Canadian Wheat Board
- Monday June 25, 2007
This analysis featured in the June 25, 2007 issue of the HGCA's MI Prospects, Volume 9, Issue 25
In April the Canadian government published regulations designed to allow the grain trade to sell barley for export and into domestic industrial (malting) markets after August 1, 2007. This would eliminate the Canadian Wheat Board’s (CWB) monopoly in these markets. Because legal challenges are in process, there is no certainty that this time line will be met.
The planned deregulation of barley marketing appears to be part of a rather gradual decentralization of western Canadian grain marketing. Like its equally gradual centralization in the first half of the 20th century, it often seems to have as much to do with wider political considerations as the grain market itself.
Past Development - Western Canada’s first experience with centralized marketing was during, and directly after, the First World War. In 1915, in the interest of the war effort and as an indirect result of Turkey closing the Dardanelles which cut off Europe from Tsarist Black Sea port grain supplies, the Canadian government commandeered existing wheat stocks. Price control measures continued during the war.
Of particular significance, however, was the single year’s experience of the first temporary CWB directly after the First World War, and after price controls were lifted. Using pool pricing, CWB was able to return to farmers’ prices almost four times those received in the year immediately prior to the war.
The early 1930's were, however, not financially friendly for the pools. With prices for two successive years about 15% of the 1919-20 CWB pool return, it is understandable that initial payments were set too high. For the first year the provincial governments’ made loans to the pools to cover their losses, but for the second it was necessary for the Canadian government to take over the pools’ grain and futures inventories. In 1935 when it was apparent that disposal of these assets was going to take time, a Canadian Wheat Board Act was enacted. This provided for voluntary pooling, backed financially by the Canadian government.
In 1943, as a war time price control measure, marketing through the CWB became mandatory. This arrangement was extended for wheat, oats and barley after the war to support the Imperial Wheat Agreement and International Grain Arrangements which were designed to put a floor under international prices.
The authority of the CWB is limited to the provinces of Manitoba, Saskatchewan, Alberta and parts of British Columbia which at the time were the source of virtually all grain exports. Generally the CWB takes delivery from farmers on the Prairies, using grain companies as agents to handle the grain, pay an initial payment and ship to port or mills and maltings where the CWB offers the grain for sale. The supposition is that the single desk allows the grain to be sold to better advantage than in a competitive marketplace and pool pricing means that farmers do not have to monitor grain markets on a day to day basis.
As an agent of the Canadian government, the CWB has in the past been used directly or indirectly for farm support programmes and other purposes. Seemingly in reaction to GATT/WTO pressures, all of these programmes except for initial payment guarantees have been discontinued. The CWB has also over the years developed programmes allowing for such things as varietal segregation and farmers contracting out of the pools.
Over the last twenty years opinion has become increasingly divided on the value of the CWB to prairies farmers. Liberal governments have tended to maintain the monopoly, Progressive Conservatives (PC)to challenge it. A PC government in 1989 deregulated the oats market but an attempt to deregulate the North American component of the barley market in 1993 was thwarted by a successful legal challenge. In 1998 a Liberal government amended the CWB Act instituting amongst other things ‘shared governance’, through a partially elected and partially appointed board of directors.
Current Proposal - This unique structure is proving to be a challenge to the current Conservative government as the CWB has felt politically justified in openly opposing changes currently proposed by the federal government for barley marketing. The government for its part has replaced the CWB’s chief executive and reappointed several board members.
The changes involve allowing the grain trade, including maltsters, to buy either directly from farmers or the CWB which might continue to pool grain and/or buy on a cash basis. On the other side of the market farmers would sell directly, or through the CWB. Under the existing setup the trade and maltsters select from barley samples submitted by farmers, but the farmers receive an initial payment for the pooling period, adjusted for grade and location, from the CWB. Buyers pay the CWB a cash price for the day and location. At the end of the pooling period the CWB deducts its initial payment and other expenses from its receipts and pays out the surplus as a final payment to participating farmers in a conventional manner. It seems likely that the CWB would continue to offer this service, although it has always suggested that voluntary pooling, or dual marketing, would not be advantageous for farmers and only feasible in conjunction with the CWB’s continuing single desk for wheat.
In a plebiscite this March 48% of farmers who voted choose this dual marketing option. The other options in the plebiscite were the status quo, 38%, and no role for the CWB, 14%. The reality of this divide is that almost half of the farmers who voted do not believe the CWB and/or perhaps believe that it is posturing. The changes, in theory, should not be a major challenge for those involved. Farmers have experience in selling canola, flax and oats amongst other grains and oilseeds directly to the trade. Farmers and the CWB have experience of contracting with each other which would almost certainly be required in a dual marketing environment.
In April the Canadian government published the regulations which it plans to use to deregulate the barley market, providing 30 days for interested parties to comment. Provisions for marketing wheat were originally applied to barley by cabinet regulation through a provision of the Act. The same route is planned for reversing the process.
Future Outcome - This May in response to the request for comments on the proposed regulations, the CWB used the opportunity to question the legal basis for the federal government making the operating adjustments. It did not offer suggestions as to how the regulations could be improved to enhance the marketing of barley after August 1. It did, however, in August 2006, publish a vision. It sees itself as a fully independent organization with its current single desk, pooling operations supplemented with a separate wholly owned subsidiary investing in commercial business activities with ‘an infusion of approximately $1.5bn from the federal government in lieu of its existing guarantees on farmers' payments and CWB borrowings’.
On June 7 the Canadian government announced the planned regulations to change CWB regulations which are to be formally published on June 26. But it seems there will be at least two legal challenges. The CWB announced on June 18 that it was making an immediate challenge in the form of a request to the courts for a judicial review of the process used to implement the regulation and a group of farmers (The Friends of the CWB) plans a challenge of the content of the regulations.
It seems likely that, if either of the actions is viewed as possibly having merit, a stay of the regulation will be ordered while the review is taking place - almost certainly beyond August 1. Because of the nature of the CWB’s pooling operations and, indeed, the CWB Act itself, this would result in a 12-month postponement.
There has been no shortage of such legal actions in the past, with some resulting in unexpected judgements; more probably due to the nature of the current Act which has been subject to manys amendments over more than 70 years, than inconsistent interpretation. Further, as the current Conservative government is a minority government, there is no certainty as to its longevity, relative to that of any legal challenge.
David Walker 001 780 434 7615
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