Whither the wheat board? - Macleans.ca

Whither the wheat board?

Australia abolished theirs. Are we next?

Opening the field

Todd Korol/Reuters

In 2008, the Australian Wheat Board, still staggering from a scandal over kickbacks to Saddam Hussein, was stripped of its powers as the sole lawful bulk exporter of that country’s wheat. This left Canada as the lone developed nation with a legally protected “single desk” export buyer-seller—the Canadian Wheat Board. With a minority government in Ottawa, the board’s grip on Prairie wheat was unshakeable. But now Stephen Harper’s Conservatives have a majority, with the corresponding freedom to rewrite statutes. And they intend to take Canadian wheat growers down the same path as Australia.

The AWB’s monopoly was killed off with the support of the two biggest political parties in Australia’s proportional, bargaining-driven legislative system. The board—with the monopoly still intact—was taken private in 1999. But when the Iraq controversy exploded in 2005, the AWB was banned from dealing to a major customer as criminal and administrative inquiries ground on. Poor financial results turned ugly, and the crisis demonstrated that while a single desk may give growers leverage, it also crowds all the proverbial eggs into one basket.

That is precisely the source of contention in Canada, where board reform has been urged for decades by an enterprising minority of growers eager for marketing choice. Canadian Agriculture Minister Gerry Ritz wants to introduce legislation to eliminate the CWB monopoly this autumn and hopes to have a free-trade regime in place by August 2012. He faces tricky choices about how much vestigial regulation to impose on the Canadian wheat market (which exports 16 to 20 million tonnes in a typical year) and the transport system it depends on. He will also have to look at other functions of the wheat board, such as research, standardization and forecasting, and decide whether to leave them with the CWB, parcel them out to independent agencies, or let the market sort them out. The Australian Agriculture Department now funds these peripheral mandates by taxing wheat exports at 23 Canadian cents a tonne.

For now, the Australian government still licenses bulk wheat exporters, confirming their financial bona fides before allowing them into the market. Aussie wheat farmers currently have a choice of 26 different exporters. Some are the same agriculture and commodity-trading multinationals that will immediately enter Canada’s market when given the green light. Licences are held, for example, by subsidiaries of Cargill (the largest privately held company of any kind in the U.S.), Louis Dreyfus and Glencore. Canada’s own Viterra has one. Others are held by producer pools, and a couple belong to individual super-growers with tracts so huge that they are capable of working directly with large international buyers.

The licence regime, adopted to protect growers from trader bankruptcies as the new market sprouted, may be the next thing to be liberalized. Western Australia wheat grower Doug Clarke, a supporter of the single desk’s demise, thinks it is not long for this world. “It’s there to relieve anxiety among growers, but I imagine it will only last another three or four years,” says Clarke.

By and large, Clarke says, fears that free trade would mean unfathomable chaos were unjustified. Liberalization, he notes, just means wheat growers have to live in the same world as other agricultural suppliers. In Canada, as in Australia, traders will have strong incentives to offer CWB-dependent traditionalists a seamless transition. “The day after the change,” he says to Canadians, “the same bulk-handling systems will still be there. The grain will go into the same chutes. And the same customers will need it.”

The argument is perhaps slightly easier for Clarke to make from the side of Australia facing Asian markets. Western Australia farmers argued before 2008 that they were victimized by AWB cross-subsidization, and farm-gate prices in the west did rise against those received in the wheat area of east-facing New South Wales. “There’s no more buyer of last resort,” says Peter Cannon, a prominent single-desk defender operating in N.S.W., where prices have slipped against international benchmarks. “Canadian farmers should have their balls ripped out if they give up the single desk without a fight.”

Cannon speaks bitterly about some of the same post-liberalization developments that Clarke describes with ebullience. As Cannon complains about farm-to-port arrangements being a “mixed bag of bulls–t” and laments lost grower leverage, Clarke gleefully contemplates working with traders to build supply-chain alternatives and cut out existing transport middlemen. Something similar will probably happen when Canada makes the leap into deregulated wheat exports: those who hate the idea will hate the reality, and those who like it will, as Clarke says, “ride the wave and surf it to the beach.”


Whither the wheat board?

  1. I have two concerns with getting rid of the CWB single-desk system (though I’m pretty sure it will happen).

    The first is that, so far as I’m aware, the majority of farmers in the west want it to stay.

    The second is that I think it will end up wiping out the small farmers in Western Canada. The large buyers will be able to drive individual farmers out of business one by one since they can easily afford to not buy the products of any single particular farmer.  All they have to do is announce the amount of grain they’ll purchase being less than the total market supply in Canada and watch as individual farmers bid each other down for fear of being left out completely.

    Doesn’t take very long for that to make farming completely unprofitable for anybody without the leverage (ie, massive supplies of product) to stand up to them.  And since family farms are already having trouble keeping their kids working the place.. it just stands to reason that there soon won’t be any incentive to having a small farm at all.

    • Why is protecting the small family farm generally presented as a virtue in itself, rather than arguing for any economic efficiency or value added?

      In the case of wheat production, what value or efficiency does a small farm offer that a big producer does not? Why should I care whether my wheat is produced by a big or small farm?

      There are certainly instances in the market place where small unique business offer added value, or at least diversity of options, as opposed to large producers. A small unique clothing store might offer me things I couldn’t get at the department store or big box. A small unique restaurant might offer meals I couldn’t get at national chain restaurants. I might even prefer hand-picking my own apples or berries at a local family farm – in which case I’m probably paying for an experience.

      What quality or diversity in the marketplace is the small wheat farm offering me? Or are we just trying to protect the family farm out of nostalgia?

      • Agree that to a large extent (maybe totally?)  this comes down to protecting smaller farmers (ie the family farm).

        I have quite a bit of difficulty coming up with any solid reasons for protecting the family farm, yet I have to say that I am very, very queasy about eliminating the CWB monopoly, which is likely to hasten the end of the family farm.

        I assume that the CWB will still be allowed to exist, and so the large numbers of farmers (presumably the smaller farmers) who want to save the CWB will still be able to pool their product and their resources to maintain some of their market clout?

      • Because small family farms offer us not only economic diversity, but bio-diversity. The economic efficiencies you’re talking about come because the large companies tend to ditch the niche products, and the strains of crops that don’t maximally produce based on the particular fertilizers/growing methods they’ve standardized on.

        The danger is in the idea of “green-concrete” and the risk that puts our general food supply under.

      • The reality of the situation with small farms is that they are actually more efficient than their large counterparts. The problem resides in the exhorbent farm subsidies which large corporate farms have access to by doctoring their books. Taxpayers are paying for the demise of family farms. Take out all farm support programs and then we will see who the real farmers are. On individual can compete with corporations who survive on taxpayer dollars. This you will not hear or see in mainstream media. I know, I am a small farmer and my management strategies are penalized when the cheaters get taxpayer dollars that I do not qualify for. The term Corporate Welfare comes to mind.

    • I come from a farming community and although the family farm is a lifestyle, it is ultimately a small business.  Not all farmers are competent businessmen.  It is folly to always be propping up the ones that aren’t.  We have to look at the beef model in this country to know that we do not need a single buyer for individual farmers to thrive in business.  What we need are smart people who know what they are doing.

      • But if you look at the numbers, cow-calf operations have the worst ROI in all of agriculture — even lower than cash crop farms.

        • ROI?

          • Return On Investment — Just making up numbers here, but say it takes $1 million in assets to make income of $100,000, that’s an ROI of 10 per cent. I’m told that basically in the beef industry there are two groups. Mom and pop cow-calf operators that have the herds on pasture. Then there’s the big feedlot operators in Lethbridge (like Cor Van Ray) who are multimillionaires. They buy calfs after weaning from the smaller guys, feed them to market weight, and sell to the packers. Unsurprisingly, the little guys don’t make out well, but the big feedlot operators do OK.

          • In what other investment are you currently getting a 10 percent return on the investment?  What you have to remember is that these people pay almost no income tax if they keep re-investing in their operation.  Further, they pay no capital gains tax as long as they pass the land onto the other farmers in the family.  They receive subsidies when mother nature deals them a blow.  They sometimes share equipment because it is expensive so cousins will farm together as a type of consortium.  Then, there is the working partner of the rancher or farmer.  In this day and age, almost all women work.  My mother who is now 84 was ahead of her time.  She taught school so my dad could ranch.   As to your comment about the two groups in the beef industry, I disagree.  I don’t know where you got your info but usually the rancher sends his cattle to the feedlot and for a percentage of the selling price the lot feeds them and then ships them to market.  As for mom and pop operations, there are huge ranches outside of Calgary that do not operate feedlots.  

          • Umm… I clearly said I was just making up numbers to illustrate what an ROI was. And I think the operators of the various auction marts throughout the Prairies would be surprised to learn that there aren’t jobbers attending every one of their sales assembling lots to ship to the feeders. I’m not saying the model you’re talking about doesn’t happen, but I don’t think it’s as widespread as you think it is. 
            I’m not intrinsically disagreeing with anything you say, by-the-way, just pointing out that the beef sector might not be the best illustration of your point. 
            Regardless, every sector of agriculture in the country is a participant in an income security scheme known as “AgriStability”, which is why the average farmer, according to a recent publication I saw, is in the 90th percentile for wealth in Canada, outstripping many doctors, lawyers, and the like. 
            Oh, and I grew up on a grain farm in Saskatchewan, so I’ll leave you with the wise words of my father: “A sure sign of a sick industry is when everyone who’s in it has to work somewhere else to keep it going.”

      • Interesting that you mention the beef industry….I sometimes wonder if ‘we’ haven’t gone a bit too far in the beef business in terms of the large feedlots (and their impacts) and especailly the ever smaller number of larger and larger packing plants – having those large packing plants does lead to the situation where an e-coli outbreak is no longer limited to a smallish geographic area.  Now a problem at one of those plants can affect people across the entire continent within days.  Sometimes a system with a greater number of smaller pieces is a more resilient system.

        Of course, there are other factors that also have an effect on these outbreaks.

        • Even if you have many small producers, they still go to one place to get their product processed. Small packing plants can’t make a go of it and still have cases of e-coli.  Ranchers’ Beef was one such plant started in Calgary by the family that owns the Sunterra Markets.  Many ranchers invested in it.  It didn’t survive.  It shipped beef all over and it had e-coli in a batch of ground beef that went out.  As for the feedlots…having visited some, I can say they are not a pleasant experience in an olfactary sense.  However, I live in cattle country and while there are quite a few of them, they are not massive in size and they are out in the country, miles and miles from any other people.  They are surrounded by hay fields.

  2. I say go right ahead and get rid of it. But I’d better never hear another lassiez-faire spouting western grain farmer asking for another thin dime from the public purse if they do. And while they’re at it, could the feds do something about the single desks that are a real travesty to the free market — the five supply managed commodities? Nothing but big closed shop unions that inflate the food costs of average Canadians by hundreds of dollars a year. I’m sick of underwriting these millionaires.

    • The govt. will always subsidize the grain farmers when there are natural disasters such as drought because there is a world food shortage and we need them to stay in business.

      • This has never been, and never will be, about food security in Canada.

        To quote the website from Manitoba Agriculture “The province of Manitoba produces enough food and fibre annually to support 14 million people.” That’s in a province with a population of just 1 million. Saskatchewan, right next door, is even more prolific with the same population. So those two provinces basically have Canada covered.

        Global food security is certainly an issue, but our farm support programs are national, not international. I’m not sure why I have to underwrite a farmer when I haven’t had a raise since 2003. And if the issue is food security, why are there still so many hungry people out there? It isn’t a production problem. It’s an economic one — they can’t afford to buy what we’ve got, because to be starving in this world, you’ve got to be dirt poor. 

        Incidentally, your point is completely invalid for supply management. The whole point of supply management is that it doesn’t allow significant imports or exports. It’s a made in Canada price for these products, which is higher than what the market would otherwise pay them. And it comes directly out of every consumer’s pocket. 

        • Won’t getting rid of the wheat board end the whole made in Canada price and open the doors to global markets.  Canadian beef has no made in Canada price. 

          • No, it won’t. There hasn’t been a made-in-Canada price on wheat since sometime in the 1980s. Up until then they charged a domestic premium too. But the FTA ended that, because it opened the market to US grain, making extracting that premium basically impossible. So that’s always been the case. And no, there’s no beef single desk either. But it’s chicken, turkey, egg and dairy producers that have this. If I want to have a dairy operation, for example, I have to buy quota from an existing producer. If I don’t I get into legal trouble. It’s scandalous. So my point being, this has nothing to do with actually believing in free markets. If it did, the feds would be dragging supply management out behind the barn and killing it with an axe.

          • On the contrary a key strength of the wheat board and the Canada grains commission is its ability to maintain the quality of Canadian Wheat when its sold abroad. They use this quite effectively since buyers know that Canadian Wheat has a quality guarantee, the Canada Grains Commission has also been an enemy of the Corporate based Canadian Grain Growers lobby group who seeks to maximize profit for their companies without any regard for the well being of family farms. Our farm in southern MB certainly relies on the stability of the wheat board extensively as well as our community owned short-line railway company which helps drive down transport costs. Get rid of the CWB and so much else comes down with it.

  3. Who’s up for a rip-snorting game of Pit?