CWB Organic Program

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CWB Organic Program
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Options for Marketing Organic Wheat and Barley

• Sell to an organic company that is a handler of
  the CWB (they do the CWB transaction)
• Do a Producer Direct Sale (PDS) and sell to a
  broker, company, or processor
• How to do the PDS Why the PDS
• Marketing tools
• Producer payment options Forward sales

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Selling to Companies that areagents of the CWB

• Saskatchewan Wheat Pool
• Growers International Organic Sales Inc.
• Prairie Flour Mill, Elie, MB
• Compare prices verify CWB initial and final
  payments. Research other market opportunities
• ADV reliability, track record, ease of marketing

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Producer Direct Selling

• Producer contacts potential buyers before making
  sale verifies CWB PDS price
• Obtain lists of sellers from SOD, certification
  bodies, CWB
• Attend trade shows Natural Products Expo East
  and West, Anaheim and Baltimore Organic Trade
  Association, All Things Organic, Austin, TX
  Biofach Germany Biofach Japan

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Producer Direct Selling

• The CWB Producer Direct Sale
• Producer can market own grain by paying the
  spread between the daily cash market price
  (conventional) and the CWB initial producer then
  gets interim and final payments
• ie, CWB sells the grain to the farmer at the
  market price (conventional), farmer receives the
  pool price.
• Farmer guaranteed pool price plus the organic
  premium privately negotiated

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Producer Direct Selling

• PDS is designed to maintain market price
  structure at highest possible level
• Trend towards increased niche marketing makes
  floor price important to maintain price structure
  created and maintained by single desk selling for
  conventional grain
• PFP, variety specific, identity preserve
• Organic returns benefit from higher conventional
  values

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How to do a PDS

• Call 1-800-ASK-4-CWB ask for organic marketing
  manager
• Need permit book and PIN number
• Sale conducted over phone
• Producer faxes us
• export licence application form, final weights
• We fax sales confirmation, mail formal contract
• Shipment period is 30 days

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Forward Sales

• You can do a Producer Direct Sale for future
  delivery (beyond 30 days). The price will be
  based on the futures markets.
• Advisable only when you have a contracted sale,
  as delivery must take place or liquidated damages
  will be assessed

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PDS

• Example 03 Feb 03 1CWRS13.5 U.S.
• Organic price 367/mt 10.00/bu
• PDS price 265 7.21
• Initial 250 6.80
• Up-front spread 15 0.41
• PRO 274 7.46
• Interim paymts 24 0.66
• Net spread (9/mt) (0.25/bu)
• Farmer net return 358/mt 9.75/mt

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PDS

• Example 14 Nov 02 1CWRS13.5 U.S.
• Organic price 440.00/mt 11.97
• PDS price 328.70 8.94
• Initial 184.60 5.02
• Up-front spread 144.10 3.92
• PRO (Feb) 274.33 7.47
• Interim paymts 125.60 3.42
• Net spread 54.37/mt 1.47/bu
• Farmer net return 385.63 /mt 10.50/bu

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Regulations

• If a company is not a handler of the CWB, the
  farmer is responsible to do the PDS
• All grain sold must go through the PDS
• The farmer should do the PDS when selling to
  Ontario or Quebec, as well as when exporting
• Both companies and producers can be fined for
  marketing outside the PDS system

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Marketing ToolsUsing Pricing Options

• Lock in a Fixed Price or
• Lock in a Basis (Spread between the CWB
  price--based on PRO--and the Futures Price for a
  specific month) then lock in a Futures Price
  later
• Then sell to a grain company or do a PDS.
• You will be paid either 2 weeks after delivery,
  or 2 weeks after you settle the price if already
  delivered.

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Fixed Price and Basis Options

• FPC creates certainty, pays out quickly
• Basis option allows to fix own price independent
  of delivery time more flexibility
• You must deliver the grain (make a sale) before
  the end of the crop year--cant carry over
  without liquidated damages

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Cash Advance Program

• You can take out a cash advance as an organic
  producer
• You must pay back the cash advance as you make
  organic deliveries 85/mt for wheat.

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CWB Delivery Contracts

• As an organic producer, you do not need to sign
  up in advance for delivery contracts unless you
  plan to sell into the conventional market
• You can sign up all your tonnage if you will not
  deliver the organic by end of year, call the CWB
  and ask for the Organic Marketing Manager, to
  decrease your contract

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U.S. Trade Action

• US. Dept. of Commerce is conducting
  anti-dumping/countervailing duties investigations
  into Canadian exports of wheat and durum
• Preliminary Determination set at Mar.3/03
  potential for tariffs retroactive to Dec.3/03
• Exporters are responsible for any tariffs
  petition has been for wheat tariff at 37, durum
  25

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Marketing Tips

• Do market research know what buyers are looking
  for and compare prices
• Grow top quality, right variety
• Grow a load (or partner up)
• For specialty crops, get a forward contract
• Take representative samples, label well
• Get the right certification
• Is buyer licenced and bonded? Get references and
  letter of credit get contract take time to
  negotiate
• Use Bills of lading clean trucks

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Marketing Tips (contd)

• Contracts Get it in writing!
• Signed Purchase Order or Sales Contract
• State the product, grade, quality, percentage of
  FM or any other factors Price
• Shipping date and means From where
• Who pays costs freight, cleaning, bagging,
  loading What will happen to screenings -
  ownership price etc.
• Payment schedule before loading, at unload, 10
  days, etc. and interest charges
• Who does the CWB buyback (PDS)?
• Who decides if product specifications are met?
• Method for resolving disagreements on grades,
  dockage, etc. CGC, independent lab

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Organic Production in Canada

• 2,500 farms, 150 organic processors
• 1,500 farms on Prairies
• Yr 2000 117,000 acres wheat, 18,000 acres
  barley total tonnage est. 110,600 Western Canada
• 2000 140,000 mt of grains and oilseeds, valued
  at 400-500 million

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Retail Market for Organic Foods in Canada

• 300-750 million
• 80 of products imported
• Organic is 1 of total retail food sales
• Growth rate 15 per year
• (Source AAFC)
• Largest markets Vancouver, Calgary, Toronto,
  Montreal
• Capers (Wild Oats), Whole Foods Loblaws brands,
  IGA, Safeway

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Canadian Organic Grain Movement

• Export Destinations CWB sales 2001-2002
• Volume Sales by Destination MT OF TOTAL
• TOTAL CANADA 13 046 28
• TOTAL US 9 008 19
• TOTAL EU 24 250 52
• TOTAL JAPAN 508 1
• TOTAL 46 812
• Overseas movement mainly by container two bulk
  shipments to UK 2001-2002
• Truck and rail to U.S.
• Four organic elevators, GIOSI, SWP

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Growth Rates of Organic Sales

• 2001 EU Organic food market grew 33 (Organic
  Monitor)
• cf conventional grocery sales growing at 3-5
• Organic sales in 7 EU states and U.S. projected
  to double by 2006
• Average annual growth rates 15-25 growth rates
  of manufactured food, 36
• Fastest growing markets Germany, Italy, France,
  and UK

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2001 Organic Market CanadaValue 650 Million
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2001 Natural Market Canada Value 1.4 Billion
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Total Food Market Value 61 Billion
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Top Growth Categories for Organics (OTA Survey)
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Growth rates of conventional bread categories

• Overall bread consumption 2.6
• White Bread -3
• Premium Bread 1.7
• Superpremium Bread 8
• Conventional whole grains loaves, products that
  emphasize better health and nutrition, and higher
  priced artisan breads are leading in growth rates
  in conventional categories.

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Growth rates in non-organic wheat flour and durum

• Reports on conventional white and whole wheat
  flour and durum consumption in the U.S. show no
  growth or decline, so by comparison, growth rates
  of organic grains categories are positive.
• In the U.S., per capita flour consumption in 2001
  was 143 lbs, down from 146 lbs in 2000, and the
  lowes since 143 lbs in 1999.
• Overall pasta consumption in Canada is flat, and
  has declined in the U.S. in the last two years.

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The Big Players

• General Mills - Small Planet Foods, Cascadian
  Farm Brand, Muir Glen, Sunrise Cereal
• Organic Cheerios- Honey Nut-Os
• Kraft - Boca brand
• Heinz- Hain Celestial Health Valley Earths
  Best Baby Food Garden of Eatin potato chips
• PepsiCos Quaker Oats - Mothers Organic cereal
• Coca-Cola - Odwalla natural juice
• Kellogg Co - Kashi Co
• Mars - Seeds of Change
• ConAgra Food Ingredients - Gilroy Foods
• Chiquita Gerber

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Outlook

• Demand for organic foods expected to continue to
  grow many countries target 10 of total food
  production
• Organic movement struggling with mainstreaming
  premiums an issue local versus global--high
  energy costs of transporting food seen as
  unsustainable
• Organic values have had impact on conventional
  agriculture research devoted to sustainability,
  government support

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Outlook

• Canadian exports threatened by Eastern Europe,
  China, Argentina, and buy local campaigns
• Organic wheat and barley consumption growing
  highest rate of growth in bread/pasta categories
• Opportunities for new grain-based organic
  products (health bars, baby cereals, breakfast
  cereals, pizza, tortillas, noodles)