July 29, 2011 / 7:25 PM / 6 years ago

UPDATE 1-Wheat Board asks Ottawa to pay shutdown costs

* Contract penalties, pensions, severance costs seen

* Chairman sees CWB shutting, says new entity may form (Adds farm minister's comment)

By Rod Nickel

WINNIPEG, Manitoba, July 29 (Reuters) - The Canadian Wheat Board has asked the federal government to pay "hundreds of millions of dollars" in penalties for canceled grain contracts and other expenses that it says would arise if it shuts down next year when its marketing monopoly ends.

If Ottawa removes the board's monopoly to buy and sell Western Canada's wheat, durum and barley, the board will close, even if an organization with an altered role takes its place, CWB Chairman Allen Oberg said on Friday.

"Let's be clear, this is not a transition process. This is the winding down of the current organization and the creation of something entirely new," Oberg said in an interview.

Oberg could not say how long the Wheat Board's contracts to supply buyers with grain extend. With the CWB gone, countries such as China and Japan would have to buy grain directly from Canadian grain handlers, or other countries such as the United States, Australia and Russia.

The CWB has already sold about 10 percent of the expected 2011-12 wheat crop and Oberg said he hasn't heard of any impact on sales from the uncertainty around the board's future.

The Wheat Board has asked Ottawa to assume contract penalties, as well as staff pension and severance costs, in meetings with federal administrators, Oberg said.

The Conservative government says it will pass legislation this autumn to end the Wheat Board's marketing monopoly on western wheat and barley in August 2012. The change will allow Prairie farmers to choose whom they sell their crops to for the first time since World War Two.

Canada is the world's top shipper of spring wheat, durum and malting barley.

The Wheat Board sent a letter last week to Agriculture Minister Gerry Ritz outlining 19 alternative models, none of which it says is as valuable to farmers as the current monopoly structure.

Among the alternatives are scenarios in which Ottawa would leave in place part of the CWB's monopoly -- for example on export sales only -- but the government has given no sign it would consider that idea.

"Our government remains hopeful that the Canadian Wheat Board will come to the table with a viable plan for a voluntary entity -- a plan that is reasonable and that serves the best interest of all farmers, whether they wish to pool or sell their own grain individually," Ritz said in a statement provided to Reuters.

The Wheat Board has said it cannot compete with established grain handlers unless it has regulated access to storage and handling facilities, because it has none of its own.

Canada's grain-handling industry is dominated by Viterra Inc VT.TO, Richardson International Ltd, and Cargill Inc [CARG.UL], while U.S.-based Bunge Ltd (BG.N) has said it is interested in taking a bigger role in Canada after the Wheat Board monopoly ends.

The Wheat Board has no retained earnings but collected C$5.2 billion ($5.4 billion) in revenues last year.

$1=$0.96 Canadian Reporting by Rod Nickel; editing by Peter Galloway and Rob Wilson

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