Will doing away with CWB do away with Canadian wheat?

October 17, 2011

Commodity Online
Things may come to an end much sooner!

If media reports are anything to go by, the monpoly and single-desk marketing of Canadian Wheat Board (CWB) may come to an end in the near future.

Canada's conservative government is expected to pass legislation "very soon" to end the Canadian Wheat Board's monopoly on marketing western wheat and Barley for milling or export, Prime Minister Stephen Harper said on Friday, strongly warning the board to get out of the way, said a Reuters report.

The single desk system of marketing, where the board holds the monopoly of wheat and barley marketing will be put to rest.

"This is a historic change that has been long overdue, Harper said. "It's time for the Wheat Board and others who have been standing in the way to realize that this train is barrelling down a Prairie track. You're much better to get on it than to lie on the tracks because this is going ahead." the report added.

The most likely impact of removing the single-desk selling powers is that the CWB will cease to exist, according to study carried out by Murray Fulton, Professor Department of Agricultural Economics; College of Agriculture and Bioresources University of Saskatchewan.

The study says,

"The elimination of the CWB would transform the Canadian grains industry, with the impact of this change felt in virtually every part of the system. The changes that would accompany the loss of the CWB's single-desk selling power would make the Canadian system more and more like that in the United States.

It is expected, for instance, that grain company and railroad competition would fall, that producer cars and short line railways would suffer, that the current freight revenue cap would disappear, and that less value would be returned to farmers. Once these changes are made they are irreversible – it would be virtually impossible to go back and restore the system to what is currently in place."

The study argues that the government move could result in deterioration of price as well as quality of Canadian wheat.

"A number of studies have determined that the CWB is able to capture additional revenue in what are generally referred to as high quality markets because of its single-desk selling powers.

Millers in a number of markets (for instance,Japan) are willing to pay a premium for Canadian grain because of its quality and consistency. The single-desk selling powers allow the CWB to capture this willingness to pay – since no one else has a supply of Canadian wheat, the CWB is able to demand and receive a higher price than would otherwise be the case.

This added revenue – which is often referred to as monopoly rent – flows back to farmers through the pool accounts.

If the single-desk selling powers of the CWB were removed, Canadian grain would now be sold by a few large exporters, most likely the multinationals."

The study continues that one of the probable consequences of changing the CWB's powers will be that the quality of Canadian grain would fall.

"There are a number of reasons why this outcome might occur. In the short run, quality would likely fall as a result of the competition between, and the independence of, the various grain traders that are now selling Canadian wheat.

Currently, the CWB has a particular incentive to monitor and to pay attention to quality of the product as it moves through the system.

Since the CWB receives all the revenue and incurs all the costs from the sale of the grain, it has an incentive to ensure that the system is working in a manner that the net revenue from the system is maximized.

The incentive facing multiple grain firms involved in handling and marketing the grain is different, however – each firm is only interested in the net revenue that it is able to obtain. The consequence of this different perspective is that the incentive to maintain quality at all steps along the process diminishes."

Canada is the sixth largest producer of Wheat and rakes in $5 billion in sales annually and the CWB has unchallenged monopoly over marketing of Canadian wheat and barley.

The Canadian writes:

"The sole reason presented for abolition of the single desk is an ideological preference for a free market which excludes government-run participants internationally under the pretence of freedom of choice locally.

This is merely divide-and-rule in the interest of foreign corporate players. An inconsistent position in that dairy, chicken and egg producers are governed by marketing boards which have been, to this point, assured of their continuation in negotiating international trade agreements."

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