'd like to outline our suggestions for the business model. Our option envisages CWB II as a commercial entity owned and controlled by farmers. The task force believes CWB II can create value for farmers by building on the strengths of the existing Canadian Wheat Board, namely, its strong customer relationships and knowledge of their requirements; its solid reputation for pricing, delivery, and contract execution with buyers; the fact that many producers desire to see any new version of the Canadian Wheat Board as a producer-controlled grain marketer; and its experience in operating a pooling system for producers.
Additionally, CWB II could or should develop new, innovative pricing products or new food safety protocols. We believe it can build on its strengths by reducing supply chain costs through the purchase or contracting of facilities. It could sell some services, such as its transportation and weather expertise. Importantly, it could also market crops other than wheat and barley.
Our option suggests the sale of shares in CWB II. This would clearly enable farmers to see an alignment of their interests with CWB II by investing in it. It is, of course, also a mechanism to provide the company with additional capital. As you will have read, we suggest the shares not be tradable for a two-year period, the first two years.
Clearly, contributing to a high probability of success for CWB II would be the transfer of Canadian Wheat Board assets. Adding together the intangible assets I have just referred to and the tangible assets as outlined in the table on pages 6 and 30 of the report would give CWB II a significant start-up benefit.
Finally, if I can just take a minute more, I would like to give you a perspective that I think you might find interesting. Prior to my work on the task force, my personal belief was that the voluntary CWB would be competitive in the marketplace, and it would do so primarily through the offering of pooled and cash price options.
I did not force myself into the position of having to think deeply about what the value proposition of a CWB II type of entity would be. I looked at it more from the perspective of a farmer whose natural vantage point is as a supplier-customer. From that vantage point, I currently see a variety of offerings from a variety of companies.
Each company has its distinctive characteristics, and as a farmer, I fairly easily choose which best matches my needs. The farmer in me assumed and said that another entity in the business with a unique and different approach would bring value to me, both directly and indirectly, as competitive influence improved offerings across the board.
I still believe that to be the case. But I felt quite strongly that to be really competitive, a transformed Canadian Wheat Board would have to change its focus to cash price offerings instead of price pooling.
As a result of being forced to think much more deeply about it, along with the benefit of vigorous discussion amongst the task force, I've come to see things slightly differently. I believe the CWB II has an exceptional opportunity to differentiate itself in the marketplace, and a value proposition that includes price pooling as one of its features could be the underpinning of its success.
To many farmers, me included, the current price pools are relatively unattractive. There's simply too much cost associated with them. However, in a market choice environment, I believe price pooling can be an extremely valuable offering to farmers. A new environment, a new focus brought on by the discipline of a competitive marketplace will mean the management of CWB II would look at things much differently. With a focus on cost containment, without quality over-delivery, without arbitrariness in pricing between classes, with tighter management of the logistics end, and with our focus on risk management, I can get really excited about the possibilities. In fact, I can easily envisage that farmers will eagerly flow a significant portion of their marketable grains, including current non-board grains, through a pool.
It's a matter of price risk management for farmers. As margins tighten and risk management becomes much more important to farmers, this has the potential to be truly a unique and important value proposition for CWB II.
Some farmers may elect to put more through the CWB II than ever before by including other crops. I believe many will commit a significant proportion to CWB II when it has proven itself capable and professionally managed. Personally, I can foresee myself putting a significant portion of not only my own wheat production but now other crops as well into CWB II pools. I will view it as a highly valuable risk management vehicle with a level of professional management that is currently not easy to access and perhaps beyond my own level.
The best comparison I can think of is the mutual fund industry. Mutual funds are just really investment pools. They are voluntary, of course, and they compete in a very sophisticated marketplace. They are growing and thriving as investors commit large portions of their portfolios to them to avail themselves of the professional management they offer. I think there's very little doubt that the competitive nature of the capital markets is what drives value into this kind of investment.
The same, I believe, would be true for the operations of price pooling for CWB II, and it would provide a unique and competitive value proposition to farmers. Combined with innovative and farmer-friendly financing instruments, I can get positively excited about the possibility of marketing grains, oilseeds, and special crops, price pooled through an entity such as CWB II.
I thank you for this opportunity, and I'll turn it back to Howard.
