Farmers for economic freedom
Updates from the Canadian Farm Enterprise Network, Canadian Farmers for Justice and the Prairie Centre. Several of the items appearing here originally appeared in an email list operated by Dwayne Leslie at http://www.prairielinks.com.
web posted March 20, 2000
Grain marketing around the world
By Craig Docksteader
Over the past couple of weeks, I have spent considerable time reviewing information on the rain marketing and import systems in various countries around the world. Some of the reports are from the U.S. Department of Agricultures Foreign Agricultural Service, and some are from World Grain Publication, a magazine which takes an international look at grain, flour and feed. Still other sources include the Canadian Wheat Board, Agriculture and Agri-Food Canada, the McKinsey Report which examined western Canadas grain handling and transportation system, and a report done for the Western Grain Marketing Panel on "Changing Marketing Systems".
Although the reports cover a wide range of information and touch on many issues, one dominant theme surfaces repeatedly: Over the last ten years the agricultural industry around the world has been undergoing significant -- and at times radical -- changes to make it more productive, efficient, and competitive. Whether because of discontent with mediocre productivity or because they were forced to make changes as a result of political realignments or economic realities, country after country has been taking steps to improve their position in the agricultural marketplace.
Almost without exception, the steps to improve the agricultural industry have involved moving toward a deregulated, market-oriented agricultural system. In some cases, outright privatization of grain import or export systems has been embraced. Following are some examples of this trend that is taking place around the globe:
Argentina: Deregulation and privatization of the grain industry began in 1989. In the early 90s the Argentine National Grain Boards monopoly on grain exports was terminated, and exporting turned over completely into private hands.
Australia: Australia has privatized their Wheat Board and implemented a dual domestic market, where the Wheat Board competes for farmers business with the private grain trade. The Australian Barley Board has also been privatized and has no export monopoly.
Brazil, Columbia and Mexico: All three countries privatized their grain import systems in the early 90s.
Egypt: Egypt privatized its grain import functions in 1992.
Indonesia: In Indonesia, wheat imports are no longer controlled by the state agency BULOG, but have been turned over to the private sector.
Japan: Grain policies in Japan have been gradually moving toward more market orientation for some time, and recently announced that it will be allowing millers to import some wheat directly from exporters, rather than going through the government-controlled Japanese Food Agency.
Morocco: During the past decade, the Moroccan government privatized nearly half of its 114 state companies and, in 1996, adopted laws allowing the private sector to import wheat, barley and other grains directly.
South Korea: In South Korea, the government has been moving gradually towards greater market liberalization. Grain import functions have been privatized.
The list could go on: Jamaica, Bolivia, Ecuador, Peru, Israel, Poland, Hungary, Romania, Spain, Bangladesh, Portugal, Ghana, Turkey, Zimbabwe, Kenya, Bulgaria, Philippines, Pakistan, Sri Lanka, Taiwan, Ukraine, Venezuela, and even Russia are downsizing their government involvement in agriculture and moving towards a more market-oriented system. The trend is clear and the results compelling: The agricultural industry becomes more efficient, more productive, and more competitive the further it is removed from government monopolies and over-regulation.
web posted March 13, 2000
Grain marketing in Nova Scotia
By Craig Docksteader
Ninety-five percent of all wheat produced in Canada is grown in the western provinces and marketed under the jurisdiction of the Canadian Wheat Board. Another four percent is grown in Ontario and marketed under the jurisdiction of the Ontario Wheat Producers Marketing Board. The final one percent is split up between the remaining provinces and falls under a variety of marketing schemes.
The smallest of these wheat producing provinces is Nova Scotia. From 1988 to 1997, total wheat production in Nova Scotia, consisting of both winter and spring wheat, averaged only 7.2 thousand tonnes per year. In comparison, during the same period, Manitoba's wheat production averaged 4,152 thousand tonnes per year, Alberta 6,789 thousand tonnes, and Saskatchewan 14,145 thousand tonnes. No matter which way you slice it, Nova Scotia is an extremely small player in the marketplace.
With only a fraction of market share, some prairie producers would view Nova Scotia producers as extremely vulnerable in the marketplace. Popular mythology would say that without the strength of numbers, they have no market power and risk being trampled by large corporate interests. They should band together, establish a position of solidarity, and perhaps even unite with other Canadian grain growers to present a single, powerful marketing force.
Actually, such an arrangement wouldn't be all that difficult to pull off. It's simply a matter of extending the Canadian Wheat Board's "designated area" to include Nova Scotia. Section 40 of the CWB Act already makes provision for such a move, by allowing the government to apply the Act to wheat produced outside the existing designated area. The change could be made by regulation, and doesn't even require debate or voting in the House of Commons. Producers in Nova Scotia would then have single-desk selling, compulsory pooling, and government guarantees on initial payments.
There's only one problem, though. Nova Scotia wheat producers don't see it this way. In fact, Nova Scotia has been moving the opposite direction, away from centralization and greater government control, toward privatization and more producer control.
In 1997, Nova Scotia's provincial government privatized the operations of the Nova Scotia Grain Marketing Board. Now called East Coast Commodities Inc., the corporation operates as a voluntary grain marketing agency offering services such as cleaning, weighing, drying, storage, forward pricing, spot pricing, risk management, marketing, and -- for those who prefer it -- price pooling.
For almost three years, ECCI has had to earn the business of Nova Scotia wheat producers by competing head to head with other grain buyers. Producers are free to pick the marketing agent of their choice or sell their grain themselves on the open market. Those who prefer the cooperative pooling approach to marketing have access to this option, while those who prefer to go it on their own can do so as well. It's an arrangement that is commonly referred to as dual marketing.
For some prairie farmers, this approach flies in the face of everything they've been told about grain marketing: It should weaken, not strengthen producers' market position; it should result in lower prices, less options and poorer service, as farmers supposedly compete against each other to sell their product.
In actual fact, if dual marketing doesn't work, it should have failed first in Nova Scotia. Not only is it the smallest wheat producing province in Canada, but local grain buyers can easily source grain from New Brunswick, Maine, Ontario, Quebec, the U.S. and even Western Canada. Nova Scotia farmers should be banging on the doors of the CWB asking to be let in.
But they're not. They're going the other direction. Maybe that tells us something about dual marketing.
web posted March 6, 2000
Fixed price contracts
By Craig Docksteader
The Canadian Wheat Board recently announced that it will be introducing payment options for prairie farmers for the 2000-01 crop year. The new program, called the Fixed Price Contract, lets farmers fix a price or a basis for their wheat before the crop year begins. This means that instead of waiting 18 months to see what the CWB pool returns will be, farmers can lock in a price when the crop is still in the ground. Or, if they prefer, they can lock in the basis and later commit to a futures price prior to delivery.
At first blush, it sounds like a good idea. The CWB appears to be modernizing and responding to the needs of prairie farmers. More payment options means more flexibility. According to the CWB, this will allow producers to better manage risk and cash flow on their farm.
Furthermore, for those who are quite content with the current pooling system and payment method, there is no need to fear. The new plan does not replace the existing process, and "will not have any impact on CWB pool accounts". According to the Board's press release, the three pillars of the CWB -- including price pooling -- remain intact.
For producers who want substantive change, however, the plan falls short. While it may have significant optical value, it will have little practical value. The price that farmers receive for their product under this plan will have nothing to do with what the market is doing at the moment, and everything to do with what the CWB thinks their final pooled price will be. While a similar plan under the Ontario Wheat Board sets the cash price according to the Chicago Board of Trade price, the CWB is going to arbitrarily "fix" theirs to the mid-range of their Pool Return Outlook.
This means the program will not likely allow a farmer to realize any better return than what could be achieved under the existing pooling system. It virtually guarantees a lower price in exchange for the benefit of knowing what the price will be and getting paid sooner. This might be what the CWB calls risk management, but it's not what producers had in mind.
In fact, at no time over the last few years has there been any significant demand for more payment options from the CWB. Most of the wide-spread dissatisfaction with existing CWB policy has been focused on the need for marketing options, not payment options. If producers have choice in who markets their product, they'll have more payment options than 100 bureaucrats can dream up at an all-night board meeting. If the CWB was made voluntary, prairie farmers would immediately have access to the best risk management tools in the world, without having to implement cumbersome and costly programs at farmers' expense.
It would appear that the CWB is trying to implement a system which emulates both a cash market and a futures market. The problem is that because the monopoly blocks any local market signals for wheat, you can't have a cash market because you have no signals to give you a cash price. And if you have no cash price, you can't have a true basis. Whereas basis normally provides invaluable market information, the CWB's basis amounts to nothing more than the total of your deductions from the sale price of your wheat. It's kinda like calling a steer a bull. You can call it what you like, but it's not going to be able to do the job it's supposed to.
web posted February 28, 2000
Lets get out of here
By Craig Docksteader
I never expected to hear it from the National Farmers Union. In a recent presentation to the Senate Standing Committee on Agriculture and Forestry, the NFU made the case that agricultural subsidies in Europe (EU) have not caused the farm income crisis by encouraging over-production.
In their brief, the NFU demonstrated how, according to crop production statistics, there is no observable relationship between subsidy levels and production rate increases. While wheat production over the last twenty years rose significantly in heavily subsidized EU countries, it rose at comparable rates in relatively unsubsidized countries such as Australia and Argentina, and to a lesser degree, Canada. Production in the U.S. over the same period actually fell, in spite of it being the second most-heavily subsidized country.
The NFUs position represents a significant departure from the approved Canadian Wheat Board line that foreign subsidies are one of the key factors pushing up worldwide grain stocks and pushing down prices. CWB CEO Greg Arason has been preaching this message at every opportunity, complete with an impressive audio-visual presentation of stats and graphs. These slides have popped up at other farm meetings across the prairies, as CWB directors attempt to explain the prairie cash crunch and deflect criticism from federal policy on grain exports. Now, after checking the numbers for themselves, the NFU appear to have discovered that EU subsidies may be no more than a convenient scapegoat for more significant problems right on our own doorstep.
For farmers who want constructive changes to prairie agriculture rather than the usual bandaid proposals, the unbalanced focus on international grain subsidies has at times been irritating. Instead of cleaning up their own backyard, politicians and bureaucrats have been happy to focus attention on policies in the EU and the US, content to merely tinker with the problems created by their own public policy.
So while an inefficient grain transportation and handling system continues to suck money out of farmers pockets, federal and provincial politicians appear content with shuffling the same players like some kind of shell game instead of making substantive change. While industries everywhere are investing in "vertical integration", where the players claim more of the value-added chain, the CWB is blocking prairie farmers from doing the same and spending millions to encourage the export of more raw product which is sold below the cost of production. While farmers are looking for options and choices in marketing and risk management, a significant portion of the prairie grain industry is shackled by archaic federal laws which insist government can do it better.
Regrettably, however, the NFUs insight into the current farm situation breaks down before it gets this far. Having rightfully dismissed foreign subsidies as the primary cause of the farm income crisis, they turn their guns toward their usual foe, the free market. "The market is failing farmers..."; "...farmers are making too little because others are taking too much..."; "There is no shortage of money in the agri-food system there is merely a maldistribution of money." Every player in the whole industry gets blamed for causing the income crisis by price-gouging and leaving the farmer without enough to survive on.
Perhaps without realizing it, the NFU put their finger on the primary problem in prairie agriculture -- a lack of choice for producers and subsequent lack of competition between those who want farmers business. Regrettably, however, their proposed solutions are the very root of the problem. They advocate more regulation, less privatization, more government control and less freedom. In a nutshell it amounts to more of everything that got us to where we are, which results in less of everything that would get us out of here.
Somehow I dont think we should go down that road again.
Craig Docksteader is Coordinator with the Prairie Centre/Centre for Prairie Agriculture, Inc. "Where Do We Go From Here" is a feature service of the Prairie Centre.
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