Single Desk May End, But Debate On Its Value Continues

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It may now be academic, but academics continue to disagree on whether the Canadian Wheat Board’s single desk provides value to farmers.

A newly released study commissioned by the board says single-desk marketing earned malting barley farmers an additional $540 million between 2004-05 and 2008-09.

But a paper prepared for the C.D. Howe Institute released last month 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. It says the two-row malting barley benefit 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 study says the CWB was able to earn more because the single desk allows it to sell the same product on the same day to different customers at different prices. In an open market where prices are visible to all buyers, the law of one price must hold, the study says.

Sellers in an open market would have sold more marginal-quality barley because they could get a higher price than for feed, but the extra barley would have decreased prices.

While the marginal-quality sales would have increased feed prices, overall barley returns would have been lower.

“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.

Time for reform

However, in their paper prepared for the C.D. Howe Institute, economists Richard Pedde and Al Loyns 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.

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“IftheCWBcannotdemonstratethatsolebuyingandsellingauthorityisnecessarytodeliveringbetterpricesforfarmers,itshouldnothavethatauthority.”

PEDDE AND LOYNS

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