Canadian Wheat Board Faces Loss of Government Guarantees Under Proposed WTO Declaration

Strategic Insights -

The proposed declaration on the export competition pillar of the World Trade Organization (WTO) talks in Hong Kong could lead to the loss of government guarantees on the Canadian Wheat Board's (CWB) initial payments to farmers and borrowings. This change would increase the risk for farmers, said a CWB representative. The CWB makes initial payments to producers who have signed up wheat or barley to the CWB, and final payments are made at the end of the crop year. The government guarantees protect farmers in the unlikely event that the final pool price comes in below initial payments.

Key Takeaways:

  • The CWB's government guarantees cover initial payments to farmers and borrowings, which could be lost under the proposed WTO declaration.
  • Without the guarantees, farmers will take on greater risk of their own, said CWB spokeswoman Maureen Fitzhenry.
  • The CWB borrows between $4 billion and $6 billion at any given time to cover its cash flow needs, and the government's sovereign guarantee allows it to receive top credit ratings, keeping interest rates low.
  • The loss of the government guarantee on borrowing would cause interest rates to rise, said Fitzhenry, and could lead to a difficult situation for the CWB in obtaining a credit rating.
  • The CWB has no real assets of its own, aside from a building and some railcars, making it difficult to replace the guarantee with a credit rating.
  • The CWB has been planning for such an outcome from the WTO for some time, and the loss of the guarantees could be an impetus for farmers to take more control of the CWB.

Statistics:

  • The CWB borrows between $4 billion and $6 billion at any given time to cover its cash flow needs.
  • The government's sovereign guarantee allows the CWB to receive top credit ratings, keeping interest rates low.
  • The ratings agency Standard and Poor's recently downgraded the CWB's credit rating to 'negative' as a result of the potential loss of government guarantees.
  • The CWB has no real assets of its own, aside from a building and some railcars.
  • The Australian Wheat Board (AWB) placed a levy on their producers over a period of 10 to 15 years, amassing a base of $600 to $800 million.

Sources:

  • Resource News International, copyright 2005
  • Standard and Poor's, credit rating downgrade to 'negative'
  • Maureen Fitzhenry, CWB spokeswoman
  • Mike Jubinville, ProFarmer Canada