By 1985 very few active farmers had a direct personal memory of marketing conditions before the creation of the Wheat Board in 1935. After 1985, the number of active farmers advocating for or at least open to the idea of reforming the Wheat Board grew from almost nothing to the point, in 2011, when the Harper government could dismantle it without effective political or legal opposition. The events of that time illustrate the decline and fall of an institution once considered essential by nearly all who had benefited from its existence. The external aspects of this history are well documented in the media and Parliamentary records. The internal aspects are not.
The purpose of the Wheat Board had been to consolidate the market power of all prairie farmers to maximize farmers and Canada's returns from the export market. This concept was a huge benefit for farmers and Canada as about 80% of Canada’s wheat crop was sold in international markets. The Wheat Board was as much an instrument designed to benefit Canada as it was to benefit individual farmers though that was always secondary to it’s benefits to farmers. Unfortunately, the Wheat Boards ability to maximize Canada's export returns for the benefit of Canada was never discussed in a meaningful way.
The idea that the purpose of government is to serve the national interest lost strength and appeal following the collapse of the Soviet Union. That collapse triggered the view in the West that its power and influence could be strengthened hugely by leading the world to open up global trade. The creation of the World Trade Organization in 1994 reduced trade barriers opening up the world’s markets to Western goods and services. Leaders like Bill Clinton, Tony Blair and even Canada’s Jean Chretien all subscribed to the view that our future prosperity was attainable only through increased trade. The mantra as at the time was that countries which trade with each other do not go to war against each other.
The immediate consequence of this transformation in Canada was the repeal of the Western Grain Transportation Act by the Chretien government. Prairie farmers had benefitted from an annual subsidy exceeding $700 million for the transport of grain to export positions.
The repeal of the WGTA threw the prairie grain industry into a crisis as everyone started to plan for whatever adjustments might be necessary as a result of the huge increase in rail freight rates. Among other things, the US market, some of which lies within trucking distance of major grain growing regions in Canada, became an attractive market outlet for some farmers, particularly a group of anti wheat board individualists in southern Alberta. Elsewhere entities like the Saskatchewan Wheat Pool were converted into share capital corporations to finance the adjustments needed to compete in the higher rail freight rate environment.
The attractiveness of markets in northern Montana to southern Alberta farmers who sought to access it directly became a major flash point in the mid-nineties. The Wheat Boards efforts to restrict these exports was seized on for political advantage by those who wished to advocate for the elimination of the Wheat Board. Among the opportunists looking for a political cause was the National Citizens Coalition led by Steven Harper. They crafted a political message around the idea of individual freedom and developed the notion that farmers ought to have the freedom to enter into contracts for the sale of their products without interference from the government regardless of the effect on other farmers. This message resonated in southern Alberta where the facts on the ground seem to confirm that those closest to the border could indeed prosper if they were allowed to sell directly into the US market. This clashed with the concept that premium market opportunities available in the US ought to be accessed for the benefit of all prairie farmers under the Wheat Board. The conflict boiled down to one in which the individual interest in reaping large rewards from marketing freedom conflicted with the concept that the benefit of market premiums ought to be shared by all. It became a “me versus we” dispute.
The National Citizens Coalition somehow injected, into the public debate, the idea that if the Wheat Board was as good as its supporters claimed it to be then it ought to be able to compete with any other option available to farmers. This idea became known as “dual marketing”. This phrase ultimately became THE BIG LIE which led to a very substantial erosion of the popular appeal of the Wheat Board. Some farmers came to
believe that they could have all of the benefits of the Wheat Board alongside all the benefits of an open market including, particularly, the benefits of price spikes which became available in isolated market conditions.
In 1995 the Wheat Board together with Customs took steps to control the illegal export of wheat and ultimately brought charges under customs legislation against 20 producers in southern Alberta and several in Manitoba for illegally exporting wheat. These producers were convicted and were handed fines which were rather insignificant in amount. We may never know why but several farmers refused to pay their fines and were subsequently sentenced to prison terms thus becoming jail house martyrs fighting for "freedom". Personally, I thought it would have been better to sentence those refusing to pay their fines to a few weeks of community service picking up garbage along the highways of southern Alberta for the symbolic value.
The Wheat Boards supporters also failed to effectively tackle the dual marketing Big Lie head-on. The concept of the dual market was like eating one's cake and having it too. It was simply unworkable and history had proven it to be unworkable at a very early stage of the Wheat Board’s life. Perhaps Wheat Board supporters assumed that the idea was so obviously unworkable that no one would take it seriously. But unanswered attacks almost always invite more attacks.
The challenge posed by the repeal of the WGTA were reviewed by the Western Grain Marketing Panel appointed by the federal government. This panel held extensive hearings across the Prairies and undertook research over several years in the mid-90s and then ultimately recommended several reforms for the Wheat Board. The panels main recommendation was that the Wheat Board ought to be governed by a Board of Directors elected by producers. Farmer-elected directors were to hold 10 of the 15 seats on the board of a reformed CWB. This idea had sufficient appeal to carry the day until Steven Harper was elected Prime Minister in 2007. He appointed 5 directors determined to dismantle the Wheat Board.
Saskatchewan Wheat Pool was not the only prairie cooperative to break new ground. Alberta Wheat Pool and Manitoba Pool Elevators joined to make a hostile takeover bid for United Grain Growers. Their offer of $13.75 per share for UGG shares was about $6.00 above the price at which the shares were trading on the Toronto Stock Exchange at the time and thus represented a significant premium for all UGG shareholders. UGG launched a massive defence against this takeover bid which ultimately succeeded. Still, the effort did produce some benefit for the 2 Pools as the shares purchased by them at market prices before making the public bid were later sold back to UGG at $16.00 per share for a handsome profit.
After licking their wounds the 2 Pools merged a year later to form Agricore, under the leadership of Gordon Cummings. Agricore soon got into a huge spending war with Saskatchewan Wheat Pool led by Don Lowen as both sought to expand rapidly. Agricore spent massive amounts of borrowed money on expansion to the point where 3 years later they were forced to merge with UGG. Ironically UGG after having defeated the hostile takeover bid UGG was compelled by its financial situation to merge with Agricore to form Agricore United in 2001.
In hindsight, UGG’s decision to reject the Pool's takeover bid without even trying to negotiate for better terms may have been a disservice to its shareholders. We will never know. There can be little doubt that selecting Gordon Cummings as CEO of Agricore was a mistake. Under his leadership Agricore went on to spend $600 million in borrowed money over the next 3 years pushing it to the brink of insolvency. Agricores merger with UGG in 2001 to form Agricore United looked like a shotgun wedding. I represented 5 of the 12 directors of Agricores Board and provided them with independent legal advice throughout the merger process.
The 3 Pools did form a common front on several issues relating to the legislation reforming the Wheat Board. They supported the idea of a producer-elected board and the appointment of a fresh slate of directors by the government to replace the commissioners previously appointed by the Mulroney government.
The Pools also objected strenuously to the creation of a contingency fund to cover losses in the cash trading programs to be permitted under the new legislation. Their opposition proved to be very prescient. The Pools were concerned that any time a government entity can accumulate contingency funds, reserve funds and the like, that pot of money will eventually tempt future some government to seize and use it for that government's other purposes. That is exactly what happened in 2012. (Not so surprisingly Manitoba’s Conservative government made a similar move to seize the public insurance corporations' reserve funds for other purposes a few years ago.)
The government listened to the Pool's concerns regarding the contingency fund when amending the CWB Act and specified in the legislation that the fund could only be used to provide for losses in the cash trading programs and when initial payment increases caused losses in the Pool accounts and for no other purposes. The legislative history makes it clear that this was the intention of Parliament when enacting this legislation in 1998. I and other members of the pool lobbying group considered it to be a significant success to receive this assurance and to see this clearly protective language in the statute.
The Wheat Board survived for 14 years with its farmer-elected board of directors. However, after the Harper government was elected in 2006 its appointees together with 2 anti-wheat board directors who had been elected by farmers were one vote short of controlling the board of directors. Thus, the fate of the board came down to the choices made by the weakest member of the pro-board faction. The Wheat Boards relationship with the Harper government were tumultuous to say the least. In 2011 the Harper government won a majority in the House of Commons. And that was the end of the Wheat Board.
I intend to cover all of the significant events which occurred during my 40-plus years of lawyering in the grain trade in much more detail over the coming months. The Wheat Board was very adept at adopting technology and had great success in successfully resolving complex issues and disputes with customers and others such as the railways quickly. It also enabled Canada to take steps that supported Canada’s
national interests by facilitating credit sales to countries like Poland to reduce turmoil there as it sought to move away from the Soviet Union. It also fostered substantial efficiency gains in handling and transportation over the years and generally maintained extremely low operating costs. There can be no doubt that its demise changed Canada.
One Of A Kind Experiences
Cape Agrilos
As with any job I had responsibility for a broad range of relatively routine tasks. At the Wheat Board this included drafting orders in council to set initial prices and final payments, handling the financial transaction, (the largest being an $800 million term loan facility), to incorporating the Wheat Board's day care centre for the children of employees. But sometimes completely unprecedented situations requiring legal guidance popped up. The Cape Agrilos file was one of those situations.
By way of background, the rules governing transportation of commercial cargo are broadly similar. Grain sales contracts stipulate that the seller will have the cargo at a certain point on a specific date. The buyer undertakes to have suitable transportation available and ready to receive the cargo at the same time. The buyer will have the purchase money available at a local bank so the seller can be paid on completion of loading the cargo. In the ordinary course the party receiving the cargo issues a bill of lading, effectively a receipt, on completion of loading to the seller who is then paid on presenting the bill of lading at that bank. This bill of lading is then forwarded by the bank to the buyer for presentation to the ships captain on arrival at the port of unloading to secure release of the cargo.
Ocean vessels can be owned outright and then sub-chartered for varying lengths of time. The sub-charterers can then contract with cargo purchasers for a single voyage or a period of time.
In September of 1984, the Cape Agrilos received a cargo of 32,000 tonnes of barley purchased by the Grain Board of Iraq, at Vancouver. The Cape Agrilos was destined for Iskanderun in Turkey where the cargo was to be unloaded and then ,transshipped over land to Mosul in Iraq. Iraq and Iran were in the middle of an 8 year long war at the time so food imports were vital. The loading proceeded smoothly and the Wheat Board had fulfilled its obligation to the Iraqi buyer. So far, so good, it seemed.
However, the Cape Argilos‘ owner had not been paid the money owing to him by the chartering company booked by the Grain Board of Iraq to carry this cargo although the charterer had been paid by the Grain Board Of Iraq. After the cargo was loaded the captain of the ship refused to issue bills of lading to the Wheat Board as sellers. The ships owner had claimed a lien on the cargo for the unpaid freight. This lien apparently gave him the right to sell the cargo within the applicable rules. The amount owing was approximately $750,000.00.
Head office staff in Winnipeg learned of the problem (actually it was a mistake of the sort that sometimes occurs late on a Friday) early on a Monday morning several days after the ship had departed Vancouver. And I was pulled into the matter a few minutes after that by Gil Booth, the Wheat Boards shipping manager. I quickly researched the issue, which had never, to my knowledge, occurred before on a Wheat Board sale, and saw that the ship owner did indeed have a lien. There were issues in my mind as to why the Wheat Boards Vancouver office had loaded the ship not knowing that the freight bill had not been paid but we never pursued that as this was not the time for squabbling internally over how the mistake was made or who made it. We needed the full support of the person who made the mistake to explain what happened to begin with.The immediate problem was that the ship owner had control of the cargo and could theoretically guide that ship to any convenient port and sell the cargo leaving us the only remedy of suing him and the Grain Board of Iraq if there was even any basis for doing that.
The Wheat Boards best outcome was to make sure that the Iraqis paid the freight to the vessel owner as they were obliged to do so. The fact that they had already paid a chartering company in London which then failed to make payment to the ship owner was not our problem or responsibility. But taking that sort of approach would not be helpful in any way. A better solution had to be found. It was a busy day.
The next morning commissioner Jim Leibfried, David Olfert, treasurer, Gil Booth, and I met in Jim's office. After strategizing for about an hour we put in a call to the head of the Grain Board of Iraq, Mr.Daoud, to inform him of the problem and share the details we were aware of . He knew some of the background to this issue and clearly knew that he had a big problem on his hands. He knew there would be questions asked of him as to where the money had disappeared to and that sort of thing. Again that was not our problem but it was a problem that had to be solved.
We had also explained that our fallback position was that the Wheat Board could pay the freight and then have control over the cargo so we would be free to sell it to any other party meaning Russia or Poland or perhaps Saudi Arabia which was also a big barley buyer. Mr. Daoud definitely did not want that to happen. During this fairly lengthy conversation, it became clear that we would need to travel to Baghdad ASAP to make our demands in person. We thought that our prompt
physical presence and our explanation of the basis for our claim would make it easier for Mr. Daoud to secure money from the Iraqi government to cover the unpaid freight and would be a strong show of support for the Wheat Boards position. Mr. Daoud was very quick to agree with this. Iraqs war with Iran meant that it could without doubt use every dollar/dinar had to spare in that effort. We knew how difficult it could be for Mr. Daoud to secure this funding.
We closed the phone call by agreeing that we would fly to Baghdad as soon as possible to negotiate with him directly and to get the matter resolved as quickly as possible. Two and a half hours after the phone conversation ended we were on an airplane and headed for Baghdad. We ended the call and tidied up our offices, went home and packed a suitcase, and then went to the airport. Leibfried, Olfert and I, were joined by Tom Cowell from the sales department. It happened that fast.
I had contacted Peter Troop, an Assistant Deputy Minister of Justice and expert in maritime law to get his guidance several hours after first learning of the problem. I spent quite a bit of time with him on the problem, as it interested him a great deal. He advised that we retain specialist legal counsel in London and provided the name of the firm which he had worked for at the start of his career. As a young lawyer he had spent several years practicing law in London.
The issue had been first been raised with Gil Booth by a lawyer with a law firm in London; Clyde and Company. This law firm did nothing but shipping law. Gil had come to my office several minutes after that phone call ended This lawyer was exceptionally knowledgeable and had the resources of a large specialist firm behind him. Their client, the ship owner, was based in Antwerp Belgium. I spoke with this lawyer several times to let him know what we were planning to do so his client would not act precipitously. Time isn’t on anyones side in cases like this.
Mr. Daoud had agreed to send a telex to the Iraqi Embassy in London directing it to issue visas to us immediately on our arrival in London. The CWB telexed our passport details to Mr. Daoud and the Iraqi Embassy. On our arrival in London, we met with the lawyer Peter Troop had recommended. He confirmed the situation was as we understood it which was that the CWB had to pay the freight if it wished to control the cargo and then seek reimbursement from the Iraqis using the leverage we had over them that we could sell the cargo elsewhere if the buyer failed to pay the freight. This was a step which we did not want to take any more than Mr. Daoud did.
We were then off to the Iraqi Embassy to complete the visa applications and to get our visas. That procedure took about an hour. After that we went to the CWB's London office managed by Paul Westdal and then to his home. After a very good dinner we stayed there overnight as there were no hotel rooms to be had in London for some reason. The next morning we were surprised to hear the clip-clop of about 30 horses passing in front of Paul's home. These were the horses of the Queen's ceremonial guard which were stabled not far away. Then it was back to Heathrow Airport for the 5-hour, supposedly direct, flight to Baghdad.
To start, the departure was delayed by about 3 hours. When we did finally take off we were soon descending into the airport at Ostende in Belgium. This stop was not scheduled nor announced. We were offered drinks, cigarettes, food, etc. during the 2 hours the plane sat on the runway in Ostende. After a while, the first-class cabin became so hot that one of the stewardesses opened the door so that air could come in. Tom Cowell and I stood in the doorway to better catch the breeze and noticed that a large number of air freight containers were being placed on board. Oddly, the containers were covered with black tarps. Tom looked at me and said, "Aren't you glad you do not know what is in those containers". Ports like Ostende are notorious for their participation in the global weapons trade. It didn't take much imagination to realize there was some possibility that the containers were for weaponry of some sort that would be useful to Iraqis in their war against Iran. This tactic is very much like that of putting major military assets right next to hospitals and elementary schools in the hope that they will be safe from the enemy, as happened recently in Gaza.
As we got into Iraqi airspace the plane went down to a much lower altitude and flew in a big zig zag pattern towards Baghdad where we finally landed safely. We were well aware that Korean Air Lines Flight 007, a scheduled flight from New York City to Seoul, was shot down by a Soviet interceptor aircraft after straying into Soviet airspace just one year earlier. The zigzag flying pattern was no doubt just a routine missle avoidance tactic used by Iraqi pilots.
When in the terminal we realized that only Jim Leibfried's luggage came through. The rest of us were without luggage. Obviously something had to be left behind to make room for the containers loaded at Ostende. After realizing we had no luggage we found a cab and got a ride to our hotel, the Ishtar Sheraton. It was a very nice first-class hotel. They were just opening up a buffet breakfast which was very welcome as we had not had much to eat for quite some time.
That morning we went to meet Mr. Daoud. He had a huge portrait of Saddam Hussain hanging on the wall behind him and which was directly in our field of view when we were talking to him. It very quickly became obvious that Mr. Daoud was an extremely intelligent man who knew he had a huge problem. He had to deal directly with Iraq's Finance Minister to get money freed up to, in effect, pay a second time for the transportation of this cargo. It was obvious that food was in short supply, no doubt because of the war The idea that the cargo might go elsewhere seemed to be unthinkable to him. His problem nonetheless was freeing up the money. He had met with the Finance Minister before meeting with us and did say that he thought he could make the money available. We presented our position in detail to him so he could carry that forward to the Finance Minister which he did that afternoon. Next morning he advised us that he had received the approval he needed and told us how to proceed. Jim and David then went to Iraq's central bank for a meeting arranged by the Finance Ministers office to arrange for the transfer of the funds to whatever account David wanted it in. Things seemed to be falling into place.
That evening we had dinner in a huge restaurant built in what was supposedly a 700 year old camel trading market. The restaurant had a central area where the men sat. The perimeter around the main room had individual rooms for families where women were allowed to sit. We were seated next to a large group of Arabs who were dressed in the traditional white Saudi style robes with the head cloth. One of the waiters had a stunt to entertain them in which he performed a dance with a bottle of Haig scotch balanced on his head as he delivered it to their table. We saw that show several times. (Alchohol was available in our hotel too. Saddam Hussein, and, by extension Iraq, were far from being devoted to Islam Twenty years later a US President was able to get enough public support to invade Iraq on the pretense that Hussein was sheltering Osama Bin Laden. Many observers at the time held the view that it was highly unlikely that the secular Hussein was sheltering that religious fanatic in the face of US invasion threats and a massive military build-up. But they were ignored. Emotions won and reason lost at an enormous cost in blood and treasure.)
Even cab rides in Bagdhad are little adventures. One driver at the hotels taxi stand had taken us on several trips before. When we headed for his cab he made a huge show of wanting one of the other cab drivers at the taxi stand to take us to this restaurant so he would not have to. After putting on this show he waved his arms in mock disgust at his fellow drivers and agreed to take us to the restaurant for 15
dinars. We had a good laugh at ourselves later as the taxi from the restaurant to back to the hotel cost us only 1 dinar. Obviously we had been seen as marks and the driver had put on a bit of a show just to make us think we were getting a good rate at 15 dinars for the ride. Fifteen dinars was worth about $45 Cdn; a small price to learn a bit about “local customs and culture” and perhaps even some insight into how camels were traded 700 years ago!
We met with Mr. Daoud again the next day to confirm that the Wheat Board had received the funds and to advise it would be paying the ship owner immediately. The defaulting ship charterer had arranged to have several lawyers in Baghdad to try to smooth over the problems they were having. One of these lawyers, who apparently knew we were in Baghdad, had sent a message to me asking that I get in contact with them. It seems they had been ordered by Mr. Daoud to remain in Iraq until matters were resolved. This had them worried for a good reason. I was unsure as to what to do when I heard that they wanted to see me. We thought it would be best to ask Mr. Daoud whether I should meet with them. He said “no, it's better if you do not talk to them”. We learned later in London that they had indeed been told to not leave Iraq. We think they must have received advice from the British Embassy that they should simply go to the airport and catch a British Airways flight back to London as if nothing was wrong which they did. They were safely back in London before we arrived there. For that reason, I did not feel quite as bad about not talking to them. That was an unusual incident to say the least.
After we got matters settled in Baghdad we flew back to London and found our suitcases which were about to be shipped to Baghdad on the return leg of that flight and we’d never see them again. That evening, wearing fresh clothing, we saw a musical play with one of Johnny Cash's daughters performing which was very good.
Next morning David Olfert and I went to Brussels and then to Antwerp to meet with the ship owner and to pick up the bills of lading. The Wheat Board had by then paid the outstanding freight as the Iraqis had placed that same amount into the Wheat Boards account in Vancouver. However the ship owner claimed that he was still owed $700.00 for some minor item and insisted on being paid that amount before releasing the bills of lading to David and I. We had already paid his law firm in London that same amount but he insisted on being paid on the basis that the lawyers had already "been paid far too much". So David paid him out of his
traveler's cheques. The $700.00 paid to the law firm was later recovered by our London lawyer and applied to the bill that he gave us so that was squared away.
After everything was settled with the ship owner he invited us to join his daily meeting with his staff. The meeting was a round table session with each one of the 15 or so people present reporting on developments with the ships they were managing over the last 24 hours. It was a very efficiently run meeting. The ship owner then asked his driver how long it would take to get us to the Amsterdam airport. His driver responded it couldn't be done in less than 2 hours to which he said “get these 2 gentlemen to Amsterdam and don't take a minute more than 2 hours.” We had a very smooth drive at up to 200 km per hour on the open stretches and caught the first available flight. With the bills of lading in our hands, David and I flew to Vancouver to present them to the bank in exchange for the purchase price of the cargo. Mission accomplished!
Over the 9 days of this adventure I got by on 3-4 hours sleep each day. We were all on high alert every waking minute as we navigated these unknown waters. The key to our very quick resolution was simple; we kept our eye on the main objective and moved as quickly as possible. And we were able to inject a real sense of urgency into the process. This tactic is far from easy to use in complex situations but this is how things were done and was the reason I found my 12 years at the Wheat Board exciting and satisfying. I’ll elaborate on the work ethic at the Wheat Board in more detail in the chapters to follow. In 1992 I left this comfortable perch to join Manitoba Pool Elevators with the thought I might have an opportunity to contribute to a merger of the 3 prairie pools to provide a cooperative choice to farmers for their grain marketing as storm clouds were already gathering over the Wheat Board. More to come on that subject.
Wheat Board Financing
The Wheat Board was required to pay farmers for their grain at the time of delivery to a primary elevator. However, it did not receive payment for that grain until it had delivered it to a customers vessel. Thus, its borrowing requirements for working capital were substantial. For many years the Wheat Board Act restricted the Wheat Boards financing authority so that it could only borrow from the 5 major chartered banks. The amounts borrowed varied significantly from day to day and were so large that the 5 banks divided the loan among themselves at the end of each banking day.
The Wheat Board was, under the Wheat Board Act, “an agent of her Majesty in Right of Canada”. The agency status meant that the Wheat Boards obligations were direct obligations of the Government of Canada. The rate of interest paid by the Wheat Board to the banks was the prime rate minus of one quarter of 1%. This had been an appropriate rate for many years but by the late 1970’s it became clear that the Wheat Board ought to be able to borrow at rates more favorable than that by virtue of its status of an agent of Her Majesty. Global financial markets were becoming far more flexible and money could be borrowed from many new sources. One of those sources was the so called Eurobond markets. This market was based on US dollars on deposit with various banks in Europe. Canadas Export Development Corporation had commenced borrowing in this market and was getting significantly more favourable interest rates than the Wheat Board. After careful analysis, the Wheat Board made the decision to explore the possibility of borrowing US $50 million on the Eurobond market. The Department of Finance, which has authority over Canadas borrowings, approved this approach and the Wheat Board started the process to enter this market and to proceed with the bond issue. The firm of Wood Gundy was retained to underwrite bond issuance and started to prepare an Offering Memorandum, which is a very detailed document describing the Wheat Boards financial and business operations. Its purpose was to provide full disclosure of everything a potential investor might want to know before purchasing the bonds. Wheat board lawyer Henry Monk had given the opinion that the Wheat Boards obligations were direct obligations of her Majesty in Right of Canada and therefore direct
obligations of Canada. The draft offering memorandum contained the statement that these obligations were direct obligations of Canada in the expectation that this would allow the Wheat Board to borrow at rates nearly as favorable as those available to the Government of Canada itself. At the time, these rates were approximately 1% below the prime rate representing large savings in interest costs.
When the Department of Finance reviewed the draft operating memorandum, it objected to the Wheat Boards statement that its obligations were direct obligations of Canada and declined to give its approval. This approval was necessary. The Government of Canada was providing a written guarantee to the 5 banks of the Wheat Boards borrowings and the Eurobond issue would not be covered by that guarantee. Hence the ability to say, in law, the Wheat Boards obligations were direct obligations of Canada was the essential point of the Eurobond issue. Work to complete the bond issue was put on hold until this question could be sorted out.
I joined the Wheat Board’s legal department in April, 1980 during that stalemate. About 6 months after joining, Mr. Monk called me into his office and asked me to review the Act and the case law and provide an opinion on whether or not the agency status meant that the Wheat Boards obligations were direct obligations of Canada. I was not aware that Mr. Monk had given that opinion and therefore started my work with a fresh eye. After lengthy research, into all available resources, including one very old English case involving a purchase of some cannon balls by the British Army, I came to the conclusion that the Wheat Boards agency status did indeed mean that its obligations as agent were the direct obligations of the principal, Her Majesty in Right of Canada, according to basic and long established principles of agency law. He indicated that was his view also and thanked me for the work. (Even at the age of 70, Mr. Monk worried about the quality of his work and valued a second opinion.) I didn’t hear anymore about this particular issue until a number of months later when Mr. Monk called me into his office again and explained the Eurobond issue and basically turned the file over to me to move forward. This was my initial introduction to the world of high finance and I found it incredibly exciting. The amount of money to be borrowed, US$50 million, was an enormous amount in my view. This was the sort of work that was normally carried on by lawyers in the top tier of Canada’s legal profession. Wood Gundy had retained one of the most prestigious Bay Street law firms to advise it. The Wheat Board, on the recommendation of the Department of Finance, retained Montreal law firm Ogilvy Renault which had done work for the Export Development Corporation.
My excitement in being handed the file was substantially muted when I learned that the Department of Finance had not yet allowed the Wheat Board to make the statement that its obligations were direct obligations of Canada in the offering memorandum. That hurdle had to be cleared before anything could happen. The biggest concern of the Department of Finance seemed to be that they did not want to be required to disclose the Wheat Boards debts in Canadas public accounts. This issue took another year to resolve. I recall attending a meeting in the Wheat Boards conference room at which senior people from all concerned parties including the Department of Justice, Department of Finance and the law firms were present. The purpose of this meeting was to persuade the Department of Finance that the Wheat Boards position was indeed correct. I distinctly recall sitting very quietly in a corner of the room and watching as Mr. Monk made the argument to support his opinion on this matter; an opinion that had been under fire for many months now. He explained his reasoning in a masterful way and didn’t receive any serious objections. The senior lawyer from the Department of Finance had been an acquaintance of Mr. Monk for several decades so they were familiar with each other. The meeting adjourned with the Departments of Finance and Justice saying they would consider the matter and get back to us which they did several weeks later. Mr. Monk’s opinion and his arguments had carried the day and the Wheat Board was told they could indeed proceed with the bond issue on the basis that the obligations under the bonds were direct obligations of Canada. Work went very quickly after that and on December 1, 1982 the Wheat Board was able to announce the successful issuance of $50 million dollars US of its bonds on European financial markets. The bonds had actually been taken up very quickly by approximately 30 European financial institutions. The interest rate was set at 11 1/2 % at a time when Canadian prime interest rates had shot up to nearly 20%. While Canadas rates dropped after that time the bonds were still very favorably priced relative to the Wheat Boards other options for a number of years. The bonds were redeemed 8 years later.
The success of this bond issuance led the Wheat Board to consider all other borrowing options that might be available to it. Financial deregulation and rapidly increasing global wealth had resulted in very large amounts of cash on deposit with banks and like around the world. This money was usually available at very favorable rates for short terms under 90 days. However the Wheat Boards legislation was sufficiently clear that the Wheat Board simply did not have the authority to participate in these markets. The answer to this was to amend the Act to broaden the Wheat Boards authority to allow it to borrow money from any source. This work was undertaken and several years later, in 1984, Parliament granted to the Wheat Board the same broad borrowing authority that the Export Development Corporation had.
The Wheat Board immediately started borrowing from Canada trust companies first. The first such loan was in the form of a revolving credit facility providing loans up to a maximum amount of $500 million from Canada Trust. This was later increased to $800 million. This loan had a floating interest rate for very short terms; under 90 days. After that the Wheat Board entered into similar term loan facilities with several other lenders. This was necessary because the Wheat Boards borrowing was simply too large for any single institution to carry and there were interest savings to be had by playing the lenders off against each other. The rates under these lending facilities was over 1 percentage point below the prime rate resulting in very significant savings. Meanwhile the Wheat Board continued to charge the old rates on grain sales made to buyers who had borrowing arrangements guaranteed by Canada through the Export Development Corporation. These buyers included countries like Brazil, Poland and several others. This meant that the Wheat Board was now actually making money on its borrowing and financing arrangements. This amount was quite large in some years and the proceeds, being from the sale of grain, were added directly to the Wheat Boards pooled accounts. Even though this money was actually generated from financing activity and not directly from the sale of grain, this was money earned as a consequence of the sale of grain giving farmers a legal claim to it.
The Wheat Board then initiated a commercial paper program in New York, following along the same lines as the Export Development Corporations program. Commercial paper is simply a short term loan or IOU with funds being made available by any lender who happens to have it available on the day the borrower
needs it. The New York lawyers retained by the Wheat Board questioned the statement as to whether the Wheat Boards obligations under the commercial paper to be issued were actually direct obligations of Canada. The New York law firm retained by the Wheat Board asked me to draft an opinion directed to them which they could rely on when they gave the opinion that these obligations were direct obligations of Canada. I provided a 4 page justification for the statement along the exact lines laid out by Mr. Monk several years earlier and I provided them with a copy of Mr. Monk’s prior opinion as well. This persuaded them that they could confirm that statement and the commercial paper program was up and running in very short order. ( After the program was set up I received a call from the lead lawyer in which he asked whether his firm could charge a bit more than the initial fee estimate given to me because of the extra work necessary to address the direct obligation issue. I had actually been very surprised that the fee quoted was as low as it was. I had requested quotes from 5 major law firms and selected this one because of the very low quote. He hoped I could agree to a slightly higher fee but he could simply have billed a higher amount in any event. The initial quote was not binding. He said, “Anders, I don’t want to send you a bill you don’t want to receive.” I agreed to an additional amount, but the total bill was still less than anything offered by the other firms. This firm had done legal work for the Rockefeller family and the companies they owned for many, many years. I flattered myself with the thought that I had in that moment “been treated like a Rockefeller”.) The next commercial paper program was set up in Canada. We retained a very prestigious law firm in Toronto which had done much of the same type of work for others including the Export Development Corporation. This work proceeded quickly and the program was soon up and running. However the Wheat Board was charged a fair bit more for this work than it was for the New York work.
The commercial paper programs improved the Wheat Boards borrowing costs and options even more. As a result its borrowing costs were often within .05% of Canadas. The efficiency gains in global finance supported by the technology that was emerging and becoming more powerful every year meant that the Wheat Board was able to capture very significant savings which went directly into the pockets of farmers. I still look back on that work with a lot of pride. This was also a very busy time for David Olfert, the Wheat Boards treasurer, as he had to expand
the finance department with qualified and highly skilled staff to handle the Wheat Boards end of all these transactions by continually analysing interest rate markets and the like to keep up with the markets. David also met personally with countless representatives of financial institutions and lenders from broad range of lenders hoping to lend money to the Wheat Board by offering lower interest rates. This was a huge change from 10 years prior when the Wheat Board had been somewhat beholden to Canadas biggest banks.
Barley Litigation 2007
Stephen Harper became Prime Minister of Canada following his election in 2006. There was no doubt that he wanted to dismantle the Canadian Wheat Board yet the minority status of his government meant that he could not move legislation through Parliament to achieve that outcome. Harper was, however, able to direct his cabinet to approve an Order in Council that was intended to remove barley from the marketing mandate of the Wheat Board. Barley had been added to the Wheat Board’s mandate in 1949 by an Order in Council. Canada’s Interpretation Act states that the power to pass a regulation, done by an Order in Council, includes the power to revoke that regulation unless a contrary intention is expressed in the statute conferring the regulation making power on cabinet. The Canadian Wheat Board Act stipulated, since its amendment in 1998, that a grain could be removed from or added to the marketing mandate of the Wheat Board only after a plebiscite of farmers approving of the change had been conducted. The Harper government had not taken the step of holding a plebiscite as required by the Act before passing the Order in Council purporting to remove barley on June 14, 2007.
Its passage was announced by Minister Strahl during a well attended press conference on a farm a short distance west of Winnipeg. That press conference ended around noon on the 14th. A group of farmers who had joined together informally under the banner of Friends of the Canadian Wheat Board (FCWB) were aware of this planned move and had retained me as legal counsel to oppose it by any and all steps that might be
available to do so. I was a partner in the Winnipeg law firm Campbell Marr at that time.
As soon as Minister Strahl had finished making this announcement FCWB called a press conference to be held at 2:30 p.m. that same afternoon at my offices. Thanks to modern technology, FCWB was able to announce its press conference very quickly and as a result it was very well attended. The speed with which FCWB organized its press conference surprised many in the media who were nonetheless happy to attend because this gave them a story about much more than the change in the Wheat Board’s marketing power. The story was about to become a major news worthy controversy, which was exactly what we had been hoping for. The key to raising the media profile in this matter consisted of holding the FCWB press conference in the same news cycle as the Minister’s announcement.
The FCWB press conference also gave me an opportunity to outline the legal basis on which the Order in Council would be challenged in some detail. My goal was to explain the litigation thoroughly enough for the media to have a sense of the basic legal arguments that would be used. We did not want the media to simply report that a legal action opposing the government would to be undertaken. We wanted to be sure that the announcement was seen to be based on very valid legal principles. The core of the argument I planned to make was that Parliament never intended to confer on cabinet the authority to make that particular Order in Council. FCWB commenced legal action in the Federal Court of Canada shortly after that.
The next 5 weeks were a whirlwind of activity. The Wheat Board had 3 lawyers from Toronto law firm Fraser Milner and Casgrain plus its in house general counsel Jim McLandress working on the matter while I prepared FCWB’s documentation.
In the meantime the governments of Manitoba and Saskatchewan had instructed their Departments of Justice to intervene on the side of FCWB. The Western Barley Growers Association and government of Alberta joined Canada’s side. The stage was set for a showdown in Calgary on July 25 and 26 before Madam Justice Hansen. All involved in the litigation, and in particular Justice Hansen, were fully aware that there would be great uncertainty in the markets if this matter were not resolved before August 1. Somehow, everything that needed to be done before the hearing started got done. The hearing itself proceeded smoothly. Justice Hansen reserved her decision so all were waiting on pins and needles . Even though I had successful experience in dealing with regulations that went beyond the
authority given to cabinet by Parliament, most notably in a very similar 1993 case when the Mulroney government attempted to reduce the Wheat Board’s marketing authority, I was not 100% confident of a win as I had no strong sense that Justice Hansen saw the dispute from my perspective.
We had heard nothing from the Federal Court before the close of business on July 31 but had been told by court staff that Justice Hansen intended to release her decision that day. I went home, had supper, then came back to the office about 6:30 p.m. to wait by my computer for Justice Hansen’s decision to come in by email. As it happens, I had promised to take my daughter Carolyn, then 10 years old, to see The Simpsons Movie which was starting at 7:45 p.m. at a theatre nearby. She became more and more impatient as time passed without word from the Federal Court. I could see the anxiety in her eyes increase by the minute. Then she got the idea that the email would not come in while I was sitting by my computer waiting for it and told me to go to the bathroom saying these things only happened when you are away from your computer. So I wandered off to the bathroom, had a drink of water, passed a little more time and came back into my office. Lo and behold; the email was there. I was able to read the conclusion that we had been successful in our application and then we were off to the movies. And not a minute too soon. Her pleasure in settling in just as the movie started equalled mine in winning the case.
While Carolyn and I were enjoying the movie the supporters of the Harper government’s decision to remove barley were cancelling their plans to celebrate what they had named “Barley Marketing Freedom Day.” Apparently preparations had been made for a number of beer and barbeque gatherings in various
farmyards across the prairies by those who had been working for many, many years to dismantle the Wheat Board. But nobody I had contact with appeared to be more stunned with this outcome than the Wheat Board’s own lawyers.
The government announced its intention to appeal very quickly. Prime Minister Harper even stepped into the public debate vowing that those who opposed him on Wheat Board matters could expect to be hit by a prairie freight train prompting FCWB members to stage a bit of political theatre, at a railway crossing in Saskatchewan. This was done by Stewart Wells, one of the members of FCWB, laying down across railway tracks for a photograph. It appeared in a number of farm newspapers over the next several weeks. This bit of political theatre, which struck me as being extremely clever, made the point that many farmers did not like “being railroaded” by the Harper government. It may also have contributed ever so slightly to the fact that the relationship between the government and the farmer-elected directors of the Wheat Board resembled a running gun fight for the next 4 years. However, the matter of the government’s appeal still had to be dealt with.
The matter was brought before the Court of Appeal, which held a hearing in Winnipeg on February 26, 2008. During a recess one of the Wheat Board’s lawyers came over to me and said he thought we had lost the case. Later I watched the Judges return to the courtroom and felt from their body language that they were about to decide in our favor. This they did in a very short ruling delivered immediately after all lawyers had made their oral arguments. A group of leading agricultural economists from the University of Saskatchewan later concluded that the Wheat Board’s retention of its marketing mandate for barley added
approximately $400 million to farm income over the next 4 years.
By pure coincidence and in an entirely different context it was confirmed for me again that the context into which one places an issue can be decisive to the final outcome. I had been retained to incorporate the Friends of the Canadian Wheat Board under the Federal Corporations Act under the name of FCWB Inc. After preparing the documentation and forwarding it to the Ottawa office that handled these matters I received a phone call from an individual who was working on the application. He asked me to explain what the initials stood for and I responded it was an acronym for Friends of the Canadian Wheat Board. He was concerned about that because the acronym CWB was already registered as a trademark of the Canadian Wheat Board so could result in confusion in people’s minds. This gave me pause. Then I suggested that FCWB could also mean Farmers of Canadian Wheat and Barley. He quickly responded that worked for him and the incorporation proceeded as planned. Once again, the context into which the matter was placed was decisive.
The 2007 barley case was one of the first I saw where the Harper government seemed to have decided that it would simply push the perceived limits of any law standing in its way leaving opponents to challenge the law, something that can be extremely difficult to do. In my mind this ushered Canada into an era where government conduct was guided by the government of the day’s sense of what it could get away with and not by an honest interpretation of applicable legislation. Actions like this by government make it just a little bit harder to respect the rule of law, especially when court rules allow wrong-doers to drag losing claims against them for many, many years.
Exporting Prairie Grain
There is no major wheat growing area anywhere on earth that is as disadvantageously located as Canada’s prairies. Grain moving from the western most part of Alberta to Vancouver must cross 4 mountain ranges and travel almost 1000 kms. Grain moving east has to reach Thunder Bay, approximately 700 km from Winnipeg then travel by boat through the Great Lakes to reach the Atlantic; a still long and difficult journey even after the completion of the St. Lawrence seaway in the late 1950s.
The grain grown for export in the United States can be moved to a seaboard location by rail or by barge along the Ohio, Missouri, and Mississippi rivers and railways. The much shorter distance to cheaper water transportation and much higher level of competition among railways are a distinct advantage. Most grain production in Australia occurs within 500km of tide water. On a visit to Argentina in 1997 as a guest of one of the major farm co-ops I visited a very large inland terminal elevator with a capacity of over 100,000 metric tonnes located 200 kms from an ocean port. This location had access to both rail and road transport. Today farmers engaged in grain production in Ukraine are facing unprecedented challenges never faced in any other area. Still much of its most productive farmland is located within 500 kms of the Black Sea.
When Canada was founded in 1867 the prairies were virtually unoccupied. The colony of British Columbia joined confederation in 1871 only after receiving the promise that Canada would build a transcontinental railway connecting the west coast to central Canada.
The agricultural potential of the prairies had been surveyed by John Palliser in the late 1850s. He concluded that much of the southern portion of the prairies, later called the Palliser Triangle, was unsuitable for crop production because it was simply too dry. But he also found a very fertile zone lying between the northern boreal forest and the dry
area to the south that was quite suitable for crop production. The agricultural potential of the prairies was surveyed again in the 1870s by John Macoun for the purpose of determining the best route to the west coast for the railway. He conducted his survey during an unusually wet period and concluded that much of the area described as non-arable by John Palliser could in fact produce crops reliably. Originally the railway was most likely going to be placed in the fertile band to the north of the Palliser Triangle. However after Macoun’s survey the decision was made to run the railway through the Palliser Triangle. This route was also taken, in part, to block northward American expansion.
Completion of the railway connected Canada from coast to coast and fulfilled the promise to British Columbia. But the railway had very little freight to carry. The railway and Canada embarked on an extensive program of advertising primarily in the United Kingdom to find people willing to come to Canada and establish farms on the prairies in the hope of building Canada as a whole and also increasing the amount of freight, which the railway might be used to carry. The UK advertising program was more than a little exaggerated. Conditions in Canada were embellished and many came with the expectation that they would be building a prosperous future for themselves. Parcels of land amounting to 160 acres were apparently sold for $10.00. One of the earliest and strongest supporters of this prairie settlement plan was Clifford Sifton, a politician and owner of the Winnipeg Free Press. He was also later the principal negotiator for Canada of the Crow’s Nest Pass Agreement with the CPR. In this agreement CPR received a large subsidy and permission to run rail lines into the gold producing areas of southern British Columbia in exchange for a promise that freight rates for agricultural products would be set at approximately the then prevailing commercial market rate in perpetuity. One can only imagine the disappointment felt by some who settled on the driest parts of the Palliser Triangle after being drawn by extravagant promises in advertising to a location that simply was not very productive. The northern route, completed during the First World War, would have started prairie agriculture on a much sounder economic footing from the very beginning.
By the 1960s the railways started lobbying against the Crow’s Nest Pass Agreement arguing that they were not getting a sustainable return on grain movement. This led to a pitched and emotional political debate over the next several decades. In 1983 the Federal government enacted the Western Grain Transport Act, which paid over $700 million dollars in annual subsidies to the railways. Then, 10 years later, the government repealed that legislation so producers would be paying fully compensatory rates in exchange for a payout to farmers of approximately $1.6 billion. In a nutshell, prairie agriculture started with a political promise to attract British Columbia to join Canada. A railway was built on the poorer choice of routes with the hope and expectation that the production from farms not yet established would support the railway. People working in industrial settings in the UK and other European countries were attracted to move to Canada and settle on land that was not as promised in order to support the railway that united Canada. Those early settlers were in fact working to benefit Canada far more than themselves. The first taste of relief came immediately after the First World War when normal trade patterns returned. The price of wheat, and farmers returns, sky-rocketed. A temporary wheat board was established in 1919 permitting farmers to share in the post-war price spike but it had a short life. The history of the prairies during the 1920s is the origin story of the big grain co-operatives, called Pools, which lasted for 75 years before losing their way.
The Pools’ early history is well documented but their demise and the subsequent demise of the Wheat Board are not. I intend to cover those matters from my personal perspective in future postings on this site.
