Dual Market Denial

Commentary, Agriculture, Rolf Penner

Probably the weakest argument made for the Canadian Wheat Board’s monopoly on marketing Prairie wheat and barley is this: “A dual market just won’t work.” Once government guarantees against failure are removed and the agency must compete for supplies in an open market, this line of reasoning claims, the Board (CWB) will simply evaporate in a puff of blue-green smoke, never to be seen again.

Would ending the marketing monopoly, competition, and farmer choice mean the end of the Board? The same cries of alarm rang out when Manitoba, Saskatchewan and Alberta reformed their pork marketing boards. Yet, lo and behold, they’re still with us today, still going strong after more than ten years in a dual-market environment. Without their former monopoly buying power, they no longer market all the hogs in those provinces. But they are marketing more than they did before, because they’ve maintained a healthy percentage of producer support.

Likewise, the Ontario Wheat Board successfully transitioned itself into a commercial agency without monopoly powers. And outside of agriculture, more Canadian examples abound of the successful transformation of government organizations, from Air Canada and the CNR to liquor stores in Alberta and Manitoba Telephone System into a share-traded company, just to name a few.

Look internationally for many further test cases. In the space of a decade, former British Prime Minister Margaret Thatcher successfully transitioned seven major commercial airports and $40-billion worth of state-owned companies such as British Telecom. About three-quarters of a million government employees were transferred from public to private payrolls. Once considered the post-war economic “sick-man-of-Europe,” Britain has since sprung to life again.

A World Bank study that looked at these kinds of actions between 1985 and 1997 found that more than 80 countries had sold off 8,500 state-owned enterprises. Not only has the pace of sales accelerated, the size and value of divested firms are also increasing. Close to 30 of these very large enterprises with a gross value of more than $19 billion were sold in developing countries in 1995 and 1996.

The transformation of government services into commercially provided ones works well partly because competition stimulates entrepreneurial initiative. Those who are inefficient because of poor performance pay an immediate price. The process compels service providers and asset owners to pay close attention to customers’ wishes and spurs them into a dynamic and never-ending pursuit of excellence.

Another important explanation is the jettisoning of all the political baggage that haunts publicly backed endeavours. This has certainly been a major problem in the Wheat Board’s marketing practices. A common catch-phrase among farmers is that “It’s about 15% protein and 85% politics.”

Sceptics will point to instances where conversion of government enterprises failed. But such rare examples are not an overall indictment of commercialization itself. Failures are usually predictable, the result of not avoiding poor practices such as non-competitive bidding of the smoke-filled backroom variety, or sloppy contract–writing and inadequate monitoring of performance.

The odds of successfully transitioning the CWB into an open market setting are extremely high. Most success stories around the world come from high- and middle-income countries like Canada. That’s because positive results are far more likely in a competitive market when a country has a market-friendly policy environment and a good capacity to properly create regulations that focus on protecting consumers.

That’s why federal Agriculture and CWB Minister Chuck Strahl and MP David Anderson, the Parliamentary Secretary for the CWB, have invited a cross-section of western Canadian farmers, stakeholder organizations and others who support the advancement of marketing choice to a round-table discussion on July 27th. They are looking for input on how to do it right.

Those like current CWB chairman, Ken Ritter, who continue to deny that a dual market in Prairie wheat and barley is possible will be left outside of the tent unless they change their attitude. Farmers did not elect Ritter and do not pay him some $100,000 a year to support a stubborn adherence to an abstract philosophical concept which was in its heyday in 1944 when the CWB assumed monopoly control of prairie grain marketing. His intransigence offers little help to the 500 CWB employees and the thousands of producers who still wish to market their grain through the agency.

Ritter and company should draw upon the experience of thousands of successful real-world examples of multiple-marketing scenarios. If they are not willing to do so, then perhaps it is time they step aside and make room for those who are.

Rolf Penner will be attending Minister Strahl’s round-table discussion on July 27th.