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Endorsements

Canadian National Millers Association
103 – 408 Queen St., Ottawa ON K1R 5A7

May 3, 2002

Mr. Mark Hlady, MLA
Alberta Legislature
Room 130, 10800-97 Avenue
Edmonton, Alberta
T5K 1E4

Dear Mr. Hlady:

It has come to the attention of the Canadian National Millers Association (CNMA) that you are the sponsor of Bill 207: Alberta Wheat and Barley Test Market Act, currently before the Alberta Legislature. It is our understanding that Bill 207 is at Second Reading stage and may be referred to a committee of the legislature for study.

The purpose of this letter is to:

The CNMA is Canada's national industry association representing the interests of the Canadian wheat flour milling industry. The CNMA's fourteen member firms represent approximately 90 per cent of total Canadian wheat flour milling industry capacity and production, including capacity and production in the province of Alberta.

The CNMA is well aware of the desire of some wheat producers in Alberta to assume personal responsibility for the marketing of their wheat rather than continuing to rely upon the services of the Canadian Wheat Board. We are likewise aware that this desire is shared among a portion of producers in B.C., Saskatchewan and Manitoba.

Accordingly, the CNMA has adopted a frequently stated position in regard to the Canadian Wheat Board's current orderly marketing mandate. This position has been reflected in the CNMA's submission and testimony before the Western Grain Marketing Panel. This position has also been reflected in the CNMA's submission to the Western Grain Transportation Review (Estey and Kroeger) phases. Most recently, this position has been clearly stated in our January 7, 2002 letter to Mr. Lou Normand of the Processing Industry Division of the Alberta Department of Agriculture as part of that department's efforts to take a sounding of industry views on the thrust of Bill 207. In each of the federal government consultation exercises, the CNMA identified what it believes to be the essential components of a single-desk, orderly marketing system. In our January 7 letter, we made the CNMA position very clear, once again. In the third paragraph of that letter, we stated:

"With regard to the Canadian Wheat Board single desk selling mandate, the CNMA has said publicly and to officers and directors of the Canadian Wheat Board that the CNMA is willing to work with the CWB as a single desk seller, as long as producers continue to perceive a benefit from the single desk CWB system and as long as the CWB maintains complete control over the marketing of wheat in Western Canada."

You will note that there are two conditions of CNMA's continuing willingness to work with the CWB's single desk mandate. The first is that "producers continue to perceive a benefit from the single desk CWB system". By this we mean that a majority of producers in all areas of the CWB designated area continues to support the CWB mandate. We take this view because with few exceptions, the majority of CNMA member firms purchase and process wheat produced in all regions of the CWB designated area. We do not consider wheat producers in Alberta to be unique and separate from those in other wheat-producing regions in Western Canada. Alberta-based flour millers process wheat grown not only in Alberta but in other provinces. Likewise, Eastern Canadian flour millers purchase wheat grown not only in Ontario and Quebec but from all Western Canadian provinces.

The second condition of the CNMA's willingness to work with the CWB is the CWB's ability to maintain "complete control over the marketing of wheat in Western Canada". This is clearly the more important consideration from a milling company's perspective. The current CWB mandate that gives the CWB complete control is a marketing system that:

These are attributes for the CWB system that would be lost under a dual marketing scenario such as that contemplated by Bill 207 and other scenarios that have been advocated by others, such as narrowing the CWB's mandate to export marketing only. "

Put in other terms, the Canadian National Millers Association has sought for the past ten years since the implementation of Canada/U.S. free trade in wheat and wheat flour, to have the CWB in its marketing practices, emulate to the extent possible, the behaviour of the U.S. open market system. This has required that the CWB continue to use the Minneapolis Grain Exchange as the dominant point of reference for price discovery. This has also required that the CWB take into account the relationship between U.S. and Canadian rail freight rates for wheat. Most importantly, this has required that the CWB take particular care to demand financial compensation only for services that are provided to grain buyers under an open market system such as that which exists in the USA, the source of Canadian grain producers' and processors' principal competition in the North American market.

It is the CNMA's understanding that Bill 207 has been introduced not just to provide wheat producers with an alternative to the CWB orderly marketing system, but also in the belief that removal of the CWB's monopoly will result in substantial increases in value-added processing of wheat and barley in the province of Alberta. The CNMA has carefully considered this premise in the context of what is really happening on the North American market in terms of food consumption trends, investment in flour milling capacity and growth in population. Having done so, we would ask you and your colleagues in the Alberta Legislature to note that opportunities in value-added processing of wheat in Canada are derived above all else from market demand. The second most important consideration is the degree to which existing firms and their manufacturing capacity have the ability to respond to unmet market demand.

It may interest you to take into account the following points:

  1. The U.S. market is the only significant export market for Canadian wheat flour that is not subject to government-subsidized competition from other flour-exporting nations.
  2. Per capita consumption of wheat flour in the United States, having grown significantly for over 30 calendar years, has stalled and begun to decline as of two years ago.
  3. Although per capita consumption of wheat flour in Canada has continued to grow into 2001 and now exceeds the U.S. level, recently released Canadian census data indicates that growth in Canada's population is rapidly declining to the extent that Canada's total population may actually decline in coming years.
  4. The U.S. flour milling industry experienced so much investment in new capacity between 1994 and 2000 that, there is currently a surplus of flour milling capacity in the United States. This surplus currently exceeds the entire capacity of the Canadian flour milling industry and is leading to downsizing and rationalization of the U.S. milling industry.
  5. In comparison, the Canadian flour milling industry has undergone more modest capacity expansion, resulting in capacity utilization levels above those that are triggering rationalization in the U.S.
  6. Canadian wheat flour exports to the United States represent approximately five per cent of total Canadian production of wheat flour. In contrast, exports of Canadian wheat flour to all other markets represent approximately only one per cent of total production of wheat flour in Canada.

What the above six points illustrate is that there is little, if any, North America and indeed, global market demand for Canadian wheat flour that is not being met by existing flour milling capacity, whether based in Canada, the United States or other jurisdictions. That is why the CNMA is greatly concerned by proposals to amend the CWB mandate that are apparently based on the assumption that changing the marketing mandate of the CWB will somehow change market demand for Canadian wheat flour. The CNMA knows of no research or evidence that demonstrates or even suggests that tinkering with the Canadian Wheat Board's mandate will create new North American market demand and opportunities for Canadian wheat flour millers. We respectfully ask that you and your colleagues take this into account in your consideration of the attributes of Bill 207.

The CNMA is also mindful of suggestions that have been made in the past that producers would be better off if the CWB's mandate was limited only to the sale of wheat to foreign markets. Please note that the CNMA views this scenario to also hold risk for flour milling and other value added processing of wheat in Canada. That is because the CWB's efforts would be in effect, concentrated on meeting the raw material (wheat) requirements of our competitors in other countries, without any regard to the international competitiveness interests of Canadian processors. In other words, the CWB would become a service provider to our competitors, without any legal or moral obligation to account for the implications to domestic processors who would continue to offer the least-cost, highest-margin market for wheat produced in Canada. We respectfully submit that this outcome was never foreseen in the CWB's enabling legislation.

Finally, you and your colleagues in the Legislature may have received representations from producer organizations that the dual marketing environment currently in place in Ontario is evidence of the feasibility of what is proposed in Bill 207. This is clearly not the case. From the milling industry's perspective, the dual marketing system in Ontario is so dysfunctional in meeting processors' needs that the Ontario Flour Millers Association has asked the Ontario Farm Products Marketing Commission to entirely remove (rescind) marketing agency powers of the Ontario Wheat Producers' Marketing Board to create a completely open market system.

In closing, I wish to extend to you and your colleagues in the Legislature our sincere offer to meet with you in Edmonton or any other city that would be convenient to explain our views in greater detail and to address any questions that you may have. If you are convinced that your producer constituents no longer benefit from the current mandate of the CWB, we urge you to seek alternative means of representing your constituents' interests.

Yours sincerely,

Gordon Harrison
President

cc. The Hon. Shirley McClellan
Minister of Agriculture, Food and Rural Development

Ken Nicol, M.L.A.
Leader, Official Opposition

CNMA Board of Directors