Wheat Board Needs to Develop a Backbone

Agriculture, Commentary, Frontier Centre, Marketing Boards, Regulation, Role of Government, Rural, Uncategorized

If nothing else, recent comments by the Canadian Wheat Board regarding the possible loss of single-desk status display a stunning lack of self-confidence about its own abilities and knowledge base. Given that the CWB only possesses a domestic monopoly, consisting of captive suppliers and a handful of captive buyers, but otherwise sells the bulk of its product into a highly competitive, price-sensitive international market, it is difficult to understand what would be so devastating about injecting an element of competition for the business of wheat and barley farmers into this mix. Despite this, the CWB continues to insist that without the single desk it will, for all intents and purposes, cease to exist. In keeping with these sentiments, single-desk advocates have predictably dismissed the current Wheat Board Task Force recommendations.

But a look at today’s business climate may not justify such a gloomy assessment. If the CWB wanted to compete successfully with the Cargills and ADMs of the world in a dual market, three key strategies would have to be embraced: forward planning, effective risk calculation, and the extraction of value by offering value. While the wheat board sees its lack of physical infrastructure such as elevators and port facilities as a fatal handicap, it should recall that one of the great lessons of the information age has been that ownership of physical infrastructure is decidedly less important than it once was.

Many businesses carry on successfully without physical ownership of part or most of their infrastructure, employing contracting out and leasing to ensure that their products get to market. Ford and Chrysler, for instance, regularly contract out parts production to other firms. Rather than finding themselves gouged by sub-contractors, these arrangements offer flexibility and significant cost-savings. Countless firms lease mission-critical products as computers and vehicles, yet no one would suggest that National Leasing has a stranglehold on its clients because they don’t physically own these goods. Is it really out-of-this-world thinking to suggest that the CWB adopt a “can do” approach as opposed to the present “can’t do” attitude?

Instead of bemoaning its lack of physical capital, the wheat board should seek to maximize its true advantages: the assets of knowledge, experience and reputation. Granted, a CWB in a dual market would have to plan diligently ahead and become more adept at risk calculation. But this is hardly an alien task, for the board does this on a daily basis right now. Despite the legal requirement to sell wheat and barley through the single desk, the CWB must still estimate what kind of crop is available months into the future while committing to sales in the present, all the while accounting for unknowns such as the weather and the state of commodity markets. To ask that the Board deal with a few more variables seems unlikely to cause the sky to come crashing down.

When it comes to extracting value from the grain-handling infrastructure, the CWB must approach the problem by first offering value to its suppliers (farmers). For instance, it might aggressively promote pooling as a risk-reduction strategy, or, for less risk-averse farmers, offer cash prices and futures contracts without the present confusing blend of restrictions and caveats.

None of these options require direct ownership of physical capital; they only require that the CWB make the benefits of its knowledge capital appealing enough that farmers will voluntarily want to work with it. Given that thousands of other businesses do just this every day, this hardly seems outside the realm of the possible.

In return, the CWB can legitimately ask farmers to commit to delivery targets and quantities over time, effectively insulating its market from competitors. This strategy eliminates the problem of rivals cherry-picking your best clients. Armed with this client base, the final step would be to leverage this power to extract maximum value from infrastructure players. Would the large grain companies simply refuse to co-operate out of spite? That’s about as likely as Magna International refusing to make auto parts for GM because Frank Stronach took a sudden dislike to SUVs. There are simply too many opportunities for profit to pass up such a lucrative stake in the grain business.

To suggest that the CWB’s core assets would be swept away with minimal effort by potential competitors is a curious ploy; it’s both puzzling and frustrating to see a business promote itself by undermining its own strengths. With a dual market, however, such a pessimistic mindset would have no choice but to change, and with it, improve the outlook for Prairie farmers immeasurably.

A version of this article originally appeared in the Winnipeg Free Press. Dennis Rice farms and does freelance writing near Starbuck, Manitoba.