Alberta ranchers could teach Wall Street moguls a thing or two about leveraging other peoples’ money for personal gain.
The Auditor General just released a report showing that Alberta ranchers short changed Albertans about $25 million last year. Furthermore, they’ll keep doing it unless the new government does something about grazing leases on Crown land.
“Longhorns Gone Wild” by Robert Hurst
To be fair, the ranchers aren’t doing anything illegal. They’re using cowboy ingenuity to exploit a loophole in the law that’s big enough to accommodate a herd of Texas longhorns.
Grazing leases
Sixty percent of Alberta land is owned by the Crown on behalf of Albertans. Ranchers, grazing associations and corporations graze 300,000 cattle on 5,700 grazing leases. They pay the government (that would be us) $4 million a year for grazing rights that would cost them 10 times more on the private market.
Furthermore, they keep entry fees paid by oil and gas companies that rightfully should go to the Crown.
The Auditor General estimates that the government is losing up to $25 million a year in entry fees but acknowledges it’s hard to pin down the precise number due to incomplete information.
The government pegged this number at $40 million in 1999 then revised it to $16 million during the debate on Bill 31 which was meant to update the rules. Bill 31 was never proclaimed—apparently ranchers are effective lobbyists in addition to being shrewd businessmen.*
To stick with the livestock metaphors—we’re being fleeced.
A license to print money
In addition to being ridiculously cheap, ranchers use grazing leases as low-cost collateral for mortgages and loans, sub-lease them at private grazing rates and sell them for up to 32 times their value.
The Auditor General says a rancher sold two leases that cost him $486 a year for $265,000. The leases had three years remaining on the term. Assuming they were 20 year leases the rancher’s cash outlay would have been $8,262 ($486 X 17 years). His profit was 32 times his initial investment. Wall Street investors take note.
It’s not illegal, but is it morally right?
The Code of the West
Aren’t cowboys bound by the Cowboy Code or something that prevents taciturn Marlboro men from ripping us off?
Wall Street Bull by David Smith
James Owen, a 40 year veteran of Wall Street and hedge fund owner, did extensive research on the Old West. He says there was indeed a Code of the West. He’s convinced Wall Street would become the honourable institution it once was if it simply applied the Code.**
Frankly, Ms Soapbox thinks Mr Owen is a hopeless romantic with a naïve view of both the American cowboy and Wall Street, however the Code is worth considering in this context.
It requires cowboys to be tough but fair (in the old days ranchers could sell their neighbour’s stray cows as long as they paid their neighbours the price they got) and to know where to draw the line because some things, like honour and reputation, simply aren’t for sale
Owen summarizes these principles in one simple concept: just because it’s legal doesn’t make it right.
Surely ranchers paying 1/10th the going rate for grazing land know they don’t own it and have no business subleasing or re-selling it at private rates or accepting entry fees from resource companies and not passing the benefits back to the land owner (us).
Drew Barnes, Wildrose MLA, rancher, and self-appointed spokesperson for the ranchers says the existing system is just fine. He says ranchers contribute to air ambulance services and renovate schools so a lot of the money stays local.
By Mr Barnes’ logic anyone who donates to charity while at the same time taking something that doesn’t belong to him deserves a pat on the back.
These ranchers are like Wall Street bankers in pointy-toed shoes. They’re equally effective at leveraging someone else’s assets to make a buck. Both operate under a different code: if it’s morally wrong but legally right, go for it.
So like the SEC, the NDP government will have to impose more rules clarifying what we already know—you can’t keep what isn’t yours.
Here’s hoping Shannon Phillips, Environment minister, plugs this loophole at her first opportunity so the benefits of grazing leases on Crown land accrue to all Albertans not just overreaching ranchers capitalizing on sloppy legislation drafted by a government looking to capture the rural vote.
Just because it’s legal doesn’t make it right.
*Hansard, Mar 7, 2000
**Cowboy Ethics: What Wall Street Can Learn from the Code of the West
Susan on the Soapbox 
There are numerous things in life that fall in that category. It seems to make people comfortable, with themselves, if they can justify a not so ethical action under a legal premise. Over the last couple of days the issues around the suspended conservation officer who refused to put down a couple of bear cubs because they mother was killed for repeatedly raiding a freezer full of meat and salmon. It may be what the law dictates, but is it right?
Rose, your example about the conservation officer perfectly illustrates what happens when we try to run the world according to a checklist. Securities regulators set out rules (which are simply an elaborate checklist) stating what companies have to disclose in order to stay on the right side of the law. The companies disclose those things and still we end up with financial scandal after financial scandal. Instead of punishing the CEOs for wrongdoing on their watch, the companies get a fine and the securities regulators create more rules. And then it happens again. It’s little acts of defiance by people like the conservation officer that show us that in some cases the checklist is useless and it’s better to simply do the right thing.
Some accompaniment fer yer post….
Anonymous, what a delightful clip. One thing I learned from James Owen’s research is that the great trail drives where a rancher would lead two to tree thousand cattle up to the railheads and make a fortune only lasted one generation, from the end of the Civil War in 1865 to 1886. It disappeared when overgrazing, drought, blizzards and the closing off of the open range wiped out the industry. The same thing happened in Alberta only slightly later. What I find remarkable is that this brief historical event had such a lasting impact through books, music and movies. I think it has something to do with little boys never growing up. 🙂
You just might be right about that thar’ lil’ missy soapbox…..
Anonymous, I’ll bet there isn’t a red-blooded boy alive who didn’t at one point or another in his life have a Roy Rogers lunch pail.
Let the long list of “just because you can does not make it right – venters column” begin. A Facebook page or Twitter account would help bring out the “juicy fruit of low hanging deals” that people picked up on because they could, as there was no right or wrong as defined by the non-ethical culture of Tory patronage rules.
Thanks for beginning the long list of dirty laundry.
Bruce
Bruce, it’s funny that you should mention The List. A friend of mine is putting one together even as we speak. He’s up to 19 things that were legal but definitely not right that should be investigated. I’ll reprint The List when he’s finished.
Ms. Soapbox the champion for the people, pointing out injustices, righting wrongs. Keep the feet to the fire in government but this time we have hope for positive progress.
Brent, you’re right, we always have to keep the government’s feet to the fire regardless of which party is in power. And thank you for making me sound like a superhero, I think I’m more like a sidekick, maybe Bat-Girl??
Susan, thank you so much for uncovering these incompetencies of the PC government. I just watched the National on Global and they too have brought to the world’s attention the fact that the PC government has let oil companies abandon their oil drilling sites without adequately dealing with land reclamation. Once again Alberta tax payers will likely be on the hook financially for clean up and our ecosystems will no doubt suffer during the interim. Perhaps all this “dirt” was what the PC environmental shredding was supposed to hide from our new government?
Excellent point Catherine. The investigation into shredding concluded that all of the government departments except Environment handled their shredding activities properly. The investigation into Environment is not yet concluded. One has to wonder what was shredded and whether it included evidence that the PCs turned a blind eye to oil companies who failed to properly clean up after they’d abandoned their wells. Unless the NDP government tightens up the reclamation regulations Albertans will be on the hook, big time, when the oilsands producers finally pack up and leave. That could be 50 years from now or even sooner if oil prices don’t recover.
The price of oil would be a lot higher, and/or oil companies’ profits much lower, if not for decades of us prostrating ourselves before Greg Mankiw’s infamous ‘externalization’ of real costs.
GoinFawr, I googled Mankiw and learned that he returned to teaching Economics at Harvard after his stint as George Bush’s economic advisor. In 2011 some of his students were so fed up with his refusal to include other economic theories in his intro course that they walked out. Sadly Harvard’s student-run newspaper derided their protest saying it “set a dangerous precedent in an academic institution that prides itself on open discourse” because instead of challenging Mankiw to defend his position they excluded him from the dialogue. Given Mankiw’s ideological adherence to his position one suspects he wouldn’t take kindly to any push back from his students.
It is no surprise anymore. I had no idea this was going on. Of course if this was done by some Charitable organization this would be known right away.
There is a lot to be cleaned up in this province and we have not touched the Agencies and whatever else they created to allow their private enterprise friends take care of our money. I am not sure that Rachel Notley has the stomach to go through all of that. Time will tell but she has a limited window of opportunity because they have them on their list of destruction and they can be ruthless. They have already basically eliminated Justin Trudeau and Mulcair could be next although I think that they may be in for a difficult one.
Well Susan the situation in Greece developed in the worst possible way in my opinion but I think that we have not seen the end yet. Today he is in parliament and we will see if he gets that deal approved. I doubt it. Something even worse than before the referendum. It is an extremely difficult situation but they have nothing to lose now other than more austerity, so why not just leave the EU and see what happens. I for one think that the EU would have a tremendous convulsion that could have some positive consequences for the world in general in terms of the neo-liberal grip on all of us. Apparently the IMF is threatening to not support the package without some debt restructuring which usually means forgiveness. The US is basically telling Germany and the Bank of Europe that they are forgetting that they were the recipients of the same in the past. Varoufakis must be laughing. I do not blame him. So this is not done yet.
Carlos, the Greek situation boggles my mind. The fact that the IMF argued for debt restructuring and was ignored shows you just how screwy things have gotten. The notion that you can get out of debt by taking on even more debt is bizarre, but clearly someone in the middle of that process is making money or it wouldn’t be on the table.
It troubles me that the Greeks and the Greeks alone are being blamed for this. For example they’ve been denigrated as slackers who avoid paying taxes. And yet wealthy people the world over consult tax specialists in order to pay as little tax as possible. There’s a double standard and the Greek situation has made it blatantly obvious. You’re right, this isn’t over yet.
Susan the Greek situation shows very clearly the political mess the world is in. Market fundamentalism is our new Inquisition. It is mathematically impossible to survive that kind of debt but still the EU gurus will impose anyway. Trying to make more money by lending Greece as much as they could at 5% blew on their faces and now they blame everyone else but themselves. One more example of limitless greed. The IMF knows this and they are trying to convince especially the Germans that seem cemented on their position that they are the self disciplined people. We all know where that obsession took them and where they would be now if half of their debt had not been forgiven. It is a sad situation and it is going to get worse. It is far from over. You are absolutely right that someone is making a lot of money with this. Unfortunately that is always the case.
You are absolutely right on the tax issue and finally people are starting to fight back on this spin spread for years by the neo-liberal garbage that it is always the people like you and me that are to blame. We are greedy, we like Medicare and we like some help when we are unemployed. The rich of course are these hard working people with ethics and morals that have the divine right of guiding the sheep like us. They deserve to be able to get their money offshore and protected from our limitless wants.
The Greeks are rioting in the streets. This is such a mess.
People need to understand how these grazing leases were created in the first place and why they are so cheap. The great depression saw most of the eastern part of Alberta abandoned by the farmers that settled it and went back to the government for unpaid taxes, this is why most of the eastern half of the province is now under special areas boards instead of municipalities. At the time the grazing leases were created (sometime in the 50’s i believe if not earlier), the value of the grazing land was minimal at best and the government of the time (Social credit, not PC’s) was only too happy to get it into the hands of someone that would look after it properly. Now while i don’t think it’s the fault of the ranchers that they’ve taken advantage of the governments inability to index the lease rates to the actual value of the land, it has given them a unfair advantage financially over other farmers and ranchers in their areas. The ideal solution to this problem would be to either make the leases available to open bidding every 5 years, or to sell off the land at public auction and get some reality back into the land markets locally.
Mike, welcome to the Soapbox. You’re absolutely right about the need to understand why these grazing leases came into existence. The AG’s report (p 17) says they’ve been around since the late 1880s as a way to allocate land to settlers and ranchers. Over time the rationale for grazing leases shifted from land allocation to supporting agriculture and ensuring public land was used in an environmentally sustainable way. The AG’s concern now is that some farmers and ranchers are able to use the leases for personal benefit. While I’m not sure I’d like to see the land sold off (it is public land after all) I do like your suggestion that the leases should be available to open bidding every 5 years. That should result in a more realistic price for them.
If the land was open to public auction every five years, you would see the stewardship of these lands take a nose-dive. The Auditor General states that the health of the Crown rangelands under agricultural disposition is good. This is because of the grazing lease system in Alberta. If the rancher did not have assurance of renewal of the lease, provided he or she upholds the list of responsibilities as determined by the government, there is no incentive to properly steward the land.
In addition, several third party cost studies have found that the cost of running cows on Crown land versus private land is very comparable. Most of the data reported in the media only report the rental costs – there are many other costs to the rancher on their leased land – paying the municipal taxes on the land being one of them.
Thanks for revealing more info. about this matter on ranching leases. Probably because the bunch of us in urban areas aren’t aware of this unless we personally know a farmer or rancher in Alberta.
No problem Jean. I’ve become a regular reader of the Auditor General’s reports which uncover these abuses. I’m sure we only know the half of it!
It’s a great resource to start for any Canadian jurisdiction.
Hi Susan
I just have one point of clarification for you – ranchers to not get entry fees from oil and gas companies. They cannot prevent industrial access to Crown lands under agricultural dispositions. The money received from oil and gas companies is compensation for the inconvenience, loss of use, damage and adverse effect as mandated under the Surface Rights Act. There is not one other party in the grazing lease system that suffers because of the industrial installment on grazing leases. The government cannot claim inconvenience, loss of use, damage or adverse effect – which is why the rancher receives this compensation. And the amount of work the rancher puts in to make sure the oil and gas companies have proper management and reclamation of these sites is huge compared to the amount of compensation they actually get.
Susan
Any time you would like to go for a weeks worth of free education on grazing leases first hand, give me a call.
You will understand that free isn’t really free…but similar to the old cow….the grass is always greener on the other side of the fence.
Perry
Thanks for the offer Perry. I just might take you up on it. 🙂
I hope the government does something. There’s too many grazing lease holders abusing the system due to selling their cattle during hardships and turning the grazing leases into a hunting outfitters guiding camp and charging anywheres between 3000.00-10,000 per American hunter to guide them. They set up cabins on the grazing lease and take advantage of the government and taxpayers. I myself have come across this in The Grande Prairie, Spirit River, Wembley and Beaverlodge area. They pay their 1000.00-3000.00 per year and make upwards of 50,000.00+. Turning it into a yearly business abusing it for its purpose. Another thing too during the hunting season grazing lease holders will scatter their cattle around on several different quarter sections that they are leasing so hunters can’t hunt on there. Like really you keep 2-5cows on one quarter section scattered on 8-20 quarters deliberately too deny hunters permission and keep them off unless you have a predator problem.
Cattle should be completely off of grazing leases the first week of September and that should be the law so people can enjoy the public lands that belong to everyone. Remember your renting a grazing lease that doesn’t mean you own it. Your renting it as you can’t afford to buy your own land. Quit abusing it’s true purpose and quit abusing it during the hunting season.
Shanon, thank you for your comment. It does sound like some people are taking advantage of the privilege of holding a grazing lease and using them for purposes other than what was originally intended. Thank you for sharing your insights with us.