End in sight for the wheat board

A new study argues that the CWB doesn’t have much in the way of market power.

Andrew Potter 0

(Photo: Steven Errico)

Since it was established in 1935, the Canadian Wheat Board has had the authority to purchase all wheat and barley produced in Western Canada and to serve as the single-desk Canadian seller in global grain markets. It has also served as a long-standing source of western alienation, largely because farmers in Eastern Canada and most of British Columbia are exempt from the wheat board’s authority. That is partly why in the recent throne speech, the federal government promised to introduce legislation “to ensure that western farmers have the freedom to sell wheat and barley on the open market.” The proposal has generated a great deal of often vitriolic debate over the future of the wheat board, and the C.D. Howe Institute recently weighed in with a report arguing that global grain markets have changed significantly over the past few decades, to the point that the CWB is more often than not a price taker.

The argument in favour of the CWB is that its monopsony status gives it the market power to obtain better prices for farmers. The idea is that by selling together, western Canadian farmers can get a better price than if they were competing against one another. Like any similar cartel, its mandatory nature is designed to prevent free-riding by farmers who would reap the benefits of the co-operative without sharing in the costs of holding back supply.

According to the report, Pulling the Plug on Monopoly Power by Richard Pedde and Al Loyns, market power is a function of “the concentration of buyers and sellers in the relevant market, and the availability of substitute products in that market.” In the case of the wheat board, the relevant market therefore is world production, and the key question is the share of that production that is sold through the CWB. As they argue, when it comes to wheat, Canada’s share of the global export market for wheat has fallen to less than 14% today from 25% in 1962.

The decline is even sharper for barley, falling to less than 10% today from its peak of 50% in the early 1980s. Pedde and Loyns conclude if the CWB ever exerted pricing power in world markets, “it is unlikely or impossible that it should do so now.”

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