36 CHOICES Firs[ Quarter 1997 The Canadian Wheat Board by Andrew he Canadian Wheat Board (CWB), a monopoly amined CWB monopoly operations and their ef­ Schmitz, T exporter of Canadian wheat, barley, and du­ fect on Canada/United States grain trade. These Hartley rum, has been challenged by a segment of Cana­ included the 1990 U.S. International Trade Com­ Furtan, dian farmers, u.s. farm groups, and the U.S. gov­ mission (ITC) study-a fact-finding study under Harvey ernment. We offer, here, our assessment of an im­ Section 332 of the Tariff Act of 1930, as amended Brooks, and portant part of the CWB monopoly controversy. in 1990-of Canadian durum wheat exportS to the Richard Gray We evaluate the effect of the CWB on prices, mar­ United States; the 1994 Canada/United States ket shares, and other measures of its performance. Trade Agreement (CUSTA) Binational Panel to in­ Canada is a major exporter of wheat and barley. vestigate Canadian durum exports; and the 1994 In 1996/97, Canada is forecasted to have 22 per­ ITC investigation into Canadian wheat exports that, cent of the wheat export market, 61 percent of the in 1994/95, led to a U.S. wheat and durum import durum export market, and 40 percent of the barley control agreement with Canada. Also, the United export market. By law, all these exports must be States is indicating that, under the World Trade made through the CWB. This monopoly on ex­ Organization (WTO), state-trading organizations ports, however, is now under fire from a number should be required to make notifications to the of fronts. First, in 1993, the Honorable C. Mayer, WTO that would insure transparency of their ac­ former minister of agriculture, removed the sale of tivities (Article XVII of the GATT, 1994). barley to the United States from the sole jurisdic­ tion of the CWB. A subsequent court challenge, The Canadian Wheat Board however, placed barley back under the CWB's ju­ The CWB markets grain on behalf of farmers in risdiction. Second, since 1995, a segment of prairie the western provi nces of Manitoba, Saskatchewan, farmers have openly defied Canadian law and have Alberta, and parts of British Columbia. It is the sold grain to the United States without CWB per­ sole seller of these farmers' wheat, durum, and bar­ mits. The farmers' defiance of the law is now work­ ley for export to world markets and for human ing its way through the courtS. Third, in the fall of consumption in the domestic market. The extent 1995, a group of Canadian farmers challenged the of the CWB monopoly is limited by many com­ CWB monopoly under the Canadian Charter of peting international sellers who also can export Rights and Freedoms. This case, often called the wheat and barley into Canada. The CWB con­ Charter case, began in the federal court in Septem­ tracts for Canada's elevator services (including clean­ ber 1996, and a ruling is expected to be made by ing and storage), transportation, and terminal el­ May 1997. Fourth, in 1995 the current minister of evator services. The CWB is the thirty-third largest agriculture, the Honorable R. Goodale, put into business corporation in Canada and the fourth larg­ place a review process (Western Grain Marketing est exporting company in Canada, with annual gross Panel) to examine the Canadian grain marketing sales greater than $4.0 billion. system. The Panel's report called for far-reaching The federal government first marketed wheat in changes in the way the CWB operates, but it did 1917 when it appointed a Board of Grain Supervi­ not suggest changes to the CWB monopoly in sors. To fulfill wartime needs for the 1917/18 and wheat, durum, and malting barley. Fifcli, in 1997, 1918/19 crop years, this board ass umed monopoly farmers will vote their preference for or akainst control. After WW I, other institutions, including CWB monopoly control over barley. the major farmer-owned cooperatives, sold wheat In several investigations, the United States ex- for export (Schmitz and McCalla). Following the CHOICES Firs[ Quarrer 1997 37 financial collapse of the prairie pooling coopera­ calls grain into the system as required to meet sales tives in the early 1930s, the CWB was instituted in commitments. This delivery quota evolved from a 1935 as a voluntary marketing agency for wheat. quota per seeded acre, through a quota based on In 1943, the Canadian government made the CWB total farm acreage, to a combination of both farm the mandatory monopoly marketing agency for prai­ acreage and delivery contracts. These delivery quota rie wheat. The government added barley and oats changes were designed to match the limited capac­ to the board's authoriry in 1949. The CWB con­ iry of the Canadian elevator and grain-transporta­ trolled the export of these grains, the interprovin­ tion systems with the specific export demand by cial movement of grain, and the sale of grain to all grain and grade. Second, the CWB pays farmers a domestic users. Beginning in 1935, the CWB op­ pooled price for each class and grade of wheat, erated under the Canadian Wheat Board Act and barley, and durum. When farmers deliver grain was established as a federal crown agency in 1967. within the quota, they receive a government guar­ Over time, certain powers of the CWB monopoly anteed initial payment-usually 70 to 80 percent were removed. First, in 1974 the government gave of the projected final realized price. The CWB farmers the option to domestically sell feed wheat, makes adjustment payment(s) throughout the pool oats, and barley for nonhuman consumption year. After all of the grain sales are complete for through the open market. Currently, feed wheat each sales period, the CWB closes out the sales and feed barley contracts are traded on the account and gives farmers a final payment. This Winnipeg Commodiry Exchange (WCE). Second, final CWB payment is the amount paid to farmers the CWB no longer controls interprovincial grain from sales receipts above the initial and interim movement. Finally, in 1989, the government re­ payments made to producers, after all operating moved the CWB's monopoly status over oats and cOSts of the CWB have been deducted. After ac­ WCE now trades oat contracts. counting for transport costs, each farmer receives According to various CWB publications, the the same final price for each grade and class of CWB mandate is to (aj obtain the best prices avail­ grain delivered to a particular location. able for producers during the marketing period, (bj pool the risk associated with adverse price move­ Economic performance of the CWB ments, and (cj guarantee, for producers, equitable The CWB's performance is a hotly debated issue, access to markets during the delivery period of a in part because there is no single yardstick by which crop year. The CWB achieves this stated mandate to measure its performance, and in part because through two basic mechanisms. First, as a result of other components of the grain system affect farm the limited capaciry of the grain-handling and grain­ grain prices and sales. In addition, the international transportation systems in western Canada, the CWB grain markets are difficult to model because they allocates to each farmer a delivery quota that allows are imperfectly competitive in nature. To under­ him or her access to the commercial grain-han­ stand its performance, the CWB must be viewed dling system over the course of the crop year (each within the context of the entire Canadian regula­ farmer who sells grain to the CWB has a CWB tory framework. This framework includes the Ca­ quota book). Through these mechanisms, the CWB nadian Grain Commission (CGC), which is a fed- 38 CHOICES First Quarter 1997 eral agency that sets grain quality standards and keting provides in the neighborhood of Can$265 grades, as well as the Car Allocation Policy Group million per year to Canadian wheat farmers. that regulates rail car allocation. It is important to stress that the Canadian grain­ The performance of the CWB, debated in the afore­ marketing system emphasizes quality, end-use char­ mentioned Charter case, can be evaluated in the con­ acteristics, product availability, post-sales services, and text of four major criteria: price premiums, marketing technical knowledge. These factors are encompassed and basis costs, farmgate prices, and market shares. in die CWB's approach to the sale of wheat, durum, and malting barley. The premiums found by Carter Price premiums (1992), by Schmitz, Gray, and Ulrich, and by Wil­ At least five major reports argue that the CWB is son are a result of both price discrimination by the able to obtain price premiums (Schmitz 199Ga). CWB and the fact that the Canadian system pro­ C\l!e are not aware of any studies that argue the vides attributes, such as grain cleanliness, that other CWB price premiums are negative. However, Carter systems do not. However, the premiums found by and Loyns extensively discussed the premiums Kraft; Furtan, and Tyrchniewicz are solely a result earned by the CWB.) A premium is defined as the of the CWB's ability to price discriminate. difference between the price obtained by the CWB Canada's focus on quality has provided a mar­ and the price that would be obtainable under a keting advantage over the United States. As Canadian multiple-seller environment. The CWB Christianson pointed out, " ... quality issues are be­ earns price premiums primarily because it can price coming increasingly important in the grain trade .... discriminate (charge different customers different The United States may have the most inconsistent prices for the same quality grain) among markets product of any wheat exporter in the world.