Two vocal advocates for deregulating Western Canada’s wheat marketing are now suggesting farmers need a strong voice and new regulations to protect them from the open market.
While free enterprise is the best economic system, it only works when transactions are voluntary and there is true competition, Paul Earl, a former lobbyist against the Canadian Wheat Board single desk for United Grain Growers and the Western Canadian Wheat Growers Association, told the recent Fields on Wheels conference.
Earl, a PhD in history who is now acting director of the University of Manitoba’s Transport Institute, said market intervention is justified when there is a power imbalance.
“The end of farmer control in the industry comes precisely at a time when we see economic and social forces within free enterprise today looking a heck of a lot like it looked in 1900,” Earl said. “In other words, very substantial imbalances of power (between farmers and rail and grain companies).”
It was these “imbalances” in the late 19th century and early 20th that drove farmers to create their own co-operative grain companies — United Grain Growers (UGG), the Prairie Pools and ultimately the Canadian Wheat Board, to get some “power in the marketplace,” he noted. “It was a period when arguably free enterprise wasn’t working as it should.”
“And of course they got it. The Pools and the wheat board were extremely powerful organizations. Lo and behold that power was not always exercised in the best way.”
Earl said the West’s grain handling and transportation system stagnated from the end of the Second World War until the 1970s because of excessive regulation. He blamed the wheat board’s total control of grain transportation and the Crow (regulated) grain freight rate. Now Canada’s grain industry operates on a commercial basis.
With UGG, the Pools and monopoly CWB, gone, farmers have lost a political voice. “If you look back thousands of years agriculture is always political,” he said. “And it’s always political because we all have to eat.”
Much of the control farmers once held in the grain industry was through the Pools and wheat board. Farmers who fought to end the board’s monopoly don’t want to discuss farmer control because “it has such a bad odour,” Earl said.
“I think that’s short sighted. And I think that perhaps is one of the major issues about deregulation going forward… farmers should be thinking about.”
His concerns are shared by John De Pape, a marketing consultant and blogger, who said ending the wheat board’s monopoly is akin to removing a tree, roots and all. Something needs to fill the hole.
“Many people have the attitude, ‘well, that’s done, the market will take care of itself,’” said De Pape, who frequently criticized the board’s single desk and its operations on his blog. “And I’m not one in that school.”
Many small grain companies relied on the wheat board to assist them in the market, he said.
“Some of these smaller companies are going to have a hard time competing with the big companies, which shall remain nameless,” De Pape said. “But it certainly behooves us to give them a fighting chance because they built their business models around the old system.
“From my perspective regulation is a lot like cholesterol — there are good regulations and bad regulations,” he said.
The futures market, for example, is highly regulated, De Pape said. “So regulation isn’t necessarily a bad thing.”
Open markets need information to function properly. To that end it should be mandatory for grain sales to be reported to a government agency weekly, just as they are in the United States, he said.
“It is vital information so you know what business has been going on, particularly if you’re a smaller guy,” De Pape said. “I think it’s important and nobody is going to do it unless it’s mandated so let’s get on it.
“We don’t have (reports on) vessel lineups any more. We’re losing information, we’re going backwards so I think if the government does anything it should step up to the plate and provide that information.”
The Canadian Grain Commission collects and reports a lot of information on grain stocks, movement and exports. It’s a “public good” and should be paid for by taxpayers, not the grain infantry, he said.
The government should also play a role in who is allowed to advise farmers on marketing, according to De Pape. Futures market advisers in the United States must meet specific requirements set by government regulators.
“We have nothing like that here,” he said. “These farm consultants, all they have to be able to do is hook up a telephone and a computer and get business cards and they’re in business. And that scares me.”
Canadian grain dealers must be bonded by the grain commission, but a market adviser doesn’t, De Pape said.
“It’s kind of a double-edged sword,” he said. “I think farmers can do well by hiring good, intelligent advisers, but I think there needs to be some kind on regulatory control on it as well.”
Ending the wheat board’s monopoly is a historic change.
“I think we have a great opportunity to get this right because it is such a big change,” he said.