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The rather dismal expectations over the fate of the Canadian Wheat Board(CWB) appear to be driven by the experiences with the recent demise of the Australian Wheat Board rather than that of the UK Milk Marketing Boards. (639 words)

The Australian board was very quickly little more than a memory. The British boards had, however, more than a little life after their death. The CWB has yet to face its fate. All had been delegated single desk selling privileges, all operated price pooling and all survived at least one generation of farmers meaning that expertise in conventional marketing had largely been lost.

The UK Milk Marketing Boards were a victim of the UK joining the European Community, if victim is an appropriate descriptor. A condition of the European common market is that member states not operate nation marketing agencies that might overtly, or covertly, provide advantage to their farmers, or at least be perceived as so doing. UK governments' attempts to avoid the demise of its milk boards lasted for more than 20 years - from UK's European Community entry in 1972 to the deregulation of UK milk marketing in 1994.

With the deregulation of milk marketing, the UK milk boards were required to divest themselves of their substantial dairy processing facilities and Milk Marque, as a voluntary pooling operation, was set up to contract supply with farmers and market it to processors in competition with direct cash purchases by the processors.

Recognizing that this was going to be a challenging experience for all concerned a month was set aside for parties to sign up their milk supply. That trouble lay ahead was evident when the processors lobbied the Minister of Agriculture for, and were granted, a delay in this process as they were not able to obtain the supplies they sought. When the process was resumed, Milk Marque managed to sign up about 60 percent of the milk supply. Even over time and by using such questionable strategies as offering the Milk Marques initial price "plus five cents over the final," the processors only slowly eroded Milk Marques share.

The challenge for Milk Marque was balancing fluctuating purchases and sales virtually on a daily basis - milk does not store well. Their strategy was to set a premium price for a guaranteed daily supply which was perceived to be attractive to the retail milk trade and discount the balance which would be attractive to processors, cheese and butter makers and such, who were more flexible about what they bought.

This was not seen, however, as passing the test of fair trade. In January 1998 the UK government's Office of Fair Trading referred "the matter of the existence or possible existence of a monopoly situation" to the UK's Monopolies and Mergers Commission. This body duly found that Milk Marque had and was able to exploit a monopoly position in the market. It also did not like Milk Marque's plans to develop processing capacity as an alternative to differential pricing.

The commission ruled that Milk Marque be split up into regional pooling bodies which duly occurred. All this took 28 years and left the UK dairy industry at a competitive disadvantage to the rest of Europe where the majority of the dairy business was handled by "national" cooperatives at least one of which was even active in the UK market.

Such a mess is unlikely to follow the deregulation of the wheat industry in Western Canada. If it was, the private trade would be asking protection from the CWB's voluntary pooling reincarnation. Imagine the market power the reincarnated CWB would have in negotiating handling agreements for its wheat if had 60 percent of the business, or even 49 percent.

The reality is that the wheat board realizes that it is unlikely to be in a position to exercise much market power and, therefore, hopes to be able to exploit some residual political power with its request for regulated access to the elevator system. This is sad. If the CWB does not have the confidence to operate commercially a voluntary pooling operation then perhaps it should not even try.

David Walker
July 11, 2011