Vol. 147, No. 13 — June 19, 2013

Registration

SOR/2013-112 May 31, 2013

CANADIAN WHEAT BOARD (INTERIM OPERATIONS) ACT

Regulations Amending the Canadian Wheat Board (Interim Operations) Regulations

P.C. 2013-607 May 30, 2013

His Excellency the Governor General in Council, on the recommendation of the Minister of Agriculture and Agri-Food, pursuant to section 41 of the Canadian Wheat Board (Interim Operations) Act (see footnote a), makes the annexed Regulations Amending the Canadian Wheat Board (Interim Operations) Regulations.

REGULATIONS AMENDING THE CANADIAN WHEAT BOARD (INTERIM OPERATIONS) REGULATIONS

AMENDMENT

1. Section 5 of the Canadian Wheat Board (Interim Operations) Regulations (see footnote 1) is amended by striking out “and” at the end of paragraph (a) and by adding the following after paragraph (b):

COMING INTO FORCE

2. These Regulations come into force on the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issue

The Marketing Freedom for Grain Farmers Act, which received Royal Assent on December 15, 2011, changed the structure of the grain industry by removing the Canadian Wheat Board’s (CWB) single-desk marketing structure for Western Canadian wheat and barley, effective August 1, 2012. As a result, the CWB is now required to compete in the open market, where pricing is competitively based on commodity exchange prices and delivery point locations.

However, section 5 of the Canadian Wheat Board (CWB) (Interim Operations) Regulations maintains the monopoly-era pooling points, which are Vancouver and the Lower St. Lawrence. In order to offer competitive prices that are aligned to regional market conditions in the open market, the CWB needs access to two additional pooling points: Thunder Bay and Saskatoon.

Background

The Canadian Wheat Board (CWB) Regulations were enabled under the now repealed Canadian Wheat Board (CWB) Act. Many sections of the CWB Regulations became spent with the repeal of the CWB Act and the coming into force of the CWB (Interim Operations) Act on August 1, 2012. The CWB (Interim Operations) Regulations, enabled by the new CWB (Interim Operations) Act, were enacted by the Governor General in Council on February 14, 2013, and will come into force on August 1, 2013, at the beginning of the CWB’s 2013–14 crop year.

The CWB (Interim Operations) Regulations clarify what is still applicable to the now voluntary CWB, including identifying the CWB’s pooling points. Section 5 of the CWB (Interim Operations) Regulations maintains the monopoly-era pooling points, which are Vancouver and the Lower St. Lawrence.

Pooling points provide a pricing basis specific to certain areas. For its grain pools, the CWB has an initial price for each class and grade of grain; this initial price is applicable to each of the pooling points. Upon delivering grain to the CWB through a country elevator, the farmer receives the initial price less the transportation rate to the nearest pooling point, and less elevation charges as well as any costs associated with the cleaning or conditioning of the grain. Although the CWB does not own its own country or terminal elevators, it has entered into handling agreements with each of the Western Canadian grain companies to allow farmers to deliver the grain they contract with the CWB to any elevator across Western Canada. While elevator fees and transportation costs may change, the initial price does not.

Objectives

The objective of the Regulations Amending the Canadian Wheat Board (CWB) (Interim Operations) Regulations is to allow the CWB to provide more competitive pricing. The two current pooling points do not permit the CWB to easily align pool prices with the current regional pricing structure of the grain markets in Western Canada. Under the single-desk marketing system, the CWB was the sole purchaser of Western Canadian wheat and barley, and they set the prices for these grains. The reference point was not an issue as all contracts would reference the same price point. With the introduction of the Marketing Freedom for Grain Farmers Act, the CWB’s monopoly was removed and therefore the CWB must compete in the open market. In the open market, the CWB is no longer the only one offering prices for wheat and barley and instead prices are set, by the CWB and its competitors, at reference points based on trading markets, which can vary by region. Beyond this, the CWB is now able to market other crops and has begun to market canola, which also requires a competitive price set by reference to trading markets. The additional pooling points allow the CWB to more easily set and communicate prices to customers that are better aligned to regional market conditions, just as their competitors do.

The Regulations Amending the Canadian Wheat Board (CWB) (Interim Operations) Regulations assist the CWB by adding new pooling points situated near, or having delivery points of, major commodities exchanges. It is necessary to have the CWB’s prices be reflective of the prices posted for the delivery points used by the commodities exchanges. When a futures contract for grain is settled for a specific price, the grain must be physically delivered to a specific area, or delivery point. There is usually one “par” delivery point or area and a number of specific alternative delivery points, with either a premium or discount value to be applied to the contract price for each respective alternative location. The location of alternative delivery points can vary within one exchange depending on the commodity. The delivery point and its associated premium or discount are outlined on the contract itself, and are set by the exchange that is offering that contract.

The CWB uses the Minneapolis Grain Exchange (MGEX) and ICE Canada (ICE) futures and forward contracts to buy and sell producer’s grain, hedge their risk and determine initial payment levels. The delivery locations and pricing structure on the MGEX and ICE contracts directly impacts the CWB’s internal operations and contracts with producers for buying, selling, and pricing grain. The CWB is now competing for deliveries of grain against competitors who can offer prices that are easily comparable to the commodities exchange prices and locations.

With the addition of the two pooling points, the CWB’s pooling prices will be more comparable to and competitive with cash prices, as the CWB is now able to more easily align their prices with the actual regions where market prices are being settled with grain traders. This allows the CWB to make direct price comparisons in the grain markets when making their marketing decisions. This benefits producers by ensuring that they are able to receive the most competitive price for their grain, whether they choose to sell their grain to the CWB or another buyer.

Description

The Regulations Amending the Canadian Wheat Board (CWB) (Interim Operations) Regulations add two additional pooling points to the CWB (Interim Operations) Regulations.

The amendment to add Saskatoon, Saskatchewan, as an additional pooling point has been made because all canola is priced on the ICE exchange according to the main delivery points in Saskatchewan. Saskatoon as a pooling point allows CWB pool prices to be directly comparable with the base prices of canola futures contracts on the ICE futures market, and cash prices being offered by others.

The amendment to add Thunder Bay as an additional pooling point has been made because the majority of spring wheat going east or into the United States of America is traded on the MGEX. Prices for Canadian Western Red Spring wheat in Thunder Bay track prices for Hard Red Spring Wheat futures contracts on the Minneapolis Grain Exchange. Producers will have a much clearer idea of the attractiveness of CWB cash price bids or estimated pool returns if they can make a direct comparison between the CWB prices and pool return with the prices quoted for MGEX Hard Red Spring Wheat contracts. Thunder Bay as a pooling point allows CWB pool prices to match an important cash pricing point in the spring wheat market.

“One-for-One” Rule

The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business.

Small business lens

The small business lens does not apply to this proposal, as there are no costs on small business.

Consultation

The CWB, as the operator of the pooling points, is a key interested stakeholder. The CWB requested that the CWB (Interim Operations) Regulations provide greater flexibility and assist in maintaining their competitiveness by including two additional pooling points. The Department of Agriculture and Agri-Food talked with the CWB to discuss their organizational needs.

No opposition is anticipated.

Rationale

The Regulations Amending the CWB (Interim Operations) Regulations are needed to reflect the operational requirements of the CWB following the repeal of its single-desk marketing structure. These Regulations reflect the new marketing freedom environment.

These Regulations will be in effect until the CWB is either privatized or dissolved and the CWB (Interim Operations) Act is repealed, as required by the Marketing Freedom for Grain Farmers Act. At that time, the Regulations Amending the CWB (Interim Operations) Regulations will cease to be in effect.

Implementation, enforcement and service standards

The Regulations Amending the CWB (Interim Operations) Regulations will come into force after the CWB (Interim Operations) Regulations come into force on August 1, 2013.

Monitoring and enforcement of these Regulations will follow any enforcement procedures established in the CWB (Interim Operations) Act.

Agriculture and Agri-Food Canada will be providing communications regarding the transition to marketing freedom including information on the proposed Regulations.

Contacts

Tom Askin / Jennifer Forrest
Crop Sector Policy Division
Agriculture and Agri-Food Canada
303 Main Street
Winnipeg, Manitoba
R3C 3G7
Email: tom.askin@agr.gc.ca / jennifer.forrest@agr.gc.ca