Gone with the West
March 2005
We all saw it coming. Back in 1996, the Saskatchewan Wheat Pool decided to convert most of its shares into stocks, and many thought this would be the beginning of the end. Despite management’s solemn declarations that the Pool would remain a cooperative because investors would only hold non-voting shares, observers were nonetheless wondering about the sustainability of the cooperative project. Through my involvement with ACE, I became acquainted with a person working in the Pool’s member relations department. And in the months that followed the infamous conversion, I asked him if and how the new context affected his work. He responded with uncharacteristic bitterness that his team had become a dotted line in the Pool’s organizational chart. And later on, I noticed that his job had also become ‘redundant’.

We all know that cooperation and the stock market make for strange bedfellows. Thus, it wasn’t a surprise to find out, on December 14, that the board of directors for the Saskatchewan Wheat Pool had consented to the demutualization of the cooperative. With the approval of two-thirds of its representatives, the Pool will officially be governed by Canadian Business Corporations Act and all of its stock will have the same value. According to chief executive officer Mayo Schmidt “this will revitalize and strengthen the organization for the future.” We’ll see…. But… What about the agricultural producers, what do they think about this?

Between you and me, they don’t have much of a choice. Demutualization of the Saskatchewan Wheat Pool must be confirmed in a relatively short time because the company is at an impasse: it has an obligation it won’t be able to fulfill. An obligation to purchase, in cash and at term, $285 million in convertible notes or convert said notes into voting shares. For quite a few years now, the Pool has been having financial problems and its managers are well aware of their lack of liquidity to undertake this kind of cash buyback. Instead, they’ll have to issue voting shares and to do so, the company’s legal structure needs be overhauled. It will then become a company. To ensure fairness, or so they say, the act of rendering various types of shares equal and granting voting rights to all investors, everyone will be on the same footing. Great trick! Indeed, this was a very expensive affair for producers!

However, there is a consolation prize for dyed-in-the-wool cooperators. A new cooperative will be created! Yes, it’s true. Members of the former Saskatchewan Wheat Pool will be able to join this new cooperative, which will be allowed to nominate a few delegates to the new company as well as provide certain services to its members, the whole financed by the company. Such are the leftover crumbs that the financial partners, being the princes that they are, have granted to agricultural producers. This is not the legacy pledged from previous generations.

And yet, the foray into stocks, in 1996, was supposed to clarify the financial situation for the Saskatchewan Wheat Pool and make it less vulnerable. This is what its members were promised. What happened? Qualified observers, such as Murray Fulton, an economist with the University of Saskatchewan, affirmed that the Pool’s financial problems were due, in part, to bad management. It seems that Mayo Schmidt’s brilliant career with ConAgra was in fact not a testament to his ability to manage this large cooperative. Upset, and with reason, members demanded that the good Mr. Schmidt reimburse his $1.5 million in bonuses (in addition to his $800,000 base salary) to improve the Saskatchewan Wheat Pool’s financial situation. Because, as far as performance goes, we’ve seen better!

Is it truly realistic to want to converge the interests of investors with those of cooperative members? What kind of convergence can we expect when interests are so different? Members want, above and beyond, products and services to meet their needs, that are cost efficient and effective. As for investors, they just want a return on investment. Failure to achieve the latter will undoubtedly lead them to require the company to change its orientation. The bell has finally tolled for the Saskatchewan Wheat Pool. We all saw it coming. Just as Brian Oleson, an economist with the University of Manitoba, declared: “The patient has been dead for a long time. Today’s just the funeral.”
 

Colette Lebel, agr.
Director of Cooperative Affairs
La Coop fédérée
Email: colette.lebel@lacoop.coop
Fax: (514) 858-2025
 



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