The Wheat Board’s Tall Tales

Commentary, Marketing Boards, Frontier Centre

What the Canadian Wheat Board calls “single-desk marketing” is, technically, a “monopsony” — many sellers, but only one buyer; in this case the federal government. Prairie farmers are forbidden, by law, from selling their wheat or barley to anyone but the CWB, unless their grain is destined to be fed to animals. They face jail time if they defy the board.

In turn, the board claims it can take this huge inventory of grain and sell it internationally for much higher prices than individual farmers could on their own. It then promises to spread these gains around to all wheat and barley growers.

Never mind that there is no evidence this works. Indeed, a major study last year showed that even though the board is one of the largest grain sellers in the world, it still controls too little of the globe’s total grain trade to have any impact on the final price.

The price the board receives is as much dependent on swings in world commodity markets as the price lone farmers could earn trading on their own. The trick to getting the highest price is the timing of the sale, not the volume being sold. The board’s claim that by gathering together all prairie grain and selling it in bulk it will achieve a higher price is a myth, because even though it controls the output of around 60,000 farmers, it nonetheless still controls too little grain to push the price up by withholding wheat and barley from the market, then rushing it to the selling floor.

Occasionally (like last year), the board gets lucky. Once in a while, its slow, plodding, hulking sales machinery gets grain to market at just the right time and the price gets caught in an updraft. But more often than not, individual farmers could make as much or more by watching commodity trading carefully and pouncing faster than the board could on upward price spikes.

Unless the board’s traders are better than private traders or individual farmers at predicting the best time to sell all the grain they have in inventory, it is impossible that the board can produce greater returns simply by flexing its monopsony.

When Ralph Goodale, one of the smarter Liberals in the House of Commons, was the wheat board minister, I asked him why, if single-desk marketing was such a good practice, his government did not employ it for other industries — auto parts, for instance. Why not make Magna and Ontario’s other parts suppliers sell all their production to the feds, who in turn would then assure them all higher returns by selling their parts in bulk to the automakers?

After coughing and stammering for a minute, Mr. Goodale replied that historical differences in the two industries made them different.

But history has no more influence over grain sales than it does over auto parts. Whether or not a trade makes economic sense is no more influenced by history than it is by Friday’s CFL scores.

The myth, though, that grain is somehow different from other commodities — peddled by Mr. Goodale and ministers before him and since — is what sustains the board, so much so that when the current government has attempted to dismantle the board, the myth-swallowers who run it have spent hundreds of thousands of dollars on publicity campaigns and legal challenges to stop the Tories.

In 2006, the Tories ordered the board to stop wasting farmers’ money on vain attempts to preserve its monopsony. The board balked and went to court to overturn the ban. It won in lower court, where a judge ruled the Tories’ gag order amounted to an unconstitutional infringement on farmers’ freedom of expression.

This produced much clucking and glee among the board’s supporters. Many columnists and letter writers across the Prairies crowed “what other laws have the Tories broken” and “Harper’s undemocratic ways have finally caught up with him.”

But in late-June, a three-judge panel of the Federal Court of Appeal unanimously reversed that decision. It said that the board is entirely the creature of the federal government and as such can be ordered to do by Ottawa whatever Ottawa pleases.

That’s the way the Liberals set up the board when they restructured it in the 1990s. They gave it a facade of farmer-control, but retained real decision-making authority at Cabinet.

When the Liberals used this chimera to protect the board’s dominance over prairie grain, its backers rejoiced. But now that this loophole is being used by the Tories to introduce real choice for grain farmers, the board’s political supporters are aghast.