To the Canadian Wheat Board:

For many years farmers across the designated area have been questioning the efficiency, transparency and accountability of the Canadian Wheat Board. They are asking for enhanced documented financial information that is detailed, accurate, complete and readily available in the annual reports. Only when this is achieved will farmers be prepared to make informed decisions on the many controversial issues that arise concerning the monopoly that they are required to be a part of. The public is told that farmers are in control at the CWB but in reality without complete and detailed financial information farmers can‘t be expected to make intelligent decisions that will enhance and support the Boards performance. To that end we are submitting some questions and suggestions that we hope will clear up concerns on several issues.

To better understand the results stated in the annual reports of the CWB we would ask to access the financial records used to determine the audited financial reports. A breakdown of netted out numbers and a person to explain the accounting methods used, would be very beneficial. The Statement of Pool Operations- Combined Pool Accounts is a starting place. We would like to see the interest earnings broken down into separate gross amounts for each entry as well as separate gross amounts for each entry of interest paid. This also holds true for any other netted out number in the financial statements. By doing this you would be carrying out one of the suggestions for improvement put forth in the special audit report done by the Auditor General of Canada. In the Auditor Generals Report on page three under “areas where improvement can be made” the auditor general states “we did note a number of revenues and costs that are netted or grouped in the presentation of the final results of operations by pool account. To improve accountability and transparency, the CWB should provide details in its financial statements of all the significant revenues and costs associated with its operation of pool accounts.”

Questions Specific to Pool Operations-Combined Pool Accounts:

1. What was the breakdown of the categories used in determining total interest earnings in 1998 for the Statement of Pool Operations - Combined Pool Accounts and what are the total $ amounts of each entry?
2. What percent of the total interest earnings from these entries are represented by investment interest?
3. What was the breakdown of the categories used in determining interest paid in 1998 for the Statement of Pool Operations  - Combined Pool Accounts and what are the total $ amounts of each entry?
4. What was the total cost of demurrage for 1998?
5. What was the total cost of despatch for 1998?
6. What are the categories used for positive freight rate changes and what are the total $ amounts for each entry?
7. What are the categories used for negative freight rate changes and what are the total $ amounts for each entry?
8. Will the CWB continue to present this breakdown of netted out numbers on a yearly basis and show the results in the annual report? Please specify the time frame involved in accomplishing this change.

Credit Grain Sales Questions:

9. What was the breakdown of principal & interest payments on the total $ amount paid by the government of Canada each year from 1991-2001 in respect of Paris Club and/or Canadian Debt Initiative debt reduction for Poland and Egypt?
10. What was the breakdown of principal & interest payments on the total $ amount paid by the government of Canada each year from 1991-2001 in respect of Paris Club and /or Canadian Debt Initiative debt reduction for any other countries? Please specify the names of the other countries?
11. What was the total $ amount of principal and interest paid by individual countries that are repaying their debts from the credit grain sales on time from 1991-2001 and please specify the names of these countries?
12. What was the total $ amount of principal payments generated from the repayment of Credit Grain Sales and put towards the reduction of the balance on borrowings for each year between 1991-2001? Please indicate whether the principal payment was received from the Government of Canada or from specified countries.
13. Have any countries that owe money to the CWB through Credit Grain Sales ever formally repudiated their debts and gone into default? If so please identify the countries and the amounts defaulted?
14. How many countries dealing with the CWB that have their debts rescheduled through the Paris Club/or Canadian Debt Initiative have been given interest free loans for any period of years? Please identify the countries and the period of years involved.
15. What $ amount borrowing limit has the government of Canada set for the CWB?
16. Considering the track record of the Credit Grain Sales Program and the fact that the credit grain sales in the Agri-Food Credit Facility are on the rise, what legal safeguards have the directors and senior management of the CWB put in place to insure that the Canadian Government does not issue credit through the Agri-Food Credit Facility to countries that will leave the pool accounts directly responsible for 2% of the principal and interest? Please explain in detail.

Misc Questions:

17. What is the exact area of the NAFTA agreement that some CWB directors say does not allow for a monopoly to be reinstated after a trial period of dual marketing? Please explain in detail your concerns.
18. On page seven of the Special Audit report done by the Auditor General of Canada’s office it states that the CWB is changing from the “OLD exempt crown corporation closely associated with the federal government; with a reputation for secrecy…….. to a NEW Shared-Governance organization; no longer an agent of the Crown with separation from the government.”  However in the Population Affiliation Report; Summary of Additions, Modifications and Proposed Organizations (copy attached) which is put out by the Treasury Board of Canada Secretariat, it shows that the status of the CWB has not changed in any way. The CWB is still exempt from Part X of the Financial Administration Act that deals specifically with Crown Corporations; and the Canadian Wheat Board is still not subject to the Access to Information Act. Will the directors move forward and change the status of CWB with regards to these Acts so that the CWB becomes subject to the Access to Information Act and is no longer exempt from Part X of the Financial Administration Act? Please state a time frame for this decision.
19. What is the total $ amount that has been taken out of the Pool Accounts for the administration costs associated with the Export Licenses issued by the CWB between 1991-2001? Please include Export Manufactured Feed Agreement licensing costs.
20. Is there now or will there be anytime in the near future, plans to create a capital ventures contingency fund? If there has please explain it in detail.
21. If there needs to be a consensus for disclosure on any of the above questions could you please make public the way each director voted so their constituents can decide whether or not their directors are voting in their districts best interests?

Thank you for your willingness to respond and acknowledge the concerns of farmers. Some of the questions are very detailed and we understand that it will take time to gather all the information you need to respond with complete accuracy. Your co-operation in answering these detailed questions shows your willingness to bring the CWB to a new level of openness and accountability.

Yours truly,
Jim Chatenay

Background for Questions to the CWB

When the Canadian Wheat Board makes a credit sale it borrows the money for the sale and puts that money into the appropriate pool accounts for the farmers. The fact that the Government of Canada guarantees payment of principal and interest on all credit receivables under the Credit Grain Sales Program seems to be a no lose scenario for the CWB. In reality, the guarantee is not that straight forward. The accounting policy set up by the Canadian Government states that each time a sovereign debt is deemed non-performing, the principal and interest can be rescheduled and no payment has to be paid by the Government of Canada to the CWB until the particular country formally admits to default. Unfortunately formal repudiation of debts by debtor countries very seldom happen because why would they repudiate their debts when a rescheduling agreement can be obtained that spreads out loan payments over an extended period and sometimes includes a grace period of several years. As loans come due, if the country can’t pay, the loans are rescheduled. This can go on indefinitely. This gives the government the loophole it needs to pay only a token payment to the CWB in regards to Credit Grain Sales interest. This is how it works.

To calculate the net interest that is returned to the farmers, the CWB takes the total amount of interest due from the credit grain sales (as opposed to what is actually received), subtracts the total interest paid on borrowings and comes up with a positive amount which is paid to the farmers. When the CWB works out the interest due from the credit grain sales they base the interest rate for debtor countries on the rate agreed to at the Paris Club. This rate is little more than 1% above what Canada pays for borrowing.  This is considerably lower than what the rate would normally be for countries with less than desirable credit ratings. The normal interest rates for the majority of the countries dealing with the CWB range from 6-17% on the Moody’s rating list that was worked out in the year 2000 when world interest rates were fairly low. In the 80s when the countries started having trouble servicing their debts to the Board the interest rates were much higher. The results of rescheduling interest rates of debtor countries so that they are paying approx 1% more than what Canada’s pays on its borrowings, has an incredible impact on what the pools receive for interest earnings. For the last few years the spread between interest paid by the CWB on borrowings and interest that was due on credit sales was approx 4% (before rescheduling) as opposed to the 1% (after rescheduling) we are now receiving from the Government of Canada. In the years of high interest rates the spread could have been anywhere up to 8% (before rescheduling). When you are dealing in billions of dollars of credit grain sales you are talking about a great deal of money. As we sit now the spread of 1% gives us approx $75 million dollars (this is what pool accounts receive). The spread of 4% (before rescheduling) would have given farmers accounts close to $300 million. In the 1980’s the spread of up to 8% could have earned the pool accounts anywhere up to 2 times that amount. This becomes very significant over the years. To make things worse, the Paris Club and the government also rescheduled loans with 0% interest over a number of years and principal owed to the CWB by the government of Canada was often rescheduled along with the loans. When the CWB was asked about this method of doing business they stated that if the CWB did not go along with what the Government and the Paris Club decided, then the accounts would go into default and the CWB would lose all the money from the defaulted credit grain sales. This of course is not correct because the government would never allow that to happen. A formal admission of default by the debtor country would mean the government would have to repay the entire amount of principal and interest due to the CWB from the debtor country in accordance to the rules of the Government of Canada Guarantee. Rescheduling puts off the need to tackle this problem. This then brings up the question of why the CWB and the government of Canada continually deal with these countries that have questionable means of repaying their debts. Why do they continually extend their credit limit and then forgive or reschedule the loans? The answer to this is political. The government of Canada, through the CWB is keeping a guaranteed supply of credit grain sales to offer up to the G-8 as proof of their commitment to reduce poverty and satisfy their obligations to the Enhanced HIPC (Heavily Indebted Poor Country) Debt Initiative. On March 25, 1999 Prime Minister Jean Chretien announced the Canadian proposals to enhance debt relief and, in so doing, Canada emerged as a leader amongst the G-8 on the debt issue. Moreover Canada pledged to provide 100% debt relief to the poorest countries. The February 2000 budget expanded the 100-per-cent debt forgiveness to all eligible HIPC’s that are making a real effort to improve the well being of their citizens.

The most troubling part of all this is the fact that in 1995 the CWB, with the Government of Canada, set up the Agri-Food Credit Facility which allows the CWB to sell grain either directly or through accredited exporters on credit to private importers where the importer cannot provide a sovereign guarantee of repayment. Since the transactions involve private buyers and their foreign banks, country credit ceilings do not apply but instead the Government of Canada evaluates each transaction on a case by case basis. The government of Canada guarantees a declining percentage of the receivables under this program based on the repayment terms of the credit, with the Canadian Wheat Board assuming the risk not covered. This risk amounts to approximately 2% of the total and this money comes directly out of the pool accounts. The total amount of credit in this account is starting to rise dramatically and considering the track record of the Credit Grain Sales Program there should be some major concern on the part of the farmers concerning this facility.

Sources for Background & Questions