by Bruce Cherney (part 5)
The practice of equally dividing grain among the elevators owned by members of the North-West Grain Dealers’ Association was known as pooling receipts. It was a practice used at rail sidings where more than one company had elevators, and assured the price of grain would be dictated by the elevator companies at each point. In effect, it eliminated competition — a type of a restraint on trade to the detriment of farmers.
In addition, there were accusations that the companies within the association told their elevator agents not to exceed the daily market price of wheat as determined by the Winnipeg Grain Exchange, but the Royal commission appointed in 1906 to investigate grain handling could find not evidence of this practice. Where farmer-owned elevators were present at a point also served by private companies, the accusation was that company agents offered a higher price per bushel than the market price for wheat, resulting in locally-owned elevators not being able to successfully operate.
The commission determined that the Winnipeg Grain and Produce Exchange (later, the Winnipeg Grain Exchange) was not at fault for the flaws in the grain handling system. Although it regulated its members’ grain buying and selling through a series of bylaws, the exchange did not engage in the actual purchase or sale of grain. As well, the exchange hosted the trading floor, where world grain prices were posted and traders made offers for or sold grain.
In particular, the wheat futures’ market solicited heavy floor trading. With growing hostility, farmers termed the speculation in the futures market a “gambling hell” (Winnipeg 1912, by Jim Blanchard, 2005).
The substantial wealth generated in Winnipeg through the exchange and its perceived disparity with farmers’ income fuelled the animosity that drove the outcries for government action among grain growers.
What the commission did find was that “where a buyer persists in breaking prices, he is brought into line by the combined action of other buyers.”
Many of the commission’s recommendations were included in the Canada Grain Act, which was introduced into the House of Commons in 1911, but the legislation was not passed until after a federal election was held. The bill was passed by Prime Minister Robert Borden’s Conservative government in 1912, which had defeated the Wilfrid Laurier-led Liberals in the 1911 election. The act brought into being a national entity to oversee the entire national grain industry. The act also created the Board of Grain Commissioners, as today’s Canadian Grain Commission was then known.
Under the provisions of the act, Canadian grain producers:
• Can dispute the grade and dockage received at a licensed primary elevator and ask Canadian Grain Commission inspectors to provide a binding decision.
• Are guaranteed the right to ship their grain using producer cars.
• Are offered payment protection for deliveries to a licensed primary elevator.
The Board of Grain Commissions also had five large steel and concrete elevators built in Port Arthur, Saskatoon, Moose Jaw, Calgary and Vancouver, which forced the grain companies to compete with government-run facilities. “Whereas, inspection, weighing, cleaning and drying of grains formerly took place at the (port) terminals, the construction of the inland terminals brought those services closer to farmers” (Statement of Significance, Canadian Government Grain Elevator in Saskatoon, December 1, 2006).
The Manitoba Grain Growers’ Association approached the Rodmond Roblin government in 1907 to move toward public ownership of elevators in order to eliminate what they perceived as unfair treatment by the line elevator companies. Shortly afterward, the grain growers’ associations in Saskatchewan and Alberta approached their provincial premiers.
But Roblin, Thomas Scott of Saskatchewan and Alexander Rutherford of Alberta rejected the proposal on financial and constitutional grounds.
Farmers continued to complain of “ill practices” by the line companies that included “the taking of heavy dockage (percentage that consisted of weeds, dirt and broken kernels), the giving of light weight, misgrading the farmers’ grain sold on street or graded in store, failure to provide cleaning apparatus, changing the identity of the farmers' special binned grain (this led to mixing of poor with higher grades), declining to allot space for special binning (to separate grades) and refusing to ship grain or owner's order, even when storage charges are tended,” according to the Manitoba Grain Growers’ Association’s 1908 annual report.
In 1909, the Manitoba Grain Growers’ Association had presented the government with a 10,000-name petition urging the province to get into the elevator business. The feeling was that the possession of so many storage facilities enabled company owners to prevent competition, despite all the legal safeguards then in place, so the only way to restore competition was to divorce the warehousing of grain from the business of trading in grain through public ownership of the elevators (The Country Elevator in the Canadian West, by William Clifford Clark, 1916).
Facing an election in 1910, the Conservatives recognized that elevators had become an important issue, especially in a province where the distribution of legislative seats heavily favoured rural voters over urban voters. After claiming electoral victory, the Roblin government passed the Manitoba Elevator Act, which became law on March 15, 1910, creating the public utility known as the Manitoba Elevator Commission (MEC). In 1910, there were some 700 elevators in the province of which the MEC bought about one-quarter. The milling companies refused to sell their 200 elevators because they felt their elevators were essential to the success of their businesses.
John Everitt of Brandon University in the Manitoba History article, A Tragic Muddle and a Co-operative Success: An Account of Two Elevator Experiments in Manitoba (Autumn 1989), wrote that there was “a tremendous amount of duplication with even three, four, and, at one place, five government elevators purchased at one shipping point.”
The elevator companies took the opportunity to unload old and inefficient elevators. The Dominion Elevator Company, founded by Roblin and the McMillan brothers, sold 19 of its 36 elevators to the government. Over half of the Dominion elevators had been built before the turn of the 20th century with one dating back to 1887 (Everitt).
Many of the elevators built by the MEC were poorly located or were old and inefficient. An elevator bought in Griswold, showing the effects of age, was dismantled and moved two years later, never to be used. In some instances, the private companies welcomed the government’s business, because it gave them a chance to unload poorly-located elevators. For example, the Atlas Elevator Company willingly sold its elevator in Rea, because of its less-than-desirable location. Actually, Rea was little more than a rail siding that was eventually abandoned in 1933 and moved 56 kilometres east and renamed Rivers. Today, a lonely marker in the midst of prairie farmland is the sole reminder of the former Grand Trunk Pacific Railway siding named after Winnipeg bank manager Simon Rea.
The “state-owned elevator line was administered by the Department of Public Works, which,” according to Karen Nicholson (Small Farmers, Big Business, and the Battle over the ‘Prairie Sentinel,’ Manitoba History, Spring/Summer 2003), “meant it was subject to bribery and corruption, especially since the Minister of Public Works at that time was Robert Rogers, a notoriously partisan politician who used the portfolio to reward friends of the (Conservative) party.”
Eventually, 48 of the elevators bought by the government were demolished. There were also numerous complaints about those elevators still standing. In its first year, only 97 of the MEC’s 174 elevators were in use for the full year and some were never operated.
Clark called it a “wretched fiasco.” One fatal mistake, he wrote, was the failure of the government to take the advice of the grain growers’ association in appointment of operators and methods of operation, “thus failing to enlist the sympathetic co-operation of those whose patronage were essential to the success of the system.”
The government elevators were only used to elevate and store grain, not to sell it, which was the source of most profit for the private operators. In effect, the government-owned elevators were doomed to not realize a profit without drastically hiking the storage fees for the very people the elevators were meant to help.
In the Manitoba Legislature, MLA George H. Malcolm (Birtle-Liberal) said he came to the conclusion that the government-run elevator system was a waste of money (Free Press, March 8, 1911). He said the MEC paid on average $1,000 more than each elevator was worth.
In one instance, a Shoal Lake elevator had a reputed value of $9,000, added Malcolm, and was actually assessed at $7,000, but it was bought by the government for $10,000. Another was assessed at $3,500 and was bought for $6,500.
As well, he claimed one-third of the elevators bought by the government were “absolutely unnecessary.”
Forty petitions were received for the construction of new elevators (an MEC requirement), with 12 petitions eventually granted. Ten elevators were built in 1910 and two others were built in 1912. Over the years, 29 more elevators were built partly out of salvaged material from dismantled elevators and from new material.
“When the final accounting was completed in 1928 the accumulated deficit of the MEC (by then defunct) was $172,697.41 in the Operating account and some $1,159,884.67 in the Debenture account,” wrote Everitt.
“Assets of $454,118.07 meant that the total loss on the Manitoba government elevator system to 1928 had reached $878,118.07. As all the elevators had been disposed of by this date there was no hope of further income to offset this deficit.”
Premier Roblin blamed the losses on a lack of commitment from farmers. Everitt said there was a measure of truth in this, but the system of elevators was operated badly and marred by political patronage. “Clearly the MEC was an object lesson in political corruption and in how not to go about setting up a government utility.”
On the other hand, the Manitoba Grain Growers’ Association said the whole flawed scheme was a deliberate attempt by the Roblin government to discredit public ownership of elevators.
While the MEC wasn't overly successful, it did provide an initial model and object lesson for non-private ownership of grain elevators, such as the pools that came into vogue in the 1920s.
The Manitoba failed experiment also allowed the United Grain Growers (UGG) to get into the elevator business on quite favourable terms that made it a viable alternative to private line elevators.
On September 1, 1912, the elevator system was leased from the Manitoba government by the Grain Growers’ Grain Company (soon after renamed the UGG). The system continued to be leased to the UGG until the late 1920s when the last of the elevators were sold (primarily to the UGG, which chose the most viable structures).
Many of the sales of the MEC elevators took place from 1924 to1927, but some were sold as early at 1912. In 1916, for instance, the Dominion Elevator Company bought two elevators, one of which this company had sold to the MEC in 1910. After repairs and depreciation, the Manitoba government lost $2,637 on the latter deal (Everitt).
(Next week: part 6)