Farmers don’t agree on the value of the Canadian Wheat Board (CWB) and neither do economists.
A newly released study that was commissioned by the board says single desk marketing earned malting barley farmers an additional $540 million between 2004-05 and 2008-09 over the open market.
But a paper prepared for the C.D. Howe Institute released last week questions whether the CWB can exercise market power due to changing market conditions.
The barley study, conducted by Andrew Schmitz and Troy G. Schmitz, says the CWB earned farmers an average of $38.91 a tonne more for their six-row malting barley than they would have received in an open (multi-seller) market over four crop years.
During the same period the average benefit accruing from the CWB for sales of two-row malting barley was $50.66 a tonne.
“The CWB, relative to multiple-sellers, is estimated to have captured higher prices in two-row malting barley markets in every year considered here,” the study says. “The lowest price advantage for two-row malting barley was $7.18 per tonne in 2006-07 and the highest price advantage was $91.80 per tonne in 2007- 08.”
The study is based on economic models, but includes actual CWB selling prices.
The CWB was able to earn more for farmers because its legislated single desk allows it to sell the same product on the same day to different customers at different prices to maximize returns to farmers.
“In the absence of constraints on the quantity of feed barley, six-row malting barley, and two-row malting barley available for sale by western Canadian farmers, the law of one price must hold for all international and domestic barley sales in a multiple-seller environment,” the study says.
According to the study, the CWB was able to get higher returns when selling to Japan, the United States and the domestic
market than in other markets. In an open market the returns, on any given day would be the same for every market.
Sellers in an open market would have sold more of the marginal barley than the CWB did into the six-row and tworow malting barley markets because they could get a higher price, the study says. However, selling more malting barley would have decreased malting barley prices. The drop in feed barley sales would have increased feed barley prices every year but 2007-08.
“This additional flow of malting barley would have reduced the malting barley price to the point where the total revenue received by western Canadian barley farmers would be lower than that under the CWB,” the study says.
It’s theoretically possible for the CWB to earn premiums, but if the CWB’s costs exceed the premium, farmers might be worse off, the study says. But it points to a 1996 study by the late agricultural economist Daryl Kraft and his colleagues that concluded the CWB’s marketing costs were lower for wheat than they are in an open market.
“This is due to the CWB not having to manage the price risk of inventory purchased,” the study says. “Grain companies incorporate this risk into their margins for non-board grains. In our opinion, Kraft’s arguments also apply to barley.”
However, in their paper prepared for the C.D. Howe Institute economists Richard Pedde and Al Loyn say Canada’s share of world wheat production and markets has declined substantially over the years.
“If justification ever existed for the CWB’s mandatory status, on the basis that its world market power enabled it to generate better prices for domestic farmers, it seems to have passed,” their paper says. “It is time for reform.”
While the CWB claims it gets better prices than would exist in an open market, the paper says the CWB should prove it by releasing its sales figures. The CWB maintains doing so would jeopardize future sales.
“If the CWB cannot demonstrate that sole buying and selling authority is necessary to delivering better prices for farmers, it should not have that authority,” the paper says. [email protected]
“TheCWB,relativetomultiple sellers,isestimatedtohave capturedhigherpricesintworow maltingbarleymarketsin everyyearconsideredhere.”
– SCHMITZ STUDY