Single Desk Selling: Summary

This study is an examination of the benefits and costs of single-desk selling of western Canadian grain through the Canadian Wheat Board (CWB). The Board is a major factor affecting incomes of grain and livestock producers on the prairies. The CWB not only impacts Board grains, but also heavily influences nonboard grains and the entire grain industry. CWB decision making has a critical impact on resource allocation throughout the prairies.

There were several steps in our analysis. We studied world market trends and found two distinct characteristics relevant to the single-desk issue. First, the world market for wheat and coarse grains is very competitive. Exports of these commodities from other destinations are highly substitutable for Canadian grain. Second, growth in world demand is for medium quality wheat, and there are no growth markets for No. 1 and No. 2 CWRS. Given these market conditions, the CWB overemphasizes the quality aspect of Canadian wheat. By far, the majority of the CWB’s wheat sales are made into price sensitive (lower quality) markets.

There are several misconceptions about the reasons for establishment of the CWB and we have reviewed the history in an effort to correct some of these myths. It was wartime conditions (WWI) that led to the creation of the first CWB. The 1938 Turgeon Royal Commission recommended the Canadian government, under normal conditions, should stay out of the grain trade. The government in the late 1930’s was committed to terminating the CWB in favor of the open market but fear of inflation and convenience of servicing of the British market led to creation of the compulsory Board. The CWB has never been subject to an independent and transparent economic review. There was a comprehensive management review conducted in 1992 that found serious problems with management and operations, but this report has not been publicly released by the CWB.

Making the case for significant selling benefits from the exercise of single-desk market power in world wheat and barley markets is difficult. Why would importers consistently pay the CWB more than necessary? Those who argue for the export monopoly of the CWB must also recognize the domestic costs due to the single-desk. With single-desk selling there is a lack of buying competition on the prairies and distorted price signals. The lack of buying competition leads to several marketing inefficiencies. False price signals mean that farmers are unable to analyze the additional value created by more farm inputs. This all results in misallocated resources which comes at a cost to farmers and society.

There are many parallels between the single-desk issue in Canada and Australia. The farmers down-under have questioned the benefits of their single-desk in wheat, and recent economic studies have doubted the ability of the Australian Wheat Board (AWB) to extract premium prices in world markets. The AWB has made claims of price premiums of about $14 ($U.S.) but more careful analysis has found the benefits to be close to zero. The onus of proof has now shifted to supporters of the single-desk in Australia, but they do not have convincing arguments to support their case. It is most unlikely that the export monopoly of the AWB will survive for long.

To provide insight into what might happen with removal of the single desk on wheat and barley in Canada, we looked at what happened with the removal of the single-desk on oats in 1989, and we studied fallout from the continental barley market in 1993. Following removal of oats from the CWB, Canadian farm gate prices for oats have risen relative to world levels, and marketing costs have fallen by about one-third. The short-lived continental barley market in 1993 was an experiment which raised serious questions regarding CWB claims that the single-desk approach improves revenue from the U.S. barley market. Ironically, the CWB now argues that Board cash purchases of barley will benefit farmers because it will raise barley prices on the prairies due to buying competition. This is totally inconsistent with CWB arguments a few years ago during the continental barley market debate.

The approach we used to examine the benefits of the CWB was to simply compare farm gate prices in western Canada versus the United States. Prices received at the farm gate are what really matter to prairie growers and if the CWB does somehow earn a large premium in world markets, it ought to show up in the farm gate price. We found that it does not, and we conclude there is no evidence of CWB price premiums when prices are examined at the farm level. For example, the CWB on-farm barley price in 1994/95 was only $2 per tonne over the previous year, even though world prices were rising rapidly and averaged $16 per tonne more than the previous year. If there is a world market premium (and we doubt there is) it disappears before reaching the farm gate.

The CWB introduces numerous regulations and institutional arrangements throughout the marketing system. These all come at a cost, which we quantify in this report. For example, farm and grain industry decision making is subordinate to CWB decision making and often the growers and industry are responding to non-market incentives. There are few political or economic incentives for the CWB to reduce costs associated with the status quo. For instance, handling fees on Board grains are higher than they should be. In addition, the Board gives away protein to foreign buyers and sells high quality wheat for medium quality prices. A summary of the hidden costs due to the single-desk in any given year is as follows:

Cost Item	Wheat	Barley
CWB Administration	$1.80	$1.75
Protein and Grade Giveaway	$2.85	-
Delays in Varietal Development	$4.00	$4.00
Excess Malting Barley and Maltster Free Storage	-	$5.50
Excessive Handling Charges	$4.00	$4.00
Overages, Demurrage, Extra Freight and Port Congestion	$3.05	$3.10
Excess Cleaning	$2.35	$2.80
Production Inefficiency	$4.00	$4.00
Delays in CWB Payments	$4.10	$3.35
Taxpayer Costs	$5.50	$9.00

These cost estimates are very conservative and some costs have not been estimated. Furthermore, the CWB creates a significant amount of cross-subsidization among growers and we have not provided full detail on this problem.

Given the significance of these hidden costs, we conclude the single-desk is a handicap for farmers. It also comes at a significant cost to taxpayers. Removal of the Canadian Wheat Board’s single-desk status would raise farm income and reduce the burden on the Canadian taxpayer.

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