When it comes to the debate over the monopoly of the CWB, farmers on both sides of the issue have the same objective in mind: They want a profitable, sustainable future for prairie agriculture. The debate is about how to get there.
Following are a number of common questions which are frequently asked about a voluntary CWB, followed by a brief answer.
Don’t the majority of prairie farmers support the CWB monopoly?
Actually, no. The CWB has conducted two public opinion polls amongst farmers, which probed this issue. The first poll, conducted in late 1999 indicated that less than one third of prairie farmers supported the monopoly. Although this poll was never released to the public, the results were confirmed by former CWB President Greg Arason at an annual meeting of the United Grain Growers (now Agricore United).
The results of the second poll were never publicly released either, but it was indicated by CWB directors that the results demonstrated an even smaller amount of support for the monopoly. A number of other polls have also indicated majority support for a voluntary CWB.
Doesn’t the CWB elections demonstrate that the majority of prairie farmers support the CWB monopoly?
No. Regrettably, the CWB election process is not a legitimate indicator of support by farmers. Many farmers do not participate in the elections because they have no interest in electing a director to a corporation with whom they don’t want to do business.
Furthermore, because of their desire to not do business with the Board, many farmers have quit growing Board grains and therefore have no interest in participating.
Consequently, the CWB elections are not an accurate indicator of producer support for the monopoly. In spite of this lower participation rate of farmers who want change, the last two CWB elections indicated that about half of the voters supported candidates in favour of a voluntary CWB.
Don’t farmers get a better price for their grain by marketing through a single-desk agency?
The CWB has spent hundreds of thousands of farmers’ dollars attempting to convince farmers that it obtains premiums in the marketplace. While this may be possible in a few situations where a high-end user insists on western Canadian wheat, the CWB has never factored in the following costs of the monopoly:
- lost opportunity costs for farmers;
- the cost of failing to develop niche markets;
- the cost of inefficiencies in grain transportation and handling system;
- the cost of defending the CWB monopoly in international trade disputes;
- the cost of endless commissions, hearings, studies, and panels on the issue;
- the cost paid by many farmers to fight for the basic economic right to sell their own property outside the CWB monopoly.
While the CWB may get premiums in a small portion of the market that insists on Western Canadian wheat, their ability to do so is extremely limited for the following reasons:
1. The CWB has no monopoly powers in the world wheat market.
Although the CWB has a buying monopoly (farmers must sell to the CWB – technically called a monopsony), the CWB has no monopoly on world wheat sales. Canada grows only 5 percent of the world’s wheat production and holds 18 percent of the world wheat export market (1991-2001 average). This means for every CWB agent out there peddling a bushel of wheat, the competitors are lined up with four times as much wheat to sell.
2. The CWB has a limited ability to price discriminate.
Simply put, price discrimination is the ability to price your product differently for different markets. If it looks like you’ll pay more, you get charged more.
In order for price discrimination to work properly, three things are necessary. The seller must have:
- Enough monopoly power to set prices;
- A knowledge of who wants their product bad enough to pay the higher prices;
- An ability to keep their markets separate – their markets can’t buy from each other, or in any way cause the lower priced product to be available to the higher-price buyer.
Since the CWB has no monopoly on the world wheat market, it cannot meet these requirements.
Many farmers insist that if the CWB obtains a premium in the marketplace, they have never seen it reflected in CWB payments.
Could the CWB survive in a dual-marketing environment?
Absolutely. Although it is popular to suggest the CWB could not survive as a voluntary agency, there is no basis for this argument. Before the ink is dry on the press release declaring the CWB a voluntary agency, the CWB will assure farmers that it wants and deserves their business because it can compete with the best of them and is here to stay.
This is exactly what happened in 1993 when a continental dual market (U.S. and Canada only) was introduced for barley. Once the dual market was announced, the CWB introduced producer contracts, made changes to improve returns in the barley pool account, introduced penalties for poor performance of malting companies or flour mills, and gave farmers better delivery options. Competition meant they had to offer more to farmers in order to attract their business.
The prairie Wheat Pools successfully operated like a voluntary wheat board in the 1920’s, marketing more than 50 per cent of the prairie wheat crop. It was only when the Pools started speculating in the market place and gave cash advances on unhedged wheat that they went bankrupt.
Initially the Wheat Pools’ voluntary wheat board operated without owning a single elevator or grain terminal. They simply contracted with the existing companies who were only too happy to ensure that Pool wheat moved through their facilities. The few grain companies who refused to accept deliveries of Pool wheat soon changed their minds when they recognized that they were losing business to other grain companies. If farmers could make a voluntary single-desk system work in the 1920’s through the Wheat Pools, there is no reason why the CWB couldn’t successfully operate in the same manner today.
Some producers note that the CWB dual market did not work in the 1930’s. This is only partly true. It actually worked very well for farmers, but cost the government too much money. The government’s mistake was to do away with the Pools’ five-year contracts and to set a floor price on wheat delivered to the CWB. Consequently, when the open market price fell, producers flocked to the CWB. When the open market price rose, producers abandoned the CWB. The arrangement was essentially a safety net program for producers and cannot be compared to a dual marketing model for the 21st century.
If farmers had to compete against one another for markets, wouldn’t this drive the price of wheat down?
This concern stems from true experiences in the early 1900’s. Often farmers had only one grain elevator in town. Consequently, multiple sellers resulted in lower prices for farmers. Today, however, farmers have multiple buyers, which will result in higher, rather than lower prices.
With today's "just-in-time" logistical systems, most grain buyers must secure product in advance order to ensure they can meet their sales commitments. This means that in order to draw grain into their system they have to outbid each other for farmers' grain. The key is choice. If farmers have choice about whom they sell their product to, they will always choose the one offering the higher price. This forces grain buyers to compete against each other and put upwards pressure on the price.
Don’t farmers control the Canadian Wheat Board now and have the ability to change its mandate?
No, this is not true. Although this is a popular argument put forward for not making the Wheat Board voluntary, it is incorrect for the following reasons:
- The Minister responsible for the Canadian Wheat Board holds significant influence over the operations of the Board by appointing five of the fifteen directors, one of whom is the CEO. The track record indicates that the appointed directors are reluctant to veer from the government’s position when it comes to making changes to the CWB.
FACT: Farmers who want to make changes have to elect 8 out of the 10 CWB directors in order to have a majority who favour change.
- The CWB Act specifically states that the Minister can tell the CWB to do whatever he wants it to do. "The Governor in Council may, by order, direct the Corporation with respect to the manner in which any of its operations, powers and duties under this Act shall be conducted, exercised or performed [Sec.18(1)]." Whether the Minister chooses to exercise this power or not is up to him, but he does have the ability to do so.
FACT: The CWB might be managed by the directors, but it’s not directed by them.
- Farmers cannot change the mandate of the CWB to make it voluntary. This Act was not created by farmers and cannot be amended by farmers. It can only be amended by Parliament. While the CWB’s own polling indicates the majority of prairie farmers want the CWB to be a voluntary marketing agency, the existing legislation does not allow either the CWB directors or farmers to make this change. Grains can only be taken out of the Board’s jurisdiction, or left under the monopoly. At best, the CWB could choose to offer no-cost export licenses to farmers, which would still require farmers to provide the CWB with their sales information.
FACT: True voluntary status is not an option even if every director voted in favour of it.
Doesn’t the CWB monopoly protect farmers from large grain corporations that would take advantage of them?
In actual fact, the opposite is true. Under the monopoly, farmers are not able to shop around and choose their buyer, but must simply deliver their grain into the system. After the farmer delivers his grain, he retains ownership (through the CWB), but no longer has any control over it. Nonetheless, he is required to cover all the costs of freight, elevation, storage, shrinkage, and demurrage until the grain drops into a ship. Under a voluntary system, ownership of the grain usually transfers to the grain company at the time of delivery.
Grain corporations known as accredited exporters are already marketing more than 50 percent of the grain delivered to the CWB. Many of these are multinational grain companies. If farmers had choice in who bought their grain, these companies would have to out-do each other to attract farmers’ business.
Isn’t the CWB monopoly necessary in order to balance the highs and the lows of the market by averaging prices over the course of the crop year?
No, it is not the monopoly that makes this possible, but the pooling system. Under a voluntary CWB, price pooling would continue to be available for those who desire it, just as it is in Ontario.
Without the monopoly, won’t farmers have to travel to China or Japan to sell their grain?
No, this is not true. Anyone who has sold canola knows that you do not have to travel to the country of destination in order to sell your grain. Like the many other commodities, farmers sell to grain buyers or contract with buyers ahead of time. This can all be done locally or via phone, fax or the Internet. Furthermore, under a voluntary CWB, the CWB pooling approach to marketing would still be available to those farmers who prefer this method.
Without the Wheat Board, won’t farmers who need to sell their crop in the fall get a lower price than those who can’t afford to wait until the spring?
No, this is not necessarily true. In today’s world of marketing, farmers often have the option of signing production contracts before they even seed their crop. These contracts specify price, grade, etc. Furthermore, for those who do not wish to engage in these kinds of marketing practices, the CWB would continue to offer a price pooling option.
The U.S. repeatedly mounts trade challenges against the Wheat Board monopoly. Doesn’t this show that the CWB must be doing a good job, otherwise the Americans wouldn’t bother to challenge it?
No, this is incorrect, and indicates a misunderstanding of the U.S. trade challenges against the CWB. The U.S. challenges the CWB monopoly for the same reason many farmers do: They are concerned that the Board sells below market value, not above it.
Theoretically this is possible. Since the CWB doesn’t first have to buy the grain that it sells, it isn’t subject to the normal discipline of selling to make a profit. This allows the CWB the option of undercutting the market price with no commercial consequences.
Whether the CWB exercises this option or not is not known because of the secrecy surrounding their operations.