July 31, 2012 / 4:03 PM / 5 years ago

Western Canada grain monopoly, world's last, passes into history

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WINNIPEG, Manitoba (Reuters) - Western Canada's grain-marketing monopoly, a system dating back to World War 2 and the last of its kind in the world, ends on Wednesday, officially opening a new era of competition for grain in the No. 7 wheat grower.

Starting August 1, the start of Canada's 2012/13 crop marketing year, Western Canadian farmers can legally deliver wheat and barley to any buyer in Canada or the United States, not just on sales through the Canadian Wheat Board.

Canadian grain companies can also export without the CWB's involvement, potentially redrawing transportation patterns and market shares.

It is not shaping up to be an immediate free-for-all, however, as there are likely modest supplies left in farmers' bins from last year's wheat crop not committed to the CWB, and this year's harvest of spring-planted grains is just beginning.

The rights to much of the new harvest are already determined, as grain handlers such as Viterra Inc, Richardson International Ltd and Cargill Ltd have inked forward contracts with farmers since Ottawa passed a new grain-marketing law in December.

"We don't expect big shocks to the system," said Elwin Hermanson, chief commissioner of the Canadian Grain Commission, which regulates the country's grain-handling system.

"We expect everything to be orderly, (but) there will be new players marketing wheat and barley in Canada. It will be a very interesting time."

Hermanson doesn't expect farmers to truck much Canadian grain south to U.S. country elevators, since prices along both sides of the border should quickly even out.

Jim Peterson, marketing director of the farmer-run North Dakota Wheat Commission, also doesn't foresee many Canadian license plates in lineups at U.S. elevators in the short term.

But the new opportunities for Canadian farmers in the United States rub some American growers the wrong way, since they don't have the same options in Canada, he said.

U.S. farmers have long been allowed to sell their wheat to Canadian elevators, but U.S.-origin grain is ineligible for the top grade designations under Canada's system of ensuring consistent quality for buyers.

"That certainly is an area of concern for U.S. producer groups, (but) I wouldn't say it's at the level of a trade complaint yet," Peterson said. "That's an issue we want to see progress on."

Canadian buyers are free to pay whatever they choose for U.S.-origin grain on an individual contract basis, taking into account specifications such as protein content.

Monopoly's End to Affect World Wheat Trade

The end of the CWB's monopoly - the world's last major agricultural monopoly - also looks to impact the global wheat trade. Canada is the biggest exporter of spring wheat, used in baking, and durum, which produces pasta.

Some offshore buyers have already raised concerns that breaking the CWB's monopoly may result in smaller supplies of top-quality Canadian wheat.

Peterson expects U.S. farmers to benefit on the global stage from an end to the CWB's "price-distortion," saying it used its assurance of supply to undercut prices on deferred sales.

The CWB has long maintained that it commanded a price premium for Canadian farmers, based on its monopoly clout.

The change's impact has also been felt in corporate boardrooms, with Glencore International PLC on the verge of taking over top Canadian grain handler Viterra, as corporate profits are expected to grow in an open market.

Grain marketers such as CHS Inc and a joint venture between Olam International Ltd and U.S.-based Lansing Trade Group have opened Canadian offices since the new law passed.

The Wheat Board isn't going away, although some speculate it could end up acquired by a grain handler just like the former Australian Wheat Board, which gave up its monopoly in 2008.

CWB, as it's now known, will compete to buy farmers' grain, with the advantage of government guarantees of its borrowings for up to five years.

CWB is currently the only Canadian marketer offering pooling options, which allow farmers to average wheat prices out over time and offset some risk of falling prices.

The company plans to hold a news conference on Tuesday.

Ottawa's move to strip the CWB's monopoly sparked strong farmer emotions on both sides, leading to several court skirmishes in the past year.

Farmers opposed to the end of the Wheat Board's monopoly plan to ask Canada's Supreme Court to hear their appeal related to the question of whether Agriculture Minister Gerry Ritz broke the law by not allowing farmers to vote on the decision.

But with an open market in effect as of Wednesday and the CWB already downsized dramatically, there may be only a faint chance that a court could revert the company to what it was.

"Things may have changed so much that the monopoly couldn't' possibly be restored," said Anders Bruun, lawyer for Friends of the Canadian Wheat Board.

Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Marguerita Choy

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