The following post is long. For those who want to skip to anything more relevant, like responses to individual points, there will be a point highlighted in red. A shorter albeit less factual summary from a prior thread is available in the second section following the citations list. This post contains an incomplete analysis I wrote a while ago for another purpose (using an irritating writing style; I like being able to use terms like "I" in my writings) and some sources, ironically in part in response to the last time this came up on the site. It was specifically aimed to be a mildly more pro-CWB argument set (Devil's Advocacy as I am largely agnostic on the issue, I don't really have an opinion), which contrasts my previous post
here which mirrors my generally apathetic and unsure stance.
But still! Devil's advocate!
----The Canadian Wheat Board: Meeting Needs Historically The Canadian Wheat Board (CWB) has been the center of politically charged messaging and policy over the past several elections, culminating in its eventual removal with the most recent government. Debates surrounding the current form of the Canadian Wheat Board and whether or not it should remain rang through media and government discussions across Western Canada, and in Ottawa itself. However, the Canadian Wheat Board has not always been in its current form, nor has its role been stayed static over its history. From its inception, through decades of development and change, to the modern body, the CWB has faced challenges and changes in the face of a changing Canada. The aim of this paper is to explore the necessity of the CWB from the point of its creation to today, and discover the viability of the CWB at various points along its development. Was the CWB necessary, and did it ever stop being necessary during any point in its existence? The author of this paper believes that the answer to the former question is yes, and the answer to the second is no.
In addition, using contemporary sources, this paper will examine the validity of the modern response to the needs to the Canadian Wheat Board to make a decision on whether or not the CWB, had a role significantly different enough from its original form and from Canadian needs to warrant its end under the current government. It should be so noted that the author of this paper will seek to explain and discuss aspects of this topic from an economic point of view, rather than including political aspects of the situation, from the Canadian perspective.
Nature of the Wheat Market The wheat market is an incredibly poignant part of Canadian historical economic development, and lead to population booms and Western expansion (especially from 1900 onwards), increasing the important of the West significantly. During the beginning of the CWB, 95% of all wheat grown in Canada was grown in the prairies, with over 25 million acres of land given over to growing it, up from 10 million in 1911 (Britnell and Fowke, 1949). Along with this growth came Canadian dominance in wheat trade – while only having 10% of the world industry, 35-40% of all wheat trade came from Canada in the inter-war period, meaning one third of each dollar of exports were the result of the Canadian wheat industry (Britnell and Fowke, 1949). The aims of this paper take on added importance when the scope of what the CWB will eventually impact is taken into context. These figures show that the duty of the Canadian Government, its marketing policies, essentially dictate the position of the Canadian market internationally.
Domestically, grain growers advocated a change to state trading, in contrast to the Federal Government’s position that the “free market” was preferable, limiting themselves to licensing and supervision (Britnell and Fowke, 1949). Such a shift also had the unqualified support of the Canadian Federation of Agriculture, as farmers had demonstrated chronic dissatisfaction with the Grain Exchange (Burton, 1949). As stated by Professor Fowke in a Royal Commission and Canadian Agricultural Policy, said “The prairie farmers have attacked this organization for the past forty years as the symbol of their exposed and residual position within a price system in which other groups have entrenched themselves behind tariffs, price controls, and trade association agreements” (Fowke, 1948). Burton agrees that farmers in Western Canada faced a large input and price fluctuations and uncertainty, as well as variable harvest yields (1949). The creation of the CWB, hence, was a significant departure from the original position of the Canadian government, and a significant move towards the wishes of large portions of the agriculture industry.
Creation of the Wheat Board Originally, the Canadian Wheat Board, brought about by the Canadian Wheat Board Act of 1935, conferred power to regulate wheat, rye, barley, flaxseed, and oat deliveries (to privately owned grain elevators) in western Canada to the CWB (Burton, 1949). This power was extended in 1943 when the Canadian government expanded wheat into a national monopoly, when initially it had been opt in via the War Measures Act due to the Second World War; during the first year of opt in, over 70% of all wheat passed through the body (Britnell and Fowke, 1949). Most of the powers used were aimed towards wheat, with the CWB becoming a monopoly in inter-provincial movement and export trade of wheat and a monopsony to farmers in the Western provinces impacted by the CWB (Burton, 1949).
The creation of the Wheat Board came during the Great Depression, when the uncertainty discussed by Burton manifested as a year where yields were low coincided with a year with low prices, significantly impacting a significant portion of the Canadian economy and a massive amount of wheat farmers (Burton, 1949). Farmers who had experience with the previous cases of government intervention during the First World War were generally supportive of the bodies and impacts they had on farmers (Burton, 1949). Indeed, a great many pressured the federal government to resurrect such bodies after they were closed shortly after the war ended; more than a few farmers turned to co-operative efforts to market their wheat on a larger scale, and to try and reflect the benefits they saw as coming from wheat regulatory bodies (Britnell and Fowke, 1949). Many saw it as an imperfect replacement, although half of all wheat was passing through such bodies by 1931 (Britnell and Fowke, 1949).
The enforcement mechanism given to the board were via delivery permit books given to each farmer, with the authority to also establish quotas (Burton, 1949). At the discretion of the board, should wheat be delivered to an elevator not under a permit, the board had the ability to not allow that wheat to be loaded onto railcars (Burton, 1949). From the origins of the act, the CWB was not allowed to make profit – any profit gained had to be handed back to the farmers, via the existence of “participation certificates” (Britnell and Fowke, 1949). Farmers sold their goods to the single desk body of the CWB, who in turn paid them a fixed amount; they tend would sell the wheat, and any profit made would be given pro rata to farmers who had participation certificates (Britnell and Fowke, 1949). In short, when times were bad, at least a fixed income was assured, and when times were good, the farmers made more money on top of that fixed income.
Analysis of the Beginning Wheat Board At this point, several clear distinctions can be made between a modern Canada and now. Transportation for farmers was based largely on getting goods to grain elevators, and transportation depended largely upon rail car, showing that farmers already had a restrictive level of access to markets, and significant controls existed above them from both the delivery and transportation sectors. Although there were no doubt multiple elevators in regions, distance and ability to transport on a farm-level likely exist and act as a barrier to market access. Such barriers may be so bad as to have monopsonies, or degrees of collusion to allow firms to act with a monopsonistic production function. Replacing such bodies with ones that are government controlled reduces the impact of profit-seeking behaviour that can be damaging to industry in such markets; given the government has motives beyond the profitability of their “firm.”
We also know that there was a futures market which existed for other kinds of grain so likely one existed for grain as well (Burton, 1949). The existence of a futures market indicates that there is a significant level of uncertainty within farming that, while no doubt popular with those sharing in the free market for wheat, exemplified the hazardous and risky nature that could destroy industry, even if competitive. The creation of a Wheat Board, capable of acting on its own, reduces some uncertainty as the price wheat was bought for was set. Likewise, instead of being more to the whim of the elevators and transportation hubs, the government is able to intervene and regulate the markets to ensure farmers can sell their wheat. Both of these changes provide incentives to become involved in the Western wheat market, and keep it safer from fluctuations.
As was explored earlier in this paper, the Canadian government’s control over the predominant source of wheat also gives the CWB the ability to represent all wheat farmers. With such significant market share, Canada can influence world trade prices in Canadian farmer’s interests more than otherwise possible, garnering farmers more money than they would otherwise receive. Readers of this paper should consider that, as discussed earlier, the Canadian wheat market is massive, and has significant power trade-wise. When tied with a lack of international transportation, the ability to dominate a market was far simpler, giving large actors essentially oligopolistic or monopolistic levels of control. In this case, any such occurrence would be held by a government body seeking stability over a private company seeking profit. As a government body is without need of keeping profits, this means that such increased pricing was also likely passed onto the farmers in the region.
Finally, by replacing the co-ops and other bodies as chief actor, the Dominion Treasury would not be able to take on any losses the CWB may sustain in the continuation of its duties. This meant that even in hard times, there would be a debtor capable of absorbing the costs set forth by the CWB. The existence of a sovereign debtor allows for a significant form of subsidy; without the need to absorb significant costs on its own like many companies or bodies must, but instead having a significant reserve backed by the name of a major country, the CWB had far greater flexibility in the actions it could take, as it had reduced risk to consider. On the other hand, this also opens up the system to a greater deal of moral hazard, since the body could choose to act more readily in cases where sufficient information was not available.
Expansion of the Wheat Board As has already been mentioned, on September 27th, 1943 the Canadian Wheat Board became an official monopoly of Canadian Wheat in Western Canada (Britnell and Fowke, 1949). Futures markets were closed, instead of just functioning alongside a possible government buyer, commercial stocks were bought out, excess stocks were re-allocated to meet subsidized domestic needs and a new standard price was set (Britnell and Fowke, 1949). This marks a shift from government intervention to government control.
By an amendment in 1948, the CWB was expanded to have a monopoly on barley and oats (Burton, 1949). These “coarse grains” were added on with similar support from bodies like the Canadian Federation of Agriculture, and with widespread support from farmers (Burton, 1949). This essentially ended the trading in the futures market and gave the Board greater control over various grains beyond the wheat it originally dealt with (Burton, 1949). However, Burton notices a number of issues that differentiate wheat from barley or oats; not only are these grains not exported to the same degree as wheat, but as export pricing is part of how the CWB sets minimum payments, the setting of costs would be dependent on the less stable domestic industries, and American animal feed input costs (1949). However, after the Second World War, the market for wheat had dropped in import to some degree with the rise of coarse grains, although wheat did remain the predominant good being sold (Britnell and Fowke, 1949).
Burton also noted that this would spark conflict between a growing poultry and livestock industry in the East, seeking a lower price, and the West, where much of these goods would be produced, particularly in the more northerly reaches, who would seek higher payments; all with the CWB in the middle (1949).
It should also be noted that, starting in 1949, 5 major wheat producers and 36 wheat buyers entered into the International Wheat Agreement, of which Canada was the largest exporter; this agreement was meant to set amounts of wheat that would be sold and bought by various countries, and the prices they were set at (Britnell and Fowke, 1949). For Canada, this came hot on the heels of another agreement, called the United Kingdom Agreement, where over a five year period Canada was obligated to sell the UK 600 million bushels of wheat, and the UK was obligated to buy them at certain prices (Britnell and Fowke, 1949). The latter deal demonstrated gains for farmers, who on average gained 20 cents a bushel over the initial payments from the CWB for their product, although this was below market price at the time (Britnell and Fowke, 1949).
Analysis of the Expansion First, it should be noticed that not just Canada, but many other nations were at this time seeking some stability in their wheat trade, as seen from the deals Canada was involved in. This indicates a secondary and very important aspect of the wheat trade; even though the government had been against this body and supported free market philosophy, the concept of state trade rather than use of the free market had taken hold in numerous other nations, given that states were now making deals in the name of their wheat producers. This, in many ways, makes the CWB more of a boon for Canadian farmers, as now there is an actor who can adequately represent farmers, but also act on a state level to ensure Canadian wheat interests are being met. It also implied a level of necessity, since dealing with such actors required a significant degree of market power, where state actors were dealing with other state actors.
It could also foretell the changes to other industries. With a board capable of insulating an industry from shocks, and from the trade barriers erected by other nations (a likely assumption, given that they are willing to interfere in international trade for the good), the expansion of the CWB to control other holdings is not a surprise, given it had managed to introduce a level of stability to the market. Likewise, the choice of farmers to sacrifice some profitability in turn for stability should be considered; a lack of stability could be a barrier to entry for farmers, concerned over the potential losses when the business cycle takes a sharp downturn, a situation far from unheard of, as seen previously in this paper. Rational actors in this industry were seeking long-run optimality over short-term gains, a situation not easily attainable without the CWB. By introducing stability, the CWB provides a basis for Western expansion, since stability drives confidence, and with confidence comes investment and supplemental industry growth to help support prominent industries like those of wheat.
Transition to the Modern Body The modern wheat board was, hence, the result of numerous changes occurring in earlier years to create the basis of the body that took over control today. Facing significant exterior and interior barriers to developing the industry, and also attempting to do so during a world-wide downturn, created unique issues and market conditions that required essential market action. From here on out, however, the questions rapidly become more nuanced, and once the market for wheat was well established in a modern subsidised agricultural regime typical of developed nations, questions that were faced begin to change.
Between 1949 and the modern era, a number of significant changes occurred. Due to increased political pressure from farmers, both in and out of the Prairies, Canadian Wheat Board was dialled back from domestic feed grain, as a dual market was created (Furtan
et al., 1999). Legal pressure was also exerted in the early eighties via a constitutional challenge of the legitimacy of limiting the ability of farmers to market their own wheat, a case the CWB eventually won (Furtan
et al., 1999). In 1989, the CWB also lost control over domestic oats production (Furtan
et al., 1999). Into these time periods, Canada expanded its local monopoly power to a broader one, controlling as much as 25% of the wheat trade, 60% of the durum trade, and 25% of the barley trade in the world (Furtan
et al., 1999). These are the three remaining areas of grain control exerted by the CWB as of 1980, and although Canadian production compared to the world supply is minor, its control over trade pricing effectively give Canadian farmers great power in setting international, and hence numerous domestic, pricing schedules (Furtan
et al., 1999). Indeed, Canada’s power was so great that many economic models of wheat trade considered the Canadian Wheat Board the key component of setting international prices, from 1966 onwards (Rude
et al., 2008). Models following typically characterized the Canadian Wheat board as part of a triopoly that set wheat prices internationally (DeVos, 1997).
As time went on, international implications of our trading policies also became more important. Free trade agreements and similar legislation typically encouraged open-ness, facilitated on an international scale by the World Trade Organization (Rude
et al., 2008). With liberalization becoming the norm in the hopes of improving developing and developed economies through trade, bodies such as the Canadian Wheat Board became sources of great contention (Rude
et al., 2008). Although Rude
et al. found that any impact on developing nations was minor, if existent (largely thanks to active price discrimination depending on who wheat was exported to), the existence of bodies such as the CWB ran contrary to the underlying beliefs of free trade regimes, forcing nations like Canada and Australia to defend them consistently (Rude
et al., 2008). Price discrimination is so prevalent that high quality wheat receives the premiums, while the CWB actively sells at a discount to other bodies or nations (Jin, 2008).
Nevertheless, the existence of these regimes were seen as short-lived, thanks to the strict regulations set forth in the Uruguay Development Rounds, hosted by the World Trade Organization (DeVos, 1997). Luckily for supporters of the CWB, the nature of the CWB surpassed the limitations of both the Uruguay and Doha development rounds, as its ability to act with non-market based revenue to enhance producer returns and empower Canadian trade balances while paying administrative overhead was not seen as a significant enough subsidy to warrant enforced dismantling (Goodloe, 2004). Similarly, relationships between farmers and their respective wheat boards from countries who retained such bodies was worsening with time, as were pushes to get rid of a system that artificially constricts supply and has producer surpluses, which some felt should be replaced by consumer surpluses at the cost of removing the Canadian Wheat Board out of theories that it would improve social welfare (DeVos, 1997).
A number of other questions came to the forefront in more modern years about the market distorting impacts caused by the Canadian Wheat Board. Several studies have come to the conclusion that wheat prices are not significantly impacted by the existence of the Canadian Wheat Board (Clark, 1995). The premiums realized by farmers have been significant; Furtan
et al. believe that on average farmers gained 13.35 dollars per tonne of exported wheat from 1980-1994, or an average of 260 million dollars in revenue per year (1999). Even though the marketing of wheat from one body could be seen as a boon, the costs of marketing the wheat would be significantly better in a system where competition existed, as farmers possibly are overpaying for the marketing of their own wheat currently (Carter
et al., 1998). The market also was not controlled entirely by the Canadian Wheat Board closer to the end of its life, either; thanks to the Canada-US Free Trade Agreement, American wheat was freely able to enter the Canadian market to compete, reducing the efficacy of having a Canadian monopsony/monopoly (Carter
et al., 1998).
Removal of the Modern Board Although the world has changed significantly since the inception of the Canadian Wheat Board, including Canada and its Western provinces, the author of this paper believes that a great number of boons continued to exist for the body before it was lost, with little gain.
One such example is stability. While Canada has not faced a depression of the scope since the early days of the body, there is still the ever-present concern over the business cycle, and how it could impact farmers who depend broadly on the ability to sell their goods for at least a certain price. Likewise, such set prices allow for international, national and regional actors to make business actions more readily, since they can have greater confidence within their decisions without taking on large levels of risk. Canada would be, in essence, losing the very premiums and market control that we have attained over the decades the Canadian Wheat Board was in service, which would be detrimental to the Canadian system.
Likewise, this insulation assists in an inherently risky business, on the hopes that production will not be adversely impacted by changes in demand or poor weather, and other such variables beyond farmer’s control. By allowing the board to exist, Canada has also managed to maintain power against heavily regulated industries and other wheat boards that would continue to distort the market should Canada go towards a more perfectly competitive state. The efficacy of the Canadian body stepping down on the world scale seems limited; it seems more likely to have another country with a major wheat industry simply replace Canada. While Canada loses some political sway in the world for failing to heed demands of other nations should we keep our board, it is worth keeping in mind that, as has been discussed, our situation with our wheat board is no different from many other nations’. Likewise, Canada retained the CWB well after the trade discussions of most import, implying that the damage done was small enough to be acceptable.
As recently as twenty years ago, farmers were receiving large amounts of additional money thanks to premiums produced by the CWB. This additional money seemingly came with little excess cost to the rest of the supply chain, in part due to actions such as price discrimination, as discussed before. Direct monetary benefits such as these to farmers are important to incentivizing entrance into the farming industry effectively, as well as keeping it profitable in the long-term.
On the other hand, the existence of bodies like the Canadian Wheat Board serve to distort the market for wheat, altering prices, however limited those changes are, and changing the rational process in the decisions being made by farmers, consumers, government and trade partners in regards to the industry. As an economics major, the author would be at fault for failing to properly remark that a mature industry with this degree of government control only serves to create a price floor while introducing even more deadweight loss to the bureaucracy of the overarching body of the Canadian Wheat Board. It adds an extra actor into the market that further complicates, perhaps unnecessarily, the functioning of the economy. For example, the additional costs of marketing, and the artificial restriction of supply, causes unnecessary costs to the system that would not exist under a model more similar to perfect competition.
Of further concern is that a lack of competition would lead to inefficiencies within the system. When considering that innovation is often the result of firms competing with each other for a greater piece of the market, a lack of incentive leads to firms, or technological companies capable of producing new solutions, to innovate in the industry. As has been discussed in the course this paper was written for, a great many improvements in everything from transportation through basic farming implements played a role in the change and development of the industry, as well as its expansion. Lacking a competitive atmosphere in a world where major agricultural powers subsidize their industry or have similar boards means it is difficult to depend on other industries to improve the agricultural field. However, as farmers would prefer to make more money on the land they have, there remains and incentive to seek maximal production efficacy and efficiency to ensure the best profits are realized at all times, so the field is receptive to new technological solutions or methods, perhaps enough to spur development. Nor is there evidence that firms would be entering a market that is entirely competitive, as will be discussed below.
The final question to discuss here is one of scope. Between a monopsony and the free market lies variations of programs, such as opt-in, which allow farmers to make decisions with private firms or make use of the wheat board. The prominent concern for the author of this paper is that the use of the wheat board will only ever occur for a portion of farmers when the market is trending downwards and farmers rush for the safety and improved profits possibly seen under the Wheat Board. The CWB would be forced to absorb these costs, reducing its ability to function as a marketer for all of Canadian goods (thus reducing its power and standing); the CWB will lose more money than before, while having incentives to provide less positive pricing schedules, less able to bankroll funds from profitable years to cover less profitable ones, and unable to ably market Canadian wheat. Given that the Western market has been so controlled by the wheat board for so long, there could also be concern that major firms from abroad or elsewhere in Canada could quickly seize control of the market, creating a nigh-monopsony of companies farmers can deal with. Since these companies already exist and already have significant buying power, it is more likely for them to not face competition from new bodies in these areas.
Conclusions Economists tend to be highly supportive of pricing as a way to understand where the market is going, as well as believing it to be the most efficient way to inform both consumers and producers of prevailing market demand and supply when making decisions. The Canadian Wheat Board inherently removes degrees of fluctuation from the price of wheat and at times other grains, limiting our ability to examine the impacts on the market from these decisions and skewing the decisions of rational actors involved in this industry.
However, the historic gains have been worthwhile. The aim of the government becoming involved in an increasingly volatile industry to smooth over the extremes of a business cycle and provide stability to farmers is a worthy aim that, according to the analysis in this paper, has been worthwhile. Although the Wheat Board has faced significant challenge, from inception throughout conclusion, from economists, politicians and business, the aggregate impact of the benefits appear to outweigh the harms, and did so for much of the time period studied.
As for the modern end to the Canadian Wheat Board, economically speaking, the removal of it does not seem to have significant clear cut economic advantages. While portions of the production now have access to a freer market, this is still inside an industry dominated by tariffs, subsidies and other forms of trade barriers supported by governments; an industry lacking in significant enough buyers from producers to effectively switch over to perfectly competitive systems. Essentially, we would be gambling on the hope that we would gain a perfectly competitive set of firms buying and selling wheat, instead of an oligopoly of companies entering the market and taking control.
At the most central crux of the question is asking whether or not the Canadian Wheat Board has been dramatically impacting prices. Some claim that the CWB has had little impact, while others disagree, as seen in the literature cited in this paper. Of concern to the author of this paper is the fact that we do not have sufficient information to make a rational prediction of where a perfectly competitive wheat market would lie, since the amount of inputs, labour requirements, and lack of a comparative system without government controls all complicate the predictive power of models. Lacking essential information, we find ourselves in a position of following basic economic assumptions, some of which have been challenged in this paper.
In conclusion, the decision of the Canadian government to remove the Canadian Wheat Board may have been a foolhardy one, based on a series of gambles that may not pay off, and offset some very real benefits that have been retained by the Canadian Wheat Board over its many decades of operation; all while hoping the international market will somehow accept a perfectly competitive industry in a sea of state-supported ones. In historical and modern contexts, we lack of the knowledge, or power, to make this decision without other nations potentially taking advantage of it, or simply damaging the industry. Economic theory must be taken into context, and when placed into the situation listed above, the removal of the Canadian Wheat Board now, or historically, would be a poor one.
CitationsBritnell, G, & Fowke, V 1949, 'Development Of Wheat Marketing Policy In Canada',
Journal Of Farm Economics, 31, 1, pp. 627-642, EconLit with Full Text, EBSCOhost.
Burton, G 1949, 'The proposal to market coarse grains through the Canadian Wheat Board,'
Journal Of Farm Economics 31, 1, pp. 643-655, EconLit with Full Text, EBSCOhost.
Carter, C, Loyns, R, & Berwald, D 1998, 'Domestic Costs of Statutory Marketing Authorities: The Case of the Canadian Wheat Board',
American Journal Of Agricultural Economics, 80, 2, pp. 313-324, EconLit with Full Text, EBSCOhost, viewed 4 December 2012.
Clark, J 1995, 'Single Desk Selling by the Canadian Wheat Board: Does It Have an Impact?',
Canadian Journal Of Agricultural Economics, 43, 2, pp. 225-236, EconLit with Full Text, EBSCOhost.
DeVos, G 1997, 'The Elimination of the Canadian and Australian Wheat Boards: A Move from Triopoly to Perfect Competition in the World Wheat Market',
American Journal Of Agricultural Economics, 79, 5, pp. 1742-1748, EconLit with Full Text, EBSCOhost.
Fowke, V 1948, 'Royal Commissions and Canadian Agricultural Policy',
Canadian Journal of Economics and Political Science, 14, 2, pp. 173, EconLit with Full Text, EBSCOhost.
Furtan, W, Kraft, D, & Tyrchniewicz, E 1999, 'Can the Canadian Wheat Board Extract Monopoly Rents? The Case of the Spring Wheat Market',
International Journal Of The Economics Of Business, 6, 3, pp. 417-437, EconLit with Full Text, EBSCOhost.
Goodloe, C 2004, 'The Canadian Wheat Board: Government Guarantees and Hidden Subsidies?',
Estey Centre Journal Of International Law And Trade Policy, 5, 2, pp. 102-122, EconLit with Full Text, EBSCOhost.
Jin, H 2008, 'Competitive Structure of Canadian Wheat Exports in the World Market',
Applied Economics Letters, 15, 13-15, pp. 1059-1064, EconLit with Full Text, EBSCOhost.
Rude, J, Brewin, D, & White, M 2008, 'Third Country Effects of Price Discrimination: The Case of the Canadian Wheat Board',
Journal Of International Agricultural Trade And Development, 4, 2, pp. 177-196, EconLit with Full Text, EBSCOhost.
----Relevant Content from Prior Post**Much of this is repeated from the above section!**This post was more unsure and hence reflects my more agnostic stance on the issue. Here is the relevant portions:
On Subsidies
The Canadian Wheat Board functions through a three payment system. The first one is based on the expected returns on selling the wheat. In cases where the CWB cannot cover these initial payments with available funds, the Canadian government is obligated to step in to fund that gap. This, essentially, infers sovereign debt status on the CWB due to Canada's backing -- it is incapable of failing financially. Admittedly, this is not a strong subsidy compared to some others out there, but the board has been subsidized via this method to something like 1.3 billion dollars over it's lifetime, and I'm not sure whether or not that value has been corrected for inflation. That value was reported in 2003, but it sounds like the CBC article merely aggregated the various nominal values -- the real cost could be much higher (10 bucks today is worth 10 cents then kind of deal).
This is defined as a structural subsidy, for the record. Unfortunately, today the media mostly describes subsidies financially, in the form of tax breaks or direct money transfers, which are common in Canada. Economically, the term subsidy has many more meanings. The differing definitions economically and financially lead to vagueness, and vagueness often leads to controversy. Then Yoda steps in and says something about how this all leads to the Dark Side.
We also pay through differences in pricing, taxation and so forth. Keep this in mind. Remember, the Wheat Board controls all Western (save most of BC) production of Wheat and Barley, including that for human consumption -- we pay the price they set. Canadians do pay -- just indirectly. Not to mention that this article demonstrates procurement/political subsidies by virtue of what is stated within. In the end, you are right financially, which is how media stations typically report. Underneath the financial surface and into the economics of it all, the situation is a bit more wavery.
Those who complain the most about our subsidies are... the Americans (through various WTO and NAFTA complaints). Who directly subsidize their farmers, and very much directly. No matter how you define it, financially or economically, it is a subsidy. Then again, the States seems to enjoy complaining about NAFTA even though they have similar or more intensive benefits much of the time. They did not win court debates initially, but our victory has been thrown out since.
On the topic
Speaking of tasteless acts, this situation has seen some nasty activity from both sides -- active spending for lobbying from the CWB, replacement of the CWB president by Strahl, and so forth. The Canadian government hence does play a role in the CWB. It may be ran by farmers, but it was created and can still be directly controlled at the will of the Canadian government. In part, this is why taxation is different -- the process goes through a government agency.
Concerns over our Wheat Board internationally have been around for years. Just this April, it was under fire at the WTO, in fact, as laws were considered which specifically targetted the functionality of the Wheat Board. Arguments about subsidies between first and third world countries are historically bad... but in those cases, Americans and Europeans rush to our defense, since anything that hurts us would cripple their heavily controlled and subsidized industries.
Ironically, Western Farmers involvement was made compulsory by the War Measures Act when it was enacted way back during the Second World War. That it continued in such a broad ranging capacity until a few decades ago, of course, did not impress the West for a decent amount of time ("Gee, why are Westerners always so angry?" they ask as they bend Alberta over the table and reach for the lube), although the current structure has a much better reception amongst Prarie farmers. The initial goal of the board was, in part, to influence wheat prices, especially during the Great Depression back in the dirty thirties. Since then, it's scope in what it controls has been significantly diminished to just wheat and barley, in part because of various problems between then and now which required a reduction of control on the movement of goods (like feed grain control, of which my family remembers vaguely being in the cattle industry -- the last farmer in my more immediate family just stopped being one, incidentally).
There are positives. It gives oligopolistic selling power, massive efficiencies of scale, smooths out price fluctuations, raises income (at the time) and a large group of people and output being wielded in a single hammer. The power behind the CWB and what it represents is surprisingly large and expansive, and at times it has been good for Canadians to have such power behind them. It also got rid of a decent amount of control and competition amongst not just farmers, but large companies. The idea was the skip the middle man and simply have the farmers directly sell their wheat at forecasted market prices. It also keeps land prices high, and many farmers work their whole lives -- those who saw it rise and saw the benefits way back when could pay the costs if the program is stopped or if participation is not mandatory.
However, that was then. The Second World War was long ago, the dirty thirties are a thing of the past (unless 2030 is an awesome year for porn) the original agribusinesses are long gone and the pricing power is not as large a percentage as it once was. Speaking as someone who still spends a good deal of time keeping track of farm stuff ('tis the farm blood) there is a fairly sizeable movement who feel that they are being undercut because they cannot sell elsewhere -- they have access to better markets, but mandatory use of the CWB is enforced regardless of location. They do not, historically, appear to be a majority -- those favouring a single desk policy have a plurality in votes and seats. This may have changed recently. We know that they can do market themselves -- it's only wheat and barely they have control over, everything else is free. I know some folks complain about a lack of a segregated market for organic or specific GM forms of grain.
There's a few questions now. Is the board effective with 60% of farmers working it, instead of 100%? Are we driving production to other products because of the existence of the CWB? Is this worth keeping in the eye of international pressure (although, tbh, I doubt we'd gain much political capital losing it)? Would these 40% who don't support the wheat board do better elsewhere? Are those who supporting the wheat board actually supporting the idea, or just plan to use the system? Are those against it actually not going to use it, or are they just open to letting other people use it?----Oh my god the rambling is over!Specific Poster ResponsesI'm in general agreement with a lot of what has been said, so a lot of this is more peripheral points and such. More Devil's Advocacy than anything.
JaredMilne:- I often agree with you. This thread is basically no different. One marginal exception though, is that while the East doesn't have to follow, the East doesn't produce as much wheat as the West, and a lot of the wheat produced there is more feed grains for local cattle. Memory serves, anyways. Further, Ontario DOES have it's own form of marketing boards; a lot of Canadian-grown foodstuffs in Ontario also has to meet quotas and so forth. I think it's in part historical; the West had the biggest problems when it came to Wheat production, and also represented the greater portion of growers in an area where crop-type was generally more limited than the fertile Ontario region. I think, with all those differences, the East doesn't serve as a reason why we should leave aside the CWB in the West.
Robair:- A "public option," while not providing the capacity to cover the good years with the bad, would retain a body that can not just compete with market actors, but also continue to act as a body where profit continues to go to farmers. Even if it doesn't all go to farmer's, I don't think
CommanderKai (I think it was him) in the thread you linked was incorrect in presuming a public option was possible. I do understand, however, that with 40+% of the market dodging out the board will not be as effective, and may not be effective at all; frankly, I'm not sure it's a viable structure altogether, so I agree with you there.
- Global demand and supply was heavily impacted by the CWB because we had a heavy share of the world market. We were able to impact price a lot (remember, we begin each season under the CWB by setting an expected price for wheat) as a result and a lot of our early trade missions were ensuring the grain trade received a lot of funds. In fact, one of the biggest arguments
for the CWB was that the body could wield enough control to ensure wheat prices favoured Canadian farmers, especially in a market dominated by subsidized farmers in Russia, Australia (the other two wheat powers), the USA and Europe. Essentially, we controlled our own corner of pricing before the other nations had a chance to do so; one or more of the sources I used indicated we were actually what is called a "price leader" as a result. Our local farmers were impacted by us being a price leader. Hence, I disagree, but mostly because I think this argument supports your overall premise rather than detracts from it; I think making the argument that it is good for our wheat sales abroad (where most of our wheat goes, for the record) is a better one for supporters of the wheat board.
- I find really questionable the degree of "spewing bullshit" and "you are clueless" type of responses in your post, no offense. I don't think it helps your case to polarize others through charged language, but that may just be me.
- While "surviving on it's own merits" might be admittedly a more Conservative talking point, it does not immediately mean it's an untruth in what is being said. It is worth keeping in mind that inefficiencies also harm Canadians. We, after all, have to pay for fellow Wheat farmers (if we are also farmers) if their farm is otherwise not profitable; we also have to pay when we buy wheat products, although as pointed out in the first section the degree we pay is questionable. There is an expectation that we produce what is needed and systems that skew the market tend to skew those expectations. While I don't necessarily say that market dynamics alone make sense here (at least not when put into some context) it's really hard to dismiss purely as partisan rhetoric. It was a balancing point in my above writings to the pros of the wheat board.
- Your argument about whether or not we are gaining more by those profits not going to the farmers is a valid one that I agree with, as seen above.
- Your point on subsidies in other nations is also very valid in my view.
- I'm this negative towards your position in part because my above written analysis trended more towards support of the body, and my overall stance leans agnostic.
BartSimpson:- Much agreement with you in general, with one exception.
- I don't entirely get where you got "far exceeded its mandate and in doing so assured its own destruction" in the context of the CWB. It followed it's mandate precisely. It even has had it's mandate reduced in modern times from where demands of it were once made and correspondingly followed it's new mandate. Could you perhaps clarify?
- I do agree with you on rail. Canada should be able to build up better or more efficient rail infrastructure and policy. Well said.
- I also agree chaos is expected in years following a changeover in control. I'm worried of the rise of private oligopolies in this new market, so I'm hoping for a stern anti-trust response if this is found to be true.
- Finally I agree our wheat board impacts international bodies and vice versa.
Jabberwalker: - I kind of agree on your free trade point, largely in part because the CWB essentially screws over the third world. Canada might be making the first step on what is the new way of things, and it's hard to view that as bad from an international standpoint. I guess my concern is more over how other first world countries who hold hard on their subsidies will react.
- Rail infrastructure seems to be something we just need to improve in general, between wheat, oil and other transportation needs. Again, I agree with you. Especially since my analysis above (I definitely take no offense if you ignored that) demonstrated that the whole elevator fighting thing was a problem.
- I don't really buy that it was just a left-over; 70 years of post depression work seems to indicate a lot of consecutive generations of farmers and governments were on board. I'm not saying it's an argument to keep it, mind, those 70 years aren't the last five or six for sure, just pointing that out.
DrCaleb:- I take issue with your post only for the same reason as I did
JaredMilne's, and likewise with his post my only issues are marginal. Well said and written!
- I think the best point is on the big factory farms. I agree, and I would expand by saying that aside from Factory Farms, we've gone from a public monopoly and monopsony to what could essentially be a private oligopoly. Big agribusiness essentially is able to buy and sell the goods with little competition (either through regional monopolies through ownership of elevators, or because few companies were already established and hence are able to dominate a new industry by force), something unfortunately common; a public option at least provides some competition, which is why I would like the CWB to at least continue in a reduced capacity. Or at least some sound anti-trust law usage come about to make sure this all isn't an issue.
My own opinion and thoughts anyways!
CKA Moderator 
CKA Super Elite 
CKA Moderator 
CKA Uber 
