Restless farmers and the Prairie grain business

While the percentage of grain buyers in heaven may only be slightly higher than that for railroaders, the stories that grandpa (or now great-grandpa) told about being shafted by the grain companies early in the last century may have been a trifle exaggerated.

Then, as now, there was a bit of a “shoot the messenger” mentality in the stories about the price dropping when all the farmers showed up in town with their wagons full of the latest harvest. Lo and behold, the price went down, and all the elevators in town were paying the same price. Well, that’s the way the supply-and-demand system works. The grain buyers were only reflecting the world price, and paying more than the competition is no way to stay in business for too long.

That doesn’t mean that the system makes sense for the farmer, and while the accompanying rhetoric back then may have been a bit over the top, the response was entirely practical. Farmers established a pooling system through the Prairie grain co-ops, so that they could deliver any time and get an average price for the year, not a distressed one at harvest. They liked the pooling system so much that they figured they might as well build co-op elevators too.

This almost came to an end with the market crash of 1929. The voluntary pool collapsed and the Pools had to be bailed out by government. But the elevator network survived — in Manitoba despite a damning Royal Commission report that the Pool elevators had been guilty of some of the same skulduggery as the private companies. Apparently it didn’t matter. It seems that the attitude was that if you have no choice but to get shafted by the elevator company, you might as well own it.

Despite the collapse of the Pools’ Central Selling Agency, the pooling system was so popular that farmers got it back through political pressure to establish the Canadian Wheat Board. Combined with the grain co-ops, that gave farmers the sense that they had some control over the system.

And they did — so much that they eventually became the target for dissatisfaction, leading to agitation from organizations such as the Western Canadian Wheat Growers. Just as in the 1920s, the rhetoric was over the top — the Pools and the wheat board were “socialist” which made them by definition inefficient. The wheat board was “secretive” and “controlled by government.”

This was more perception than reality, but again, the driving force was the increasing view that farmers wanted to take control of their own marketing, not have it done through a monopoly. That view prevailed, and the grain co-ops and the board are now history.

This process took decades, but now while the earth is still relatively fresh on the old wheat board’s grave, it seems farmers are already riled up about getting some control back over the system. Farmers of North America says that it has generated $50 million in enthusiasm to buy CWB Ltd.

The enthusiasm is no doubt due to the wide margins charged by grain companies over the winter. Again, they may not qualify grain company owners for entry to heaven, but that’s the way the system is supposed to work. If the companies don’t want grain, they drop the price.

But were the wide margins only the result of poor rail service, or were the grain companies taking advantage? Resolving that question is one appealing aspect of the FNA’s proposal. As a farmer-owned company, the books would presumably be open and the costs of running the business would be clear to everyone. In other words, it would be a great way to keep everyone honest.

By the same token, we thought we’d already have some idea about this through seeing CWB’s books after two years of open-market operation, but the government has refused to release them. That raises several questions, including why farmers would want to invest before seeing the numbers. CWB has been on quite the building and buying spree lately, but where did the money come from? Is the grain business so profitable that these investments are a no-brainer? Or is CWB simply taking advantage of a government loan guarantee?

For farmer investors, that may not matter since the government has indicated that the capital would stay with the company, which is a pretty good deal — assuming CWB’s liabilities don’t exceed its assets.

But in the long run, the question is whether a farmer-owned company can be large enough to compete. Despite its recent purchases and new construction, CWB has only a few elevators and limited terminal access at the West Coast. Is that enough to compete with the multinationals and JRI, or at least to keep them honest?

That’s one of many questions, but one thing is for certain. Farmers get restless when they feel that they have no control over the grain business. What goes around comes around.