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Farmers
for economic freedom
Updates from the Canadian Farm Enterprise Network. Several of the items appearing here originally appeared in an email list operated by Dwayne Leslie at http://www3.mb.sympatico.ca/~dleslie/aglinks.htm The End of the Line By Craig Docksteader If you take a look at the history of the western Canadian grain transportation system, it doesn't take long to realize that the current problems in the system are not new. In fact, the first royal commission on grain transportation was implemented in 1899 to address problems in railcar allocation. Fast-forward through ninety-nine years of royal commissions, reviews, committees, sub-committees and studies, and the system still doesn't work properly. The latest study, commissioned by the Western transportation ministers and carried out by consultants McKinsey and Company, pegs the estimated cost of this poor system performance at between $50 million and $100 million per year. For example:
The McKinsey report politely but clearly sums it up by saying, "The logistics system for CWB [Canadian Wheat Board] grains is currently under-performing against the requirements of customers and the needs of farmers." In other words, the system is so bizarrely configured that it fails to satisfactorily respond to market signals from the two parties from which it supposedly derives it's existence and services. If it wasn't for the fact that we have become quite used to the system operating in this fashion, it might cause us to gag on our coffee in alarm. How is it that farmers invest thousands and thousands of dollars into acquiring land, purchasing equipment, supplies, seed, fertilizer, and manpower, then invest more in preparing their land for seeding, putting the crop in, spraying the crop, harvesting the crop, purchasing bins to store the crop and trucks to move the crop, and then turn it over to a system that can't get it to market in an efficient and cost-effective manner? What businessperson in their right mind would conduct their affairs like that? The answer is simple: One that doesn't have any choice. It will be interesting to see what comes of the current rage to review the grain transportation system, but if it doesn't result in more choices for farmers, it will effectively amount to nothing. A few years down the road, we'll again find ourselves talking about the latest transportation problem and how overseas grain customers are looking elsewhere because the Canadian system is so unreliable. We'll still be talking about how, when it comes to accountability in grain transportation, the buck seems to stop nowhere, but when it comes to getting paid, the buck seems to stop everywhere before it gets to the farm gate. We've spent ninety-nine years attempting to solve our grain transportation problems through regulation when we should have been looking at introducing competition. Ideological differences aside, farmers deserve the basic right to take their business elsewhere if they are not satisfied with the service they are getting. Give them that, and you'll solve their transportation problems. Getting Somewhere With Transportation Reform By Craig Docksteader Is it possible that the current review of the grain transportation and handling system will go nowhere? Is it possible that it will unearth the problems with the system, expose them for all to see, and then sit on a shelf and collect dust? Those who have watched the arduous process of bringing change to the western Canadian grain marketing system know it is. The same factors that have fossilized the marketing system into a 1930's paradigm have entrenched the transportation and handling system in unaccountable inefficiency. Just as growers intent on seeing marketing reform found out, making substantive change in this arena has more to do with achieving a political consensus than simply pinpointing the problems. Likewise, to see significant reform in the transportation and handling system, broad consensus will be needed on at least three key issues that prevent the system from changing: Compulsory pooling While voluntary pooling is a legitimate and valued practice on the prairies, compulsory pooling breeds inefficiency. For example, because freight rates for moving grain are averaged across the system, producers in some areas have been shielded from the actual costs of transporting their grain to port. Over the years, this resulted in the system configuring itself in an inefficient manner. Expensive, grain-dependent branch lines emerged in places where they would have never been built if the users of those lines had to pay the actual cost of shipping product over them. Instead, farmers in those parts would have diversified into value-added activities rather than focusing on the export of raw grain. With the demise of the Crow Benefit subsidy and the resulting economic benefits for prairie agriculture, many producers are beginning to see just how much these decision-distorting mechanisms have stolen from the prairies. Regulation instead of competition Under a regulated system, if you don't like something you have to lobby the government for a review and hope that changes will be made to your benefit. Under a competitive system you simply take your business elsewhere and the system can respond if it wants to keep your business. By choosing to manage the cost of the transportation and handling system through government regulation instead of competition, the government successfully shielded the system from any kind of regular reality check. It has been removed from normal customer signals that would tell the system how it's doing. The result is a convenient arrangement which leaves the service providers with no direct accountability to the producer. This is precisely the reason that the system has failed to pursue efficiencies on its own initiative it doesn't have to. Until a competitive environment forces it to, the system will never achieve ongoing efficiency. Centralized marketing Although controversial, the marketing monopoly of the Canadian Wheat Board (CWB) is considered by many to be the hub of the wheel from which most inefficiencies grow or are connected. The CWB monopoly and subsequent lack of marketing options created a single-player-dominated transportation and handling system. The corresponding lack of choice for the producer meant that the system was insulated from the danger of losing business. This left it exempt from the disciplines of attracting a farmer's business through incentives, efficiencies, better prices and better service. Consequently, it has no incentive to operate with the interests of producers in mind. The potential for getting somewhere with transportation reform has everything to do with what farmers believe about their industry. While support for simply preserving the status quo has slipped significantly over the past few years, the critical question will be, has it changed enough? If not, we will be subjected to another round of mere tinkering. A Price You Can’t Refuse By Craig Docksteader Over the years, the federal government has used many different arguments to defend it's monopoly control over the sale of wheat destined for export or human consumption. Initially established to keep the price of wheat in check During World War II, the monopoly needed no defense. But maintaining the monopoly in peacetime, instead of returning to the previous voluntary arrangement, has proven to be a much more difficult endeavour. Not surprisingly, this has resulted in the government trotting out a plethora of justifications to keep discontent producers at bay. Perhaps the most curious of these defenses is the one referred to as "price discrimination". Simply put, price discrimination is the ability to price your product differently for different markets. If it looks like you'll pay more, you get charged more. At first glance it sounds good. In fact, it's basic second-year economics material. To quote from an Ohio State University economics lecture, "A monopoly firm that faces different demand in the markets it sells to will engage in price discrimination it will set different prices according to what it can get out of customers." The argument is that the monopoly status of the CWB allows it to extract the highest price possible from it's customers because it doesn't have other sellers going in and undercutting it in the marketplace. But something doesn't add up. In the first place, the CWB has no monopoly on world wheat sales. In fact, Canada grows only 5 percent of the world's wheat production and holds only 20 percent of the world wheat export market. This means for every CWB agent out there peddling a bushel of wheat, the competitors are lined up with four times as much wheat to sell. Some monopoly. In order for price discrimination to work properly, three things are necessary: Number one, you've got to have enough monopoly power to set prices. Number two, you've got to know who it is that wants your product bad enough to pay the higher prices. And number three, you've got to be able to keep your markets separate they can't buy from each other, or in any way cause the lower priced product to be available to the higher-price buyer. The absence of a monopoly in the world market makes it impossible for the CWB to meet these criteria. This makes its claim of being able to price discriminate puzzling. But while the CWB fails to meet these conditions in the export market, it passes all three with flying colors in the domestic marketplace. Within Canada, the CWB has an absolute monopoly over wheat imports and sales of wheat for human consumption. Consequently, while it can only price discriminate downward in the export market, it could price discriminate up or own in the domestic market. For years farmers have complained about the prices the CWB charges them when they want to do a "buy-back" in order to sell to a domestic miller or obtain an export license. The allegation has been that the buy-back price is set arbitrarily high in order to discourage exports or sales to millers by anyone other than the Board. Others have charged that the Board will change the buy-back price dramatically in the course of a day, depending on who the domestic buyer is. Because of secrecy at the Board we have no way of knowing what really goes on at the CWB. What we do know is that under the current arrangement the Board can give discounts to foreign buyers and charge premium prices to domestic buyers. Maybe that's what the government means by price discrimination. Defending the Indefensible By Craig Docksteader One thing you can't see at the Canadian Wheat Board, is a sales contract. They're top secret. Even if they're forty years old. The Board claims that releasing this information would damage their customer relationships and end their ability to do business. But while there may be a degree of sensitivity with recent contracts, the concern appears to be overstated and gets increasingly difficult to defend as contracts get older and older. Even senior management at the Board privately concede that contracts from the 50's and 60's have little commercial sensitivity in the 90's. Nonetheless, they remain under lock and key to this day. The CWB's insistence on indefinitely concealing the entire contents
of sale contracts is regrettable. Sale contracts contain information
which is valuable in understanding how this aspect of the industry works
and in evaluating the Board's performance. Making this information publicly
available would benefit both farmers and the CWB. Increased transparency
would help to foster accountability, trust and understanding, and would
better enable farmers, politicians and journalists to evaluate the policies
For example, a leaked 1995 sale contract primarily consists of items which do not warrant top-secret status, yet shed some light on how the CWB conducts its business of selling farmers' grain:
Along with extensive instructions on payment terms, the contract also lists the name of the buyer, the selling price in U.S. dollars, and the commercial value in Canadian dollars information which the CWB claims is commercially sensitive. But aside from possibly needing to protect these portions for a limited time, it's difficult to see how publicly releasing the contents of sale contracts would in any way jeopardize the ability of the CWB to carry out its business. While the CWB has typically objected frantically to such disclosure, a closer examination suggests that its concerns have little foundation in reality. 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. Farmers get last chance to avoid marathon trials (A recent CP story) After two years of adjournments and delays, a group of Prairie farmers
battling the Canadian Wheat Board will get one more chance to avoid
a lengthy series of trials. Apparently you don't have to be a farmer to decide their futures Farmers won't be the only ones voting for directors for the Canadian Wheat Board this fall. As many as 45 000 landlords and other "interested parties" will also be eligible to cast a ballot in the first-ever CWB election. "Including them in the vote was very broadly supported," CWB minister Ralph Goodale said September 3 as he released details of the upcoming vote. The total number of eligible voters will be around 150 000, made up of two distinct groups: Approximately 108 000 "actual producers" named in a CWB permit book in 1997-98 or 1998-99, and an estimated 40 000 to 45 000 people who don't grow grain themselves but have a legal entitlement to share in a portion of the crop grown by an actual producer (not including governments or financial institutions.) A preliminary voters' list will be released in late September. A farmer who does not grow wheat board grains or sell grain to the board and who does not have a permit book can still get on the voters' list. That producer will have to prove to the election co-ordinator that he or she qualifies for a permit book by virtue of growing any of the six major grains or oilseeds. However, candidates must be producers named in a permit book. While the exact timing of the process is up to KPMG, Goodale said nominations will be accepted "virtually immediately." Nomination papers must be signed by 25 producers and include a $500 refundable deposit. Nominations will close around the beginning of October, with the final voters' list out by mid-November. Ballots will be returned in late November, counted in December and the new board will take office no later than Dec. 31. The minister said he's happy to see the long debate over CWB reform finally reaching a conclusion. "We are very very close to having a wheat board that is more democratic, more accountable, more flexible than ever before in history," he said, adding it's vital that farmers vote in large numbers in order to give the organization credibility and strength. And if they don't? Does that mean that it has no credibility and should be dismantled? There will be 10 electoral districts, with five of them crossing provincial boundaries. Some farm groups wanted districts to coincide with those boundaries, but Goodale said that wasn't the view of the majority. "It's probably quite inappropriate to try to provincialize the CWB," he said, adding the agency must serve all western Canadian farmers equally and deal with issues in a fair and balanced way. Third parties, like the Canadian Farm Enterprise Network, who wish to advertise on behalf of candidates or issues will be limited to spending $10 000 for all electoral districts combined. Goodale said the government is confident the spending limit will stand up to any legal challenge, noting it doesn't ban third party advertising, but tries to keep it on the same footing as a candidate's spending, or $15 000. "To my knowledge, we did not receive any representation against fair rules relating to third parties," he said, adding some suggested even tougher restrictions. Voters will rank candidates by preference. If no one receives at least 50 percent, the last-place candidate's votes will be redistributed until the leading candidate has a majority. The CFEN needs your help! The battle against the Canada Wheat Board can only continue with your support. Canadian Farm Enterprise Network Write the following and demand free market rights for Western Canadian farmers!
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