The Grand Wheat Board Controversy

In the latest stage of an extended legal tussle, mid-January of this year the Canadian Supreme Court refused to hear a case that claimed the Conservative government’s actions in abolishing the Western Canadian Wheat Board were unlawful since they failed to take into account a plebiscite by the very farmers that had been using the Board. This means that the recent changes to the marketing of Western Canadian wheat and barley will most probably remain in place, at least until a different appeal to the Federal Court goes through. What are those changes, and how do they affect farmers?

Canada has a history of using marketing boards for different agricultural commodities in its provinces, in an effort to manage supply and ensure fair prices to farmers. It currently has more than 80 agricultural marketing boards, which operate on both national and provincial levels.

The purpose of these boards are in general to decrease price variability and contribute to higher farm incomes, which they may also pursue by using supply quotas and contracts with farmers – the general (and somewhat oversimplified) rule in supply management is that the more farmers produce, the lower the price will be for them per unit, up to a point where they are actually losing income by producing more because they are oversupplying the market and decreasing prices. In general, it is hard for farmers to know when to stop producing because the individual mid-sized farm alone doesn’t really have an influence on the market – so I as a farmer could benefit from the high prices to increase my profits if I grew more. However, if everybody has this mindset, then prices will drop precipitously – that is why government marketing agencies without an own stake in the price (except for their stated objective to increase farm incomes) often intervene.

In addition, smaller farms usually have little negotiating power over prices, especially when faced with only few buyers in the market that have considerably more market power. This is the second reason marketing boards exist in theory – in pooling commodities and selling them together, farmers can increase their market power and then split up the revenues they received according to who put how much into the pool.

The Canadian Wheat Board was a national body that had been in power since 1935 with the two aims explained above – increasing market power and farm revenues for prairie farmers of wheat and barley. The Board had a monopsony (they were the only legal buyer of wheat and barley) in the region of Western Canada and paid an assured initial price as a percentage of the expected return, in addition to the final price that was paid out once the grain had been marketed. The initial price was assured by the Government of Canada, meaning that even if the Board made a loss selling the grain, farmers would have received a stable minimum price.

However, in December 2011 the government passed a bill that ended the monopsony of the Board and allowed farmers to sell their grain to whoever they wanted as of August 1 2012, celebrating the day as Grain Marketing Freedom Day. A number of farmers, especially large producers, had been dissatisfied with their obligation to sell to the Wheat Board, arguing they could get better prices and cash-in-hand without having to wait for the Wheat Board’s payments that could be deferred up to a year from the original sale.

On the other hand, proponents of the Board argued that now that the monopsony had fallen, and farmers are responsible to market their own grains, especially small to medium-sized farms would lose since they would be losing market power. They also highlighted the fact that those farmers would probably have to go through private grain companies, which – unlike the Wheat Board – will intend to make profits from the sales, and thereby decrease the farmers’ price share.

It is fascinating to read the comments on the article about the last Supreme Court decision, since they reflect real opinions of real farmers. They range from the satisfied

“I now get $8/bus. for my durum and there is no elevation fee, no freight deduction but rather a straight $8/bus. with cheques cut every Tuesday and Thursday. If you want 1.5 years for the full CWB payment, have at er ….. 🙂“

to “You getting $8/bu now has nothing to do with the wheat board being gone and has everything to do with the fact the US just had the worst drought in a lifetime. If you think you aren’t paying an elevation fee or freight deduction, you are just fooling yourself. I assure you the elevator and rail lines aren’t moving your grain for free, they just hide the cost in the basis now so you can’t call them on it when it goes up“

to ” In a few decades I think we will relearn the lessons our ancestors learned before however; by then the corporations will own everything, from the seed to the selling and their will be no ordinary farmers for the Wheat Board to market for. All there will be left to do is feed the ever rising ROI (return on investment) of the food monopolies.“

For now, grain trade has been continuing to run smoothly, according to the President of Cargill – Cargill owns 15% of Western Canada’s grain-handling capacities, while two other corporations, Glencore and Richardson International, own around 1/3 each.

Bonus: Read more about the arguments for and against marketing boards and supply management here. Two very differing views about the efficiency of the Canadian Wheat Board by Canadian members of Parliament can be found here and here.