Show Me the Money

Commentary, Agriculture, Rolf Penner

Does the Canadian Wheat Board (CWB) really put more cash into farmers’ pockets? Before they jump to that conclusion, people should look at independent studies on the subject or, better yet, at prices offered in the Northern states. If they did, they would find that not only are their assumptions wrong but that, overall, the buying monopoly extracts tremendous costs from producers.

The gold standard for studies, done ten years ago by agricultural economists Colin Carter and Al Loyns, found no evidence of price premiums but all sorts of net costs associated with the current system. This is no surprise, since the majority of Canadian wheat goes into markets where price is more important than quality. They tallied up the hidden costs of administration, protein giveaways, extra handling charges, demurrage, delays in payment and other costs associated with the CWB system.

The Carter and Loyns study showed net costs of $26.15 per tonne for farmers and another $5.50 for taxpayers when it comes to wheat. For barley, the costs were $28.50 per tonne for producers and $9.00 for taxpayers, which they believe are conservative numbers. They also noted that the 1989 removal of oats from the single desk translated into higher farm gate prices relative to world markets, while at the same time marketing costs dropped by about one-third.

A George Morris Centre study in 2002 confirmed that farmers would see lower costs and higher returns in an environment of marketing choice, and went further to say that we would also see greater investment in value-added processing, with a “significant” increase in new jobs. It observed that during the 1990’s such investments in the west lagged Ontario by a full two-thirds, and then noted that overall investment in the U.S. was almost double that of all of Canada.

The George Morris study also pointed out that the reverse was true when it came to adding value to oilseeds, which are not under the CWB blanket. During the same time frame, we grew at 16% a year while the Americans only grew 4%. “Overall, the costs to producers and to the grains-based value-added industry outweigh any benefits of the CWB’s monopoly,” the report concluded.

In addition, the 2004 Sparks Companies’ study on barley showed that if marketing were “unimpeded,” “substantial opportunities” for the barley industry in Western Canada would open up. Again, the conclusion was that the “CWB does not bring value to the barley sector, rather it exacts a significant cost in lost opportunities, high administrative costs and poor marketing results.” The CWB fails to achieve prices that are even averages of the annual price ranges for feed barley and malting barley, with “average returns from feed barley sales consistently lower than the lowest recorded domestic prices in both Alberta and Manitoba, by margins of between $10 and $40 per tonne.”

As with the George Morris Centre study, the Sparks one points to a substantial investment in malting facilities in the U.S. northern tier states. In recent years, they saw $400 million worth of investment in increased malting capacity, even though building in Canada would have conferred a price advantage of $35 to $40.00 a tonne. The reason is that in the U.S. maltsters can source directly from producers.

All this confirms spot-price comparisons that farmers do on a regular basis. Thanks to the Internet, these real-world, real-time, real-price comparisons can be done in less than five minutes. Numerous producers have also gone across the border with samples and verified these values. In every prairie province, they are finding that prices offered in the northern U.S. are better by at least $19 a tonne for spring wheat, and up to $44 a tonne (and sometimes more) for winter wheat.

At his recent October 31 presentation to the Standing Committee on Agriculture and Agri-food, Dr. Loyns backed up the reliability of these spot-price checks. He testified: “In my experience and view, the evidence from cross-border comparisons, including many of the on-spot-sampling experiences by individual producers, is robust and credible. These results agree with most of the studies that have been done, they agree with analysis I have been involved in, and they isolate from the propaganda coming from both sides of the issue. In an unregulated, free trade environment, where would I receive the greatest return?”

Supporters of the CWB monopoly insist that their model of forced collectivization trumps the principles of individual freedom and private property rights because it makes farmers more money. Yet for over 50 years, they have failed to present the evidence to back up the claim. The evidence in fact refutes it. The best they have to offer are board-sponsored studies that don’t go back to the farm gate that list benefits but not costs and that use “secret” datasets no one is allowed to verify. They all resound with the hollow platitude, “You just have to trust us.”

There may be a place in life for faith, but this isn’t it.