Grain Organizations Still Working

By Becky Zimmer

A lot has happened for Prairie farmers since the 2021 droughtladen growing season left countless contracts unfulfilled.

It is an understatement to say that grain contracts have been widely spoken of over the last two years but that doesn’t mean that contract wording and terms of conditions had not been a concern for farmers even before 2021.

The days are gone where farmers could drive up to an elevator with a load of grain and get a fair price for it without a contract, says Glenn Wright, a grain farmer and lawyer from Vanscoy, Sask. The reality is that grain buyers need to fill their quotas just as much as farmers need to sell their grain.

This is why Wright wants to see a better relationship between the two.

Wright was instrumental, along with Strasbourg, Sask., farmer Brent Johnson, in developing the wording of a resolution that was passed by five Saskatchewan commodity groups during their 2022 AGMs. The resolution called for fairer contracts, the removal of administration fees from contract buyouts after crop failures, a pricing formula for subsequent buyout options and also stipulated these changes be made across all grain contracts signed in Saskatchewan and the rest of Canada.

Having a law background, Wright received a lot of calls during the drought from farmers who were trying their best to alleviate some of their contract issues early in the growing season. While contracts were already one-sided in favour of the grain buyers, farmers didn’t have the tools to negotiate buying out the contract.

“Many of the farmers are quite frustrated because they phoned and tried to get out of their contracts when they understood what the price spread was because they thought that it was a risk management tool,” says Wright. “They were prepared to buy out their contract [in early June and July], but most of the grain companies didn’t allow them to.”

While that resolution has reached its one-year mark, producer organizations are not giving up in Saskatchewan and they can’t if they want to see things change.

“We have to find some way to collaborate and co-operate with each other to come to some evolution of these contracts that’s going to protect farmers and make it more simple and easy for them to understand,” says Wright. “There is value in us having some standard clauses and terms that are in the contracts across all of the grain companies.”

Marlene Boersch, co-founder of Mercantile Consulting Venture, says part of an analysis they completed in February 2022 included recommendations for fairer grain contracts but, unfortunately, she doesn’t expect anything positive for farmers to actually come of it if grain buyers aren’t willing to come to the table, which, so far, they are not.

“In my recommendations, the first ideal situation would be that you can actually sit down with grower representatives and buyer representatives and work this out and actually improve it for both sides,” she says. “What we are seeing is that the companies enjoy having contracts that they very much determine that cannot be negotiated.”

While Boersch also encourages a thorough reading of all contracts, she recognizes the difficulty of it since there is neither clarity nor understanding in the wording. Grain farmers still need to sign them nonetheless without understanding and negotiating power.

“One of the problems is that, even when you read them carefully and you highlight two or three issues that you either cannot do, or that are not clear, or that you would like to change, in general; and I can only say, in general, the counter party will say, ‘Well, that’s nice, but head office determined that’s the contract and that’s that. Take it or leave it.’”

Without a standard working relationship with grain companies, commodity groups have had to step up to offer aid to their farmers, especially following 2021.

The Canadian Canola Growers Association (CCGA) has seen understanding of contracts grow in the past 10 years of developing resources for farmers. These have included a

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As a senior manager for policy development at the CCGA with files on trade and marketing, Janelle Whitley has seen the depth of problems that farmers face, and the drought in 2021 has brought many long-standing issues —such as delivery terms around liquidated damages, production shortfalls and a lack of a dispute resolution mechanism—to the forefront.

Just like other crops, canola production was down 40 per cent in 2021, she says, with the sheer volume of contract shortfalls creating a unique and unprecedented situation for farmers and grain buyers alike.

Moving into the future of grain contracts, Whitley says they do not have a good source of information for how farmers will change their selling habits after 2021 specifically, but they are hearing from canola farmers their apprehension of getting burned another time. A lot of that will depend on what the growing season has in store, explains Whitley.

“Farmers are just in the stage of looking at some of their contract options and looking at 2023,” she says. “Hopefully what happened in 2021 and 2022 will be behind us and we’ll have a crop that we’re able to kind of get back to some of our historical acres and yields.”

In a survey released in November of 2021 the Agricultural Producers Association of Saskatchewan reported that three-quarters of their 200-plus respondents said they were unable to fulfil their contracts and paid penalties and administrative fees between $20,000 and $300,000 with interest rates on their unpaid contracts as high as 19 per cent. A quarter of respondents also reported difficulty in contacting grain buyers to resolve issues and respondents raised numerous concerns on “a lack of transparency in calculating buyout and administrative fees … wide disparities in settlement costs between different companies.”

The analysis by Mercantile Consulting Venture was commissioned by SaskCrops, “an informal alliance of all the Saskatchewan producer crop commissions,” as defined by Wright.

The document was discussed again at the various commodity groups’ 2023 AGMs at the beginning of January. While much of the work was done in Saskatchewan, Boersch says these same issues are happening across the Prairies with those farmers dealing with the same contracts from the same grain buyer companies.