(Cite as: 64 FR 57040, *57045)
operator can simply apply to the Surface Rights Board to set the correct amount of compensation.
Although the statutory provisions in the Surface Rights Act cited by the GOA are consistent with the arguments it has put forward,
other information on the record suggests that the compensation received by lessees of public land is excessive. Beginning in
March 1997, the GOA undertook a study to examine agricultural leases in the province. One of the main issues examined in the
study was compensation for ranchers leasing grazing rights on public lands. The study resulted in a report and, eventually,
legislation (Bill 31). Although Bill 31 has not yet been put into effect, it seems clear that one concern the legislation seeks to
address is that the province, as owner of the public land, should receive some portion of the compensation now received by
lessees of the public land.
While this, in itself, does not necessarily mean that the compensation currently received by lessees of public land is excessive
when compared to the compensation received by lessees of private land, statements made at the time that Bill 31 was proposed
and *57046
(Cite as: 64 FR 57040, *57046)
debated, lead us to conclude that the compensation received by lessees of private and public land is not equivalent. Specifically,
the government's spokesperson on behalf of the bill stated: "It (Bill 31) does another thing as well: it ensures that public land
leasing arrangements are more equitable with private land leasing arrangements. Since
(Cite as: 64 FR 57040, *57046)
the province is the landowner of public land in the right of all Albertans, we were told by our colleagues and those making
submissions that the province should act like a landowner. This means that leasing arrangements should be more comparable to
the private sector" (statement by Mr. Thurber, Alberta Hansard, April 14, 1999, page 1035). Similarly, "the intent of amendments
to the Surface Rights Act are to redistribute payments to the landowner (the province) and the agriculture disposition holder (the
lessee of public land) more in line with private land arrangements' (statement by Mr. Thurber, Alberta Hansard, May 3, 1999, page
1396).
These statements appear to support the conclusion that private owners receive more in compensation than the GOA does as
owner. There is no indication in the record that the amount of compensation paid by oil and gas operators for private lands
exceeds the amount of compensation paid for public lands. Therefore, we conclude that the lessees of public land receive greater
compensation than their counterparts on private land.
If our conclusions are correct, then the differences in compensation amounts to lessees of public and private land would not be
reflected in a comparison of fees for the two types of grazing rights. This is because the relatively lower level of compensation
received by the lessees of private land will cause that fee to be lower than it would be if they received the higher amount of
compensation.
(Cite as: 64 FR 57040, *57046)
Therefore, to calculate the difference in compensation amounts that is not reflected in a comparison of fees for the two types of
grazing rights, we have attempted to measure the remuneration that we believe the GOA would have received, as owner of the
public land, if its leasing arrangements were "in line with private land arrangements." We note that because such information
regarding compensation is not available on the record of this investigation, our calculation is an estimate based upon the facts
available.
Information that is on the record indicates that total compensation earned by public lessees is approximately C$40 million per
year. It appears that this amount represents compensation for damages, disruption, access, and other factors. Because the law
indicates that both private and public lessees are entitled to compensation for damages and disruption we expect that a portion of
this C$40 million represents an amount of compensation that would be paid to any lessee regardless of whether the land being
leased was private or public. Thus, it would be inappropriate to assume that the C$40 million figure represents compensation that
is only obtained by public lessees because they are leasing public land.
Therefore, it is necessary to estimate the portion of the compensation received by lessees of public land attributable to damages
and disruption (which would be the same for a private lessees) versus compensation for access and other factors. In this respect,
the GOA has stated that the average
(Cite as: 64 FR 57040, *57046)
compensation package determined by the Surface Rights Board for both public and private lessees amounted to C$1,100 per year.
Given the number of grazing leases on public land affected by subsurface operations, the total amount attributable to
compensation for damages and disruption on public land would be approximately C$15.9 million per year. According to the rules
followed by the Surface Rights Board in establishing the amount of compensation, this amount would represent the compensation
for damages and disruption only. The remainder of the compensation (C$24.1 million) would be for access and other factors.
We recognize that this is a crude estimate of the amount of compensation that could be expected to flow to the GOA if it received
the compensation that we believe currently flows to holders of public land leases. For example, while the C$40 million amount is
widely reported, it is not clear where the estimate came from or how it was calculated. Moreover, the amount we have selected, C
$24.1 million, is at the upper end of the possible range of estimates. (See statement by Dr. Pannu, a member of the Alberta
legislature, as reported in the Alberta Hansard, May 11, 1999, page 1627: "it's difficult at this point to make a reliable assessment of
what additional revenues these changes in the leasing arrangements proposed in this bill will generate for the public treasury. I
have seen different figures. I think it could be close to $13 million to $15 million or perhaps more * * *") We believe that a
conservative estimate is
(Cite as: 64 FR 57040, *57046)
appropriate in light of the limited information available to the Department to ensure that a negative final determination is
warranted.
Therefore, because public lessees can expect to receive C$24.1 million more in compensation by renting public land as opposed
to private land, the public land is more valuable. However, as noted above, we have concluded that the differences in
compensation amounts to lessees of public and private land are not reflected in a comparison of fees for the two types of grazing
rights. That is, the government is not charging a higher price for its land to capture this value and, thus, is not being adequately
remunerated for its provision of public land.
To measure the benefits received under the Alberta Crown Lands Basic Grazing Program, we have combined the difference
calculated by comparing the grazing fees paid for public and private land with the difference in compensation described above.
We treated the resulting amount as a recurring benefit and divided it by the investigated provinces' total sales during the POI. On
this basis, we determine the countervailable subsidy to be 0.65 percent ad valorem.
Other Programs
K. Northern Ontario Heritage Fund Corporation Agriculture Assistance
(Cite as: 64 FR 57040, *57046)
The Northern Ontario Heritage Fund Corporation ("NOHFC") was established in 1988 as a Crown corporation. Its purpose is to
promote and stimulate economic development in northern Ontario. NOHFC focuses on funding infrastructure improvements and
development opportunities in northern Ontario. Assistance for these projects is available through forgivable performance loans,
incentive term loans, and loan guarantees.
With respect to agricultural projects, all assistance provided by NOHFC is in the form of forgivable performance loans. The types
of agricultural projects funded include capital projects, marketing projects and research and development projects. Fifty percent
of a project's capital costs are eligible for funding, up to a maximum of C$2.5 million. For marketing projects, fifty percent of the
project costs may receive funding, up to a maximum of C $500,000. For research and development projects, 75 percent of the
project costs may receive funding, up to a maximum of C$500,000. The loans made available for these projects are interest-free
and normally forgiven after two to three years. The extent of debt forgiveness is dependent upon the project meeting its target of
increasing the value of farm production by an amount equal to the NOHFC contribution.
*57047
(Cite as: 64 FR 57040, *57047)
Debt forgiveness is a financial contribution as described in section 771(5)(D)(i) of the Act, which provides a benefit to the
recipients equal to
(Cite as: 64 FR 57040, *57047)
the amount of the debt forgiven. Because benefits under this program are only available in northern Ontario, we determine that
the program is regionally specific under section 771(5A)(D)(iv) of the Act. Therefore, we determine that this debt forgiveness is
countervailable within the meaning of section 771(5) of the Act.
We further determine that this debt forgiveness is non-recurring because the recipients could not expect to receive it on an
ongoing basis. However, because the benefit to cattle producers in Ontario was below 0.50 percent of the investigated provinces'
sales in the year of receipt in each of the relevant years, we expensed the debt forgiveness in the year received. To calculate the
benefit for the POI, we divided the total amount of the forgiven debt by the investigated provinces' total sales during the POI. On
this basis, we determine the countervailable subsidy to be less than 0.01 percent ad valorem.
Additionally, we determine that a countervailable subsidy is conferred because no interest is charged on these loans. Under
section 771(5)(E)(ii) of the Act, a benefit arises when loan recipients pay less on government provided loans than they would pay
on comparable commercial loans. Pursuant to section 355.49(f) of the 1989 Proposed Regulations, we have treated the balances
outstanding during the POI as interest-free, short-term loans. We calculated the benefit from these loans by dividing the amount
of interest due at the
(Cite as: 64 FR 57040, *57047)
benchmark rate by the investigated provinces' total sales during the POI. On this basis, we determine the countervailable subsidy
to be less than 0.01 percent ad valorem.
To calculate the total benefit to cattle producers under this program, we summed the benefit calculated for the forgiven debt and
the interest-free loans. On this basis, we determine the total subsidy from this program to be less than 0.01 percent ad valorem.
L. Ontario Livestock, Poultry, and Honeybee Protection Act
This program, which is administered by the Ontario Ministry of Agriculture, Food and Rural Affairs, provides compensation to
livestock producers whose animals are injured or killed by wolves or coyotes. Producers apply for, and receive, compensation
through the local municipal government. The Ontario Ministry of Agriculture, Food and Rural Affairs reimburses the
municipality. Grants for damage to live cattle cannot exceed C$1,000 per head. Although the Ministry of Agriculture does not
track the proportion of benefits under this program going to dairy cattle or beef cattle producers, the GOO has reported that beef
cattle producers are believed to derive the majority of the benefits from the program.
A grant is a financial contribution as described in section 771(5)(D)(i) of
(Cite as: 64 FR 57040, *57047)
the Act, which provides a benefit to recipients in the amount of the grant. Because this program is limited by law to livestock
producers, poultry farmers, and beekeepers, we determine that the program is specific under section 771(5A)(D)(i) of the Act.
Therefore, we determine that these grants are countervailable within the meaning of section 771(5) of the Act.
We treated the grants received as a recurring benefit because livestock producers can expect to receive the grants every year. To
calculate the benefit, we divided the total amount of grants received by the investigated provinces' total sales of live cattle during
the POI. On this basis, we determine the countervailable subsidy to be 0.01 percent ad valorem.
M. Ontario Rabies Indemnification Program
This program is administered by the Farm Assistance Branch of the Ontario Ministry of Agriculture, Food and Rural Affairs. It is
designed to encourage farmers to report cases of rabies in livestock by compensating livestock producers for damage caused by
rabies. Farmers may receive grants up to a maximum of C$1,000 per head of cattle under this program. Sixty percent of the
grants are funded by the GOO and 40 percent by the GOC.
A grant is a financial contribution as described in section 771(5)(D)(i) of the Act which provides a benefit to recipients in the
amount of the grant.
(Cite as: 64 FR 57040, *57047)
Because the legislation establishing this program expressly limits these grants to livestock producers, we determine that the
program is specific under section 771(5A)(D)(i) of the Act. Therefore, we determine that these grants are countervailable within
the meaning of section 771(5) of the Act.
We treated the grants received as a recurring benefit because farmers can expect to receive the grants every year. To calculate the
benefit, we divided the total amount of grants received by the investigated provinces' total sales of live cattle during the POI. The
amount of the total amount of grants was taken from updated information supplied to the Department at verification. On this
basis, we determine the countervailable subsidy to be less than 0.01 percent ad valorem.
N. Saskatchewan Livestock and Horticultural Facilities Incentives Program
The purpose of this program is to promote the diversification of Saskatchewan's rural economy by encouraging investment in
livestock and horticultural facilities. This program allows for an annual rebate of education and health taxes paid on building
materials and stationary equipment used in livestock operations, as well as greenhouses, and vegetable and raw fruit storage
facilities.
A tax benefit is a financial contribution as described in section
(Cite as: 64 FR 57040, *57047)
771(5)(D)(ii) of the Act which provides a benefit to the recipient in the amount of the tax savings. Because the legislation
establishing this program expressly limits the tax benefits to the livestock and horticulture industries, we determine that the
program is specific under section 771(5A)(D)(i) of the Act. Therefore, we determine that this tax benefit is countervailable within
the meaning of section 771(5) of the Act.
In calculating the benefit, we treated the tax savings as a recurring benefit and divided the tax savings received by the
investigated provinces' total sales during the POI. On this basis, we determine the countervailable subsidy to be less than 0.01
percent ad valorem.
II. Programs Determined To Be Not Countervailable
A. Canadian Wheat Board
Introduction
The Canadian Wheat Board ("CWB") has the exclusive authority to market Canadian feed and malting barley in export markets. In
the Canadian domestic market, the CWB has exclusive marketing authority only with respect to malting barley. The petitioner
alleges that the CWB's pooling system (described below)
(Cite as: 64 FR 57040, *57047)
sends distorted market signals to Canadian farmers. Further, the petitioner argues that the system of marketing feed barley in
Canada imposes excessive costs on farmers, with the result that less feed barley is exported than there otherwise would be.
Consequently, the petitioner alleges, more feed barley is available on the domestic market, which artificially lowers prices paid by
Canadian cattle producers. Although the CWB system may not involve the explicit export restriction present in Certain Softwood
Lumber Products from Canada, 57 FR 22570 (May 28, 1992) ("Lumber") and Leather from Argentina, 55 FR 40212 (October
2, 1990) ("Leather"), in the *57048
(Cite as: 64 FR 57040, *57048)
petitioner's view, the CWB's control over, and operations in, the feed barley market have the same result as the export restrictions
which the Department found countervailable in those cases.
In the Preliminary Determination, we preliminarily concluded that, even if the CWB controlled exports, it nonetheless did not
provide a benefit to Canadian producers of live cattle because Canadian domestic prices were not lower than prices in the United
States in the POI. In making our price comparisons for the Preliminary Determination, we compared U.S. prices for feed barley in
Great Falls, Montana, with several Canadian domestic prices. We preliminarily found that Canadian domestic prices were
comparable to U.S. prices.
Since the Preliminary Determination, we have conducted a thorough analysis of all aspects of the Canadian feed barley market and
its relation to
(Cite as: 64 FR 57040, *57048)
the cattle industry. We analyzed where barley is produced and consumed within Canada, the total production of both feed
and malting varieties of barley, marketing options available to barley farmers, exports of feed barley, the operations of the CWB,
feed barley prices within and outside the area in Canada under the control of the CWB (i.e., the "designated area"), and
additional feed barley prices in the United States. We find that the CWB has extensive control over the feed barley export market
and that its operations in that market can, and do, have a major impact in the domestic feed barley market. However, as in the
Preliminary Determination, we find that the operations of the CWB did not provide a benefit to the producers of live cattle during
the POI.
Canadian Barley Production
There are two primary agricultural areas in Canada: the prairies in western Canada (Alberta, Saskatchewan and
Manitoba), and southern Ontario and Quebec. Eighty percent of Canadian farmland is in the prairies. The large majority of
Canadian grain is grown on the prairies, although some grain is also grown in the southernmost portions of Ontario and Quebec.
The growing conditions in western Canada and the eastern provinces are very different, which leads to different growing
patterns in each area. The climate in the prairies is drier and cooler with a shorter growing season; the
(Cite as: 64 FR 57040, *57048)
predominant crops are barley, wheat, and oilseeds. Conversely, because Ontario is warmer and receives more rainfall, the climate
there is more conducive to growing corn and soybeans. While Ontario has some barley production, barley is not the predominant
crop in the area.
In the most recent crop year (1998/1999), Canada produced a total of 12.7 million metric tons of barley. Over ninety percent
of this barley was grown in the prairies; 400,000 metric tons were grown in Ontario. The percentage of prairie production by
province was: 48 percent in Alberta, 37 percent in Saskatchewan, 14 percent in Manitoba, and less than one percent in British
Columbia. Although 70 percent of Canadian barley is seeded as malting varieties (for which higher prices can be obtained), only
30 percent is actually sold as malting barley. The malting barley that is not sold for malting is consumed as feed barley.
Almost half of all Canadian barley production occurs in Alberta, in a north- south belt extending from Lethbridge in the south to
Edmonton in the north. From Edmonton, the barley growing area arcs in a southeastwardly direction towards Winnipeg. A small
portion of southeastern Alberta and a much larger section of southern Saskatchewan are less productive for growing barley
because of less rainfall and warmer temperatures.
In Ontario, the barley growing area is primarily located on the peninsula that extends south between Lake Huron, on the west, and
Lakes Erie and Ontario, on
(Cite as: 64 FR 57040, *57048)
the east. Some grain is also grown around Ottawa. The primary crop grown in Ontario is corn; barley production occurs on the
fringe of the growing area where corn cannot grow because of cooler temperatures or unfavorable soil conditions.
Canadian Cattle Production
Canadian beef cattle production is primarily concentrated in western Canada (82 percent), with 12 percent in Ontario, and 5
percent in Quebec. Western Canadian beef production by province is: 46 percent in Alberta, 21 percent in Saskatchewan, 11
percent in Manitoba, and 5 percent in British Columbia. Similar to barley production, almost half of all Canadian beef cattle
production occurs in Alberta. Many farmers throughout the prairies produce both cattle and barley. The primary consumers of
feed barley are feedlots, and the majority of Canadian feedlots (approximately 70 percent) are located in southern Alberta,
between Lethbridge and Calgary.
CWB Organizational Principles and History
The CWB had its origins in the early 1900s. It was during this time that two of the fundamental principles of the CWB and the
marketing of Canadian barley
(Cite as: 64 FR 57040, *57048)
were established: single-desk selling and the "pooling" of costs and revenues. Since we are only concerned with feed barley,
single-desk selling in the context of this investigation means that the CWB is the sole exporter of western Canadian feed barley.
This authority requires barley farmers to sell via a single entity in export markets rather than competing against one another.
Barley farmers can compete with each other with respect to feed barley sales in Canada--though not with respect to malting
barley sales in Canada. In theory, according to the CWB, the absence of multiple sellers and the ability to sell at different
prices in different markets allows the single desk seller to obtain a higher overall price for Canadian grain.
The pooling mechanism is perhaps the defining feature of the CWB's operations. The CWB operates a separate "pool" for each of the
four crops under its authority (wheat, durum wheat, feed barley and "designated" or malting barley). Pooling means that the CWB
pays every farmer the same amount for a given quantity and quality of grain based on the weighted-average price received for all
the barley marketed in the pool year, regardless of when in the crop year the farmer sells to the CWB and regardless of the specific
sales prices the CWB realizes on the individual sales of that grain. (The payment mechanism--involving initial, adjustment, interim
and final payments--is discussed below.) According to the CWB, the pooling mechanism is a risk management tool designed to
protect farmers from adverse price fluctuations
(Cite as: 64 FR 57040, *57048)
that may occur throughout the year.
Prior to 1974, the CWB controlled all sales of barley, including domestic sales of feed barley. Responding to pressure from eastern
livestock producers who wanted access to western grain and western grain producers who wanted to sell grain in the east, the GOC
removed domestic sales of feed barley from the CWB's jurisdiction in 1974. In the same year, the GOC established the Reserve
Stock Program, apparently to ensure that western livestock producers would continue to have a reliable source of feed barley.
This program was terminated in 1979.
In 1984, the Western Grain Transportation Act ("WGTA") came into effect. Under this program, the GOC paid the difference
between the "crow rate" (a ceiling on rail rates dating back to 1897) and an unregulated rate. In 1985, the province of Alberta
began the Crow Benefit Offset Program to offset the higher local grain prices caused by *57049
(Cite as: 64 FR 57040, *57049)
the WGTA. The program essentially subsidized the purchase of barley by livestock producers and may have resulted in an
increase of livestock production in the province. The WGTA subsidies continued until 1995.
On August 1, 1993, the GOC permitted non-CWB entities to export barley, thereby creating the so-called "Continental Barley
Market" ("CBM"). As a result of Canadian judicial intervention, the CBM lasted only until September 10, 1993. During the CBM,
exports of Canadian feed barley to the United States
(Cite as: 64 FR 57040, *57049)
increased dramatically compared to prior periods. Whether this was due to the ability of individual farmers to export or other
factors (e.g., flooding in the United States) has been subject to much dispute. Economists also differ on the impact of the CBM on
U.S. and Canadian prices, specifically, whether the CBM resulted in the convergence of U.S. and Canadian domestic feed prices.
The petitioner suggests that the CBM is indicative of the market that would exist in the absence of the CWB.
CWB Act
The current statutory authority for the CWB was enacted in 1935. The CWB Act: (1) Codifies the CWB's exclusive control over feed
and malting barley exports; (2) establishes the governance structure and mission of the CWB; and (3) delineates the relationship
between the GOC and CWB. Under section 45 of the CWB Act, "no person shall export from Canada [wheat or barley] owned by
a person other than the Board." This provision grants the CWB its export monopoly authority with respect to all barley produced
in Canada. Section 45 of the CWB Act also grants the CWB authority over interprovincial trade in barley.
During the POI, the CWB was a Crown corporation governed by five commissioners appointed by the GOC. Farmers were
represented on an advisory board that could only make recommendations to the commissioners. Pursuant to section 7 of its
(Cite as: 64 FR 57040, *57049)
statutory authority, the CWB's mandate is to sell grain "for such prices as it considers reasonable with the object of promoting the
sale of grain produced in Canada in world markets."
The CWB Act establishes the following three financial relationships between the CWB and the GOC: (1) The GOC guarantees all
approved borrowings of the CWB, (2) the GOC guarantees the initial payment, adjustments, and interim payments made to farmers
(discussed further below), and (3) the GOC guarantees credit extended to purchasers of CWB grain. (See sections 6, 7 and 19 of the
CWB Act.)
In addition to the financial ties between the GOC and the CWB, the CWB Act promulgates other means by which the GOC may exert
authority over CWB operations. Section 18 of the CWB Act allows for GOC policy directions via an order by the
Governor-in-Council ("GIC"). Under section 32, the amount of the initial payment must be approved by the GOC. Finally, the CWB
is required to provide a proprietary, detailed annual reporting of the CWB's operations to the GIC.
1998 Amendment to the CWB Act
In 1996, the GOC established the Western Grain Marketing Panel ("WGMP") to review the marketing system of western Canadian
grain. As a result of the
(Cite as: 64 FR 57040, *57049)
WGMP, an amendment to the CWB Act ("the amendment") was passed in June 1998 and became operational on December 31,
1998. Parts of the amendment were implemented in June and December 1998, while others have yet to be formally implemented.
Below is a discussion of certain key WGMP recommendations and the provisions that were passed to implement these
recommendations.
Change in legal status. As noted, under the old CWB Act, the CWB was a Crown corporation. Pursuant to the amendment, it became
a "shared-governance" corporation. The new governance structure created by the amendment granted more direct control of the
CWB to the farmers through the Board of Directors. Specifically, ten members of the new Board of Directors are elected by grain
producers and the remaining five members, including the president, are appointed by the GOC. The new Board of Directors is
responsible for managing the business and affairs of the CWB and directing strategic planning. The old Advisory Board was
disbanded.
Removal of feed barley from CWB jurisdiction. The WGMP recommended that the CWB should remain solely responsible for
marketing malting barley, but that farmers should be allowed to export feed barley directly or sell it to the CWB. In 1997, the GOC
held a plebiscite asking farmers if they wanted to continue the current marketing system or sell their barley without the CWB.
Sixty-three percent of farmers voted to maintain the current system. Thus, the CWB's exclusive control over both feed and
malting barley exports has
(Cite as: 64 FR 57040, *57049)
continued.
Early closing of pools. Under the old CWB Act, the CWB could only make final payments on pools in January following the end of
the crop year (e.g., January 1999 for the 1997-98 crop year). The amendment grants the CWB the authority to close a pool early
(i.e., prior to the end of the crop year). The CWB wanted the ability to close a pool in situations where export prices decline
precipitously. Under these circumstances, the CWB could terminate the existing pool once it became apparent that prices were
steadily declining. Farmers who delivered their barley to the pool would receive the weighted-average price received during the
time the pool was open. After the old pool was closed, a new pool could be established. The first pool would reflect the higher
prices in the beginning of the year, and the second pool would reflect the lower prices at the end of the year. By ending a pool
early, the pool payment farmers receive for their grain would be more reflective of their initial expectations. Ending pools early in
a falling market could also be used as a mechanism to ensure that the GOC would not have to cover a pool deficit (i.e., reimbursing
the CWB for the difference between the payments made to farmers in the course of the crop year and the actual revenues received
on barley pool sales).
Cash Purchase Option. As recommended by the WGMP, the amendment allows the CWB to make cash purchases from farmers and
other participants on the open
(Cite as: 64 FR 57040, *57049)
market. The reason for this change is to allow the CWB to purchase grain directly from farmers when the CWB has selling
opportunities but the CWB's estimates of the final pool payment the farmer will receive--the Pool Return Outlooks and Estimated
Pool Returns (the PROs and EPRs, discussed below)--are not attracting sufficient supplies to take advantage of those
opportunities. However, prior to the adoption of the amendment in 1998, the livestock industry expressed concern that use of
this provision by the CWB might raise feed barley prices to the Canadian livestock industry. This provision has not yet been
proclaimed in force by Parliament. Therefore, the cash purchase option has not yet been exercised by the CWB.
CWB Operations
The Canadian crop year is from August 1 to July 31. Barley is normally planted in the spring. Harvesting begins the first or second
week of August and may continue through October, depending on the weather. Once the grain is harvested, the farmer can begin
to deliver grain immediately through the acreage-based system, or through the "delivery contract system" throughout the year.
Relatively small amounts of *57050
(Cite as: 64 FR 57040, *57050)
grain are delivered under the acreage-based system. The primary method of sale and delivery to the CWB is through the delivery
contract system.
(Cite as: 64 FR 57040, *57050)
Under the delivery contract system, there are four contract series throughout the year, each with a different deadline (for the
1997-98 crop year, the deadlines were: series A, October 31; series B, December 31; series C, February 27; and series D, May 29).
On the contract, the farmer identifies, inter alia, the station to which he normally delivers (he can deliver anywhere he wants), the
series for which he is offering grain, and the net amount he expects to deliver. Because the farmer will not know the exact weight of
his barley until it is delivered, the CWB allows an 85 percent tolerance.
After the CWB receives all contracts offered under a particular series, it tabulates the offers and determines whether it will accept
all the grain. The factors that are taken into consideration in this analysis are: the amount and types of grain offered, the sales
requirements identified up to that point, and any transportation constraints. The acceptance rate for every series in the POI was
100 percent. In the last five years, the CWB has consistently accepted all the barley offered to it, except for series C in the 1995-96
crop year, when it only accepted fifty percent of the grain offered.
Once the series contracts have been offered and accepted, delivery of the barley must be "called" by the CWB. A "call" or "delivery
call" is essentially an instruction issued by the CWB to farmers telling them when and where to deliver their barley. The CWB must
issue a call before a farmer can deliver his grain.
(Cite as: 64 FR 57040, *57050)
A number of factors are analyzed by the CWB in determining when the grain should be called into the handling system: the total
amount offered, immediate sales commitments, the quantity of grain already in the handling system, where grain is located, any
transportation constraints, and outstanding delivery calls (if any). Any one call can be less than 100 percent of the accepted
series amount. However, acceptance of a farmer's offer commits the CWB to call all the grain accepted at some point before the
end of the crop year. Once a call is announced, farmers may deliver their grain.
Pursuant to section 24 of the CWB Act, farmers are legally prevented from delivering to a grain elevator unless, inter alia, they
have a permit book, the grain was produced on the lands described in the permit book, and the quantity of grain delivered does
not exceed the amount authorized by the CWB. When the farmer delivers the grain to the elevator, the elevator manager grades it,
and makes the initial payment (discussed below) on behalf of the CWB to the farmer. The delivery is recorded in the farmer's
permit book and applied against the contract the farmer established with the CWB to calculate the net outstanding balance of grain
due under that contract.
Every farmer that sells into the pool receives the payment for his crop in installments. Upon delivery of the grain to the elevator,
the farmer receives the published initial payment adjusted for freight to either Vancouver or St. Lawrence (the two primary
export points), less any grain company deductions for
(Cite as: 64 FR 57040, *57050)
elevation and cleaning. The initial payment set by the CWB is based on market projections, CWB-specific sales prospects, and an
evaluation of export prices. While there is no fixed rule, initial payments historically have been set at 70-75 percent of the
projected final return. As noted above, the initial payment must be approved by the GOC.
During the year, the CWB may make adjusted or interim payments. After the pool year is closed, the farmer normally receives a
final payment. The sum of these payments equals the "pool payment," which is the total return the farmer receives for barley
delivered to the CWB.
Once the barley has been called, delivered and stored, it must eventually be moved to an export point. This is generally done by
rail. The allocation of the two Canadian railroads' resources is arranged by a government/private sector committee called the Car
Allocation Policy Group ("CAPG"). This group sets policies and coordinates the movement of barley and other grain through the
system. CAPG has representatives from grain companies, railways, farmers, small shippers, and the CWB. It performs capacity
planning for four-month and one-year periods. It evaluates market demand information from shippers and supply information
from railroads to determine where and when the transportation constraints will arise. During high usage periods, the CAPG
attempts to allocate resources equally; in other words, access is not rationed by price. (See section 28 of the CWB Act, which
enables the CWB to "provide for
(Cite as: 64 FR 57040, *57050)
the allocation of railway cars.")
Pricing Signals
Starting in late February to early March prior to the crop year (e.g., February 1997 for the August 1,1997/July 31, 1998 crop
year), the CWB publishes, on a monthly basis, the Pool Return Outlook (PRO), which is a range within which the CWB expects the
final pool return to fall. The monthly PROs are the main tool a farmer has in determining how much barley to grow and in deciding
whether to sell his grain domestically, or to the CWB for export. Once the pool year is in progress and sales have been completed,
the CWB has a better idea of the final pool return. In March of the crop year (e.g., March 1998 for the August 1, 1997/July 31,
1998 crop year), the CWB announces the Estimated Pool Return (EPR), which is a fixed number, not a range. EPRs are issued again
in June and September.
When determining the PROs and EPRs for feed barley, many factors are examined, including: harvest conditions, foreign
subsidies, carryover stocks from the previous year, and the quality and quantity of the U.S. corn crop. (The price of corn and
barley are closely related over time because both are used as livestock feed and both have similar nutritional value for livestock.
In the United States, corn is the primary feed for cattle.) Both the PROs and EPRs
(Cite as: 64 FR 57040, *57050)
generally reflect prices in export markets rather than the domestic market.
The Producer Direct Sales Program
The Producer Direct Sales ("PDS") Program allows farmers to export barley on their own account to the U.S. market. Section 46 of
the CWB Act and section 14 of the CWB regulations provide the mechanism by which the CWB grants export licenses under the PDS
program to individual farmers both inside and outside the designated area (i.e., the area under the control of the CWB).
Pursuant to section 46(d) of the CWB Act, the terms and conditions for the granting of licenses can include:
* * * recovery from the applicant by the Board * * * of a sum that, in the opinion of the Board, represents the pecuniary benefit
enuring to the applicant pursuant to the granting of the license, arising solely by reason of the prohibition of exports of [the
covered products] without a license and the then existing differences between prices of [the covered products] inside and outside
Canada.
We discussed this section of the CWB Act extensively at verification. One literal interpretation of section 46(d) is that it requires
that any difference between the price the CWB offers a farmer and the price the farmer can obtain by exporting his barley
independently must be paid to the CWB in return for the
(Cite as: 64 FR 57040, *57050)
granting of the export license. Obviously, such an interpretation would discourage the exportation of barley by any entity other
than the CWB. In practice, the CWB has *57051
(Cite as: 64 FR 57040, *57051)
interpreted this provision to mean that the farmer wishing to export independently must pay the difference between the total pool
return and a price set under the PDS program. Although the precise manner by which the CWB determines this price is
proprietary, in essence, the PDS price is based upon the export opportunities of the CWB.
In order to export barley under the PDS program, farmers within the designated area must (at least, on paper) deliver their grain
to the CWB--for which they will receive the normal pool payments--and then repurchase that barley at the posted daily PDS price.
In the 1997-1998 crop year, a very small percentage of Canadian feed barley exports went through the PDS program.
Analysis of CWB Operations
The Canadian grain marketing system--of which the CWB is an integral part--is highly regulated and institutionalized. Certain CWB
policies and programs indicate that the operations of the CWB, with respect to feed barley, may have goals other than promoting
the interests of barley farmers. Moreover, while there may not be an overt restraint on exports by the CWB, there are certain
aspects of the CWB pooling system and Canadian grain marketing system overall
(Cite as: 64 FR 57040, *57051)
that could have the same result as an overt restraint on exports.
As noted above, the CWB's mandate is to sell grain "for such prices as it considers reasonable with the object of promoting the sale
of grain produced in Canada in world markets." According to its annual reports (see, for example, page 2 of the CWB's
1997-1998 Annual Report in Exhibit CWB-34), the CWB's mission is to maximize returns to western Canadian grain farmers.
However, the CWB has also stated that it must balance this objective with the need of processors to source grain at a price that
allows them to compete in the finished product market (see, for example, page 17 of the CWB's 1995-1996 Annual Report in the
petitioner's November 6, 1998 submission at exhibit A-1 and verification exhibit CWB-14). Arguably, this pricing policy with
respect to downstream processors, along with the CWB value-added program discussed below, demonstrates that the operations
of the CWB may be guided by government policy objectives inconsistent with the actions expected of a normal market actor.
Similarly, we verified that the CWB has a value-added program intended to increase the domestic value-added of the cereal grains
it markets. Although the current objective of the value-added program relates primarily to the milling and malting industries, the
value-added program is very broad and includes anything involved in processing cereal grains. Some value-added programs have
centered on the livestock industry.
(Cite as: 64 FR 57040, *57051)
During the 1997-1998 crop year, the CWB held its second annual "Moving Up Market" conference. At this conference, the livestock
feeding industry was one area of focus. Brochures from the conference and copies of the presentations given by two CWB officials
and a private sector representative from the hog industry were collected on verification. Included in the presentation by the Chief
Commissioner of the CWB were the following statements:
The government in this province [Alberta] is encouraging the processing of raw products into fully processed consumer goods to
capture the value which is added by processing rather than simply exporting bulk agricultural goods.
The CWB shares the same desire to see Canadian processors using as much of Prairie farmers' cereal grains as possible * * *.
The western Canadian livestock feeding industry secures virtually all of its feed grain requirements from Prairie farmers. In an
open and competitive environment, this huge and growing market for feed grains may eventually make the export of feed barley
from western Canada a thing of the past.
(See verification exhibit CWB-14.)
These statements indicate, at a minimum, that the CWB supports a policy of increased domestic value-added for barley grown on
the prairies.
With respect to the CWB pooling mechanism, one CWB-commissioned study notes that if prices in the export markets suddenly
rise, the PRO/EPRs, which are estimates of the average price to be received by the CWB throughout the year,