A Monopoly On Our Food Behind Corporate Profits

I was very interested in last weeks conference call by General Mills. In a time of rising commodity prices, General Mills has managed to do excellent.
New York Times: General Mills Net Up, Despite Wheat Cost

I was very interested in this part of the conference call (taken from transcript)

Ken Zaslow – BMO Capital Markets

And your ability to actually get the access to the wheat, even if there is a shortage again because you have the milling side of it, there’s no inability for you to actually supply your operations, is that fair?

Ken Powell

That’s correct, we purchase more wheat and oats than we use and part of what we earn in that, that gives us two advantages, one we get to sort for the highest quality but second we also have some additional excess inventory that we can sell into the market. So we have no issues with supply and again an advantage as [unintelligible] quality and a pricing standpoint.

Don Mulligan

And also Ken just remember in terms of you’re talking about our pricing power we have I mean obviously we’re taking multiple price advances but so is the market and so are our competitors and so we’re moving aggressively in a general market that’s also moving.

Ken Zaslow – BMO Capital Markets

Great, I appreciate it.

Source of Conference Call Transcript

The part that I am interested in is this:

We purchase more wheat and oats than we use and part of what we earn in that, that gives us two advantages, one we get to sort for the highest quality but second we also have some additional excess inventory that we can sell into the market.

This does not sound like anything special unless you understand the way the Canadian Wheat Board operates. The CWB is basically a monopoly on wheat and barley marketing in Canada.

If the CWB sells Canadian wheat to General Mills and General Mills holds that wheat and sells it back into the market (in the United States) then what they are doing would be illegal for Canadian farmers to do.

On Dec. 10, Mr. McMechan was released on $15,000 bail from the Brandon Correctional Institution after serving 155 days. He still has trouble believing that what he did was a crime. He sold some of the barley he grew with his own hands on his own farm about two miles from the United States border to a grain elevator in North Dakota without going through the Canadian Wheat Board.

The board has a monopoly on selling western Canadian wheat and barley; it's been that way for over 60 years. The board controls the 37-million-ton annual Canadian wheat and barley harvest through a system of pool purchases that spread out the risk individual farmers used to face. It also single-handedly handles all Canadian grain exports, among the world's largest. This way, no individual farmer wins big, or loses all.

New York Times: Illegal Grain Selling

Canadian farmers cannot sell their wheat into the United States unless they go through the CWB. The CWB actually sets the price at which the product is sold. The market price can be (and is depending on several factors) higher in the United States.

The CWB uses numerous excuses to say that Canadians cannot get that price because of other contributing factors, but General Mills obviously is able to capitalize on this.

CWB Excuse
CWB Barley Excuse
CWB On Dual Market
CWB Dual Market Myth Excuse

General Mills took hedged positions in the commodities marketplace, making some $87.2 million on its commodity positions, according to a footnote in a federal securities filing Wednesday.

The company's grain inventory also was revalued, adding some $64 million in income.

General Mills has stated that it receives product from Canada. Could they be using the CWB as a marketing strategy to offload Canadian product into the United States market?

It should be noted that the company has little direct contact with agriculture. The company sources most of its grain for milling from the U.S. or Canada and purchases these commodities by specifying quality aspects as opposed to contracting with individual farmers.

Source From General Mills

The U.S. market represents about 10 per cent of the Canadian Wheat Board's sales, or about $400 million a year.

CBC Source On Canadian Wheat Board Sales

The problem is that CWB will not release the data needed to prove any of this mess. The CWB does not release export sales prices.

Why doesn't the CWB release its export sales prices?

The CWB is a commercial agency dealing in a highly concentrated world market with a handful of large sellers. Revealing prices would severely damage the competitiveness of the CWB compared to its competitors in the international grain trade, particularly given that most customers want their purchase prices to remain confidential. While the prices of most individual CWB export sales are confidential, the annual returns are public information and available each year in the audited annual report. The CWB discloses far more details on its operations than the majority of its competitors in the grain business.

Source From The Canadian Wheat Board

This would of course reveal all this data that is needed to prove "the scheme". I imagine that Geneal Mills is doing nothing wrong, the CWB is doing nothing wrong, but it is providing a marketing advantage which it says it is not doing.

Myth
The Canadian Wheat Board discounts wheat and barley prices on the world market.

Fact
The CWB has no interest in selling grain for low values. Its mandate is to market quality products and services to maximize returns to farmers. An independent group surveyed about 100 grain buyers in 1996. The buyers indicated that they had to pay top prices to get Canadian wheat. However, they felt it was a good buy due to the excellent customer service and product they received.

Source From The Canadian Wheat Board

The problem with all of this is that it is hard to prove. We cannot get the raw data from the Canadian Wheat board and we cannot prove where the product General Mills sold came from. But I do think something could be happening here and everyone is paying for it.

The Canadian Wheat board is basically on the verge of total collapse from pressure by the government and the farmers.
Strahl Fires CEO
Farmers Vote To End Monopoly

Related Links:
Canadian Wheat Board Website
Overview by CBC
CWB Elections
Farmers Vote To End Monopoly
Pro CWB Website
Washington Post: Food Crisis

Makes me angry that Canadian farmers are doing nothing to fight the CWB... or that the Yanks are doing nothing about it either.

Very strange.

There again, most people are too wrapped up in tonights televisual entertainment, or what clothes they are buying tomorrow. It is such a crying shame that we are sleep-walking into the end of civilised society.

Or, as I prefer to think of it: It is a shame that we have already walked into the end of civilised society, we just haven't realised it yet. But, when we do, it will be nasty.

To be honest , this just seems like good capitalism to me.
Is it fair? Probably not in the sense your thinking , but the market discriminates against those who can and cant produce something at the desired price as well as who can purchase it.
The United states HAS NO BUSINESS in condemning the Canadian wheat board , thats an issue for canada to work out , General mills obviously saw an opportunity for profit and took it.
If you want big brother out from under your rear end one thing that needs to be done is push for free trade NOT get the clumsy foot of government involved to create further regulations etc etc..
Generalmills saw an opportunity for profit and capitalised on it .. If people are made aware of and are not pleased with General mills practices the the market will correct itself and they will lose sales. So if this honestly bothers you and you care enough you'll let people know , spread the word! ( Having a defeatist attitude never solved anything , that I know of at least )
Anyways , Im all for corruption in big business and government but the only thing wrong I see here is the CWB which if CANADA dissolves the issue is fixed anyways , General mills in my opinion has done nothing wrong in this particular case.

The prices of everything is going up- including the necessary materials to produce foods like cereal and etc.- This is quite understandable...not great for the consumer but not really a huge surprise...The trucks they transport the foods in are paying over 4.00 per gallon of diesel fuel so I imagine they're trying to level things out. It's something to keep an eye on but we haven't hit rock bottom yet...Granted we don't all need cereal but this is just one example and potentially the beginning of things to come if things continue down this rocky path.

The rich stay rich and the poor continue to struggle.

[edit on 3/23/2008 by PimpyMcgibbins]

This is mildly off topic (in my own topic) but what you have are the big funds driving up (and down) the prices of soft commodities. This is the main reason behind the run up in prices. I do not think biofuels play that large a role in the pricing, rather investors are flocking to what is working and inflating them at rates we do not usually see (look at the fluctuations in gold and oil)

The volatility in the agriculture markets is like nothing I have ever seen before.

The problem is that the rich drive up the commodity prices, and they effect the consumer, but they also drive down the commodity prices, and they effect the producer.

I expect grain prices to drop very quickly and rebound very quickly and for this to happen for some time (into summer).

Nobody really cares when gold goes up and down as they do not eat gold, but when it happens to food people take notice.

CWB and socialism are great! Yay!!!

Mod Note: One Line Post – Please Review This Link.

[edit on 23-3-2008 by Dulcimer]

reply to post by Dulcimer


Thanks for the news Dulcimer. As usual, very interesting.

It seems we have a monopoly in everything these days. Food seems to be no different

Originally posted by Dulcimer
... what you have are the big funds driving up (and down) the prices of soft commodities. This is the main reason behind the run up in prices... investors are flocking to what is working and inflating them at rates we do not usually see ...The problem is that the rich drive up the commodity prices, and they effect the consumer, but they also drive down the commodity prices, and they effect the producer.

A detailed and well-written post. Thanks, F&S. What happened to that farmer is an outrage.

I read a quote once to the effect that Fascism is the result when there is collusion between big Government and big Corporations. That is exactly what we have.

Additionally, this commodities issue is way out of hand. A related thread here:

Gambling On Commodities Is Fleecing Our Society

Originally posted by chromatico
CWB and socialism are great! Yay!!!

I believe the word your looking for is communism.

Originally posted by Dulcimer
The problem is that CWB will not release the data needed to prove any of this mess. The CWB does not release export sales prices.

Dulcimer very interesting post. Whenever I hear of a large monopoly-like player in a commodities market I get suspicious that someone is collecting huge windfall profits (see the Hunt brother's manipulation of the silver market in the 1970s) and they don't want anyone to know how excessive their profit margins are.

One possible proxy for how much the CWB charges for their exports may be to look at the Australian wheat monopoly AWB, which is also a public company so there should be decent info on the company's pricing. AWB is similar to CWB (weird similarity in names, huh?) in not only its operations, but also because it is involved in a government scandal and if I am not mistaken the new Australian government has or is trying to take away its (AWB) export monopoly on wheat. What would be really scary to me is if all of the wheat monopolies were linked by some global capitalist organization/company (like the IMF) that controls the global supply of soft and hard commodities.

Another possible indicator for export prices for wheat could be what China and India pay for their imports because they are amongst the largest buyers of wheat. I believe that these governments release their prices paid for various commodites in their trade balance or import price index data. I hope this info helps, I will continue to check this board, this topic is very interesting and the soft commodities market is on fire right now.