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 November 20, 2000

What to expect from the CWB audit

By Craig Docksteader

In mid-October, the Auditor General's (AG) audit of the Canadian Wheat Board got underway. The AG's audit plan took six months to prepare, but was approved by the CWB board of directors on October 25th, allowing the auditors to begin their actual examination.

Normally, the AG does not make information about the audit plan publicly available until the audit is complete. But in a surprising departure from their usual policy of secrecy, the CWB has released an extract of the audit plan.

The audit plan reveals that the AG's examination will address a number of important questions and cover a range of CWB activities, including the following:

*Marketing
Does the CWB earn price premiums? Is the CWB working to expand the market for western Canadian wheat and barley? Are there weaknesses which have resulted, or could result, in missed sales opportunities, loss of reputation or lower sales returns to producers?

*Country Services and Grain Transportation
Is the CWB managing the orderly delivery, handling and transportation of grain in the most efficient and effective manner possible?

*Financial Operations
Are the CWB's financial operating requirements being met and financial risks being minimized in the most appropriate and cost effective manner?

*Communications and Corporate Policy
Does the CWB demonstrate adequate accountability and transparency to farmers and other stakeholders?

*Price Pooling and Payments to Farmers
Are the pool accounts being properly managed, and pool returns properly distributed to farmers?

In examining each of these areas, the audit will go well beyond the usual CWB audits currently done by Deloitte & Touche. The AG is taking an approach similar to the "special examinations" required for all Crown Corporations every five years. Instead of simply expressing an opinion on CWB financial statements, the AG will examine the efficiency, effectiveness and economy of the selected areas. In other words, the audit will look at results obtained by the CWB and not just procedures or practices.

Regrettably, however, although the CWB audit is likely to provide valuable information which could assist producers, CWB directors, and CWB staff in their efforts to improve the operations and performance of the Board, it will at the same time have significant limitations.

For starters, this is a one-time audit. The AG cannot check up on the CWB to see if anything was done with the recommendations which will be contained in the report.

Secondly, the audit will only cover the 1999/2000 crop year. Any examination of previous periods will be only for the purposes of comparison, or obtaining a clearer picture of CWB operations.

Thirdly, the CWB has had two years notice that the AG was coming in. The audit was implemented as a result of changes made to the CWB Act in 1998 and examines a period of CWB operations which took place after the announcement. That's like Revenue Canada phoning you today and saying they're coming in 2002 to audit your 2001 books. Whether or not this impacts on the audit results is debatable, but it will undoubtedly impact the credibility of the audit in the view of many producers.

Lastly, the AG is not allowed to examine or comment on the mandate or role of the CWB. Consequently, because everything must be evaluated from within the box of the monopoly, the audit will be significantly limited in scope. At the end of the day, we may know how to make the monopoly work better, but it's not likely to make it any more popular.

web posted November 6, 2000

Examining old assumptions

By Craig Docksteader

As the review of the Australian Wheat Board's export monopoly progresses, some interesting parallels to the Canadian Wheat Board monopoly are becoming evident.

Similar to the situation in Canada, there are two primary assumptions which drive the defense of the AWB's monopoly. The first assumption is that by having single-desk control, growers get a better financial return for their grain, both from higher sale prices and lower marketing/transportation costs. The second assumption is that a grower-controlled single-desk marketer protects producers from exploitation by multi-national grain companies and other "middlemen".

But also like in Canada, the credibility of these assumptions is beginning to falter as they come under increased scrutiny. Studies which have been done for the review of the AWB are challenging the thinking of the status quo and echo what many prairie producers have been saying about the CWB monopoly. Following are a number of quotations from one of these studies, conducted by the Productivity Commission of Australia:

"Given the number of significant exporters and producers of wheat internationally, and the erosion of buying monopolies, the Commission considers it unlikely that Australia possesses sufficient market power in world markets to justify continuation of the export monopoly."

"...without competition in the range of activities provided by AWB Limited to growers and customers, there is no guarantee that these services are provided efficiently and are giving the best-possible returns to wheat growers."
"It may be the case that there are economies of scale or scope in services provided by the AWB. It may be able to negotiate lower shipping rates due to volumes exported. But a protected monopoly is not generally required to promote the organizational structure capable of exploiting efficient economies of scale and scope... Indeed, in the absence of competitive pressure, the monopoly seller may be a less efficient provider (or buyer) of services than competing providers."

"Some people suggest that, in the absence of a single desk, individual growers would be forced to manage their own risk, raise their own finance and market and transport their own produce. This is not so: they would face a wide range of choices for these services..."

"Current wheat marketing arrangements had their genesis in the voluntary cooperatives established in the early 1900s. A major objective was, and continues to be, producer control of marketing in order to avoid exploitation by ‘middlemen' and processors. However, commodity producers can only be exploited if they do not have a choice of buyer."

"The argument that an Australian single export desk for wheat is required because export markets are distorted by grain subsidies paid to European and US producers is weak."

"AWB Limited has negligible power to counter export subsidies of rival exporting nations... A single desk simply does not have the means to match such policies..."

"The compulsory cooperative model supported by many wheat producers, by restricting competition, may be less efficient and deliver lower returns to growers than competitive arrangements."

"As long as producers effectively are locked into ownership of the AWB, normal market constraints and signals regarding company performance do not operate."

"...the current lack of choice for wheat growers is likely to be impairing efficiency and innovation within the industry."

"...most if not all of the potential benefits of the AWB's single-desk could be achieved under competitive selling arrangements..."

web posted October 30, 2000

Reviewing the AWB's monopoly

By Craig Docksteader

The Australian Wheat Board's monopoly control of wheat exports is currently under review. As part of their National Competition Policy, the Australian government committed itself to review any law which restricts competition in order to determine if it serves the public interest. Because the AWB's monopoly on wheat exports restricts competition, its turn has come to be reviewed.

In mid-October, the Independent Committee conducting the review released a draft report, clearly taking a cautious step toward freeing up the wheat export market. Their observations included the following:

• Only small premiums may be achieved as a result of the single desk;
• Restrictions on competition have had an inhibiting effect on the development of small, niche or specialized markets;
• Restrictions on competition have had an inhibiting effect on further market penetration and growth in established markets;
• Multiple sellers may be better able to service many small, specialized or niche markets than a single seller;
• The single desk may be contributing to higher costs that reduce net returns to growers.

Their subsequent recommendations included the following:

• Durum wheat should be taken out of the Board's jurisdiction (deregulated);
• Exports of wheat in containers and bags should be deregulated;
• Exports in markets where the AWB does not capture price premiums should be deregulated;
• Exports into markets where Australia does not have a freight advantage should be deregulated;
• Other than these changes, the single desk status of the AWB should be retained until 2004, allowing further study to be done.

Predictably, the draft report is being met with a flurry of reaction, both positive and negative. Not unlike Canada, some Australian producers feel that a united front to sell wheat on overseas markets gives the industry strength, while others share the Committee's view that the monopoly restricts economic development.

The decision to review the AWB's monopoly was not based on a political whim, however. Between 1960 and 1992, Australia went from being the third richest developed nation to the fifteenth. The decline was attributed largely to the fact that large sectors of the economy were protected from competition. Alarmed by their economic performance, all nine governments in Australia (State, Territory and Federal) agreed on a package of reforms which became known as the National Competition Policy.

Under the Competition Policy, legislation cannot restrict competition unless it can be demonstrated that the benefits outweigh the costs, and the objectives of the legislation cannot be achieved without restricting competition. The key question to be answered is, would the community suffer a net loss of benefit if the restrictive legislation was removed and a fully competitive situation allowed to develop?

In determining this, the burden of proof rests with those opposing competition. If they are successful in proving that the legislation results in a net benefit to the community, the policy still requires a consideration of alternative ways of preserving the benefit that are less restrictive of competition.

Regardless of the outcome for the AWB's monopoly, the Australians have clearly chosen to do what the Canadian government refuses to: Quit playing politics with the grain industry, and take an honest look at the economic impact of monopoly grain marketing.

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.

Prairie Centre/Centre for Prairie Agriculture, Inc.
#205, 1055 Park Street
Regina, SK
S4N 5H4

Phone: 306-352-3828
Fax: 306-352-5833
Web site: http://www.prairiecentre.org
Email: prairie.centre@sk.sympatico.ca

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