REGINA – The Canadian Wheat Board earned farmers $13.35 a tonne more for wheat over a 14-year period than multiple sellers would have, says an independent study.
The premium represents $265 million a year, said Daryl Kraft of the University of Manitoba, one of three economists who wrote the report.
Kraft, Hartley Furtan of the University of Saskatchewan and Ed Tyrchniewicz of the University of Alberta found this premium would disappear if the board lost its monopoly.
“Under a dual market with multiple agents, the premiums identified in this study would essentially disappear,” Kraft said.
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The study found the monopoly performed particularly well in years of tight supply and export subsidies. It analyzed sales of about 20 million tonnes of the top three grades of Canada Western Red Spring between 1980 and 1994.
“The premium linked to single-desk selling increased under an export subsidy environment because the CWB offer prices can account for the export subsidy a buyer is eligible to receive,” Kraft said. “Multiple sellers are unable to differentiate between commercial and subsidized buyers.”
Additional premiums, earned during the years after the American Export Enhancement Program was implemented in 1985-86, are estimated to be between $557 and $690 million per year.
Not all buyers were willing to pay a premium for Canadian wheat, and Furtan said the board gets a higher price from some markets than others because it can price discriminate.
“If you allow for people to go around that, they would arbitrage that premium out of there.”
He also said there is a “special demand” for Canadian grain because of quality and varietal control.
For example, the study found Canada maintained a market share of 20 to 25 percent of the Brazilian market after that country moved from being a single-desk buyer in 1990. At the same time the U.S. share of that market declined to “negligible” levels.
The study found Brazilian customers would pay a premium for Canadian milling wheat because of consistent quality, predictable performance in milling and baking, reliability of supplies and technical support available to customers.
The board commissioned the $90,000 study last summer and opened the books on 20,000 sales contracts to the economists in October.
Good timing
The timing of the release of the study is “more than coincidental,” said wheat board spokesperson Bob Roehle. The country’s grain marketing system is under review, and formal hearings are scheduled next month.
“For the first 55 years people understood the logic (of having the board),” Roehle said. “Increasingly there is this idea of ‘trust me’ that’s being questioned. This is an attempt to quantify the logic we’ve been carrying over the years and put a number on the value of the monopoly to farmers.”
Board commissioner Gordon Machej said the study should show producers the value of the board.
“Even our own producer advisory committee would ask whether these added premiums could be quantified,” Machej said.
The methodology used could be applied to durum and barley, although the board has not commissioned studies of those commodities, said Tyrchniewicz.
The study used a number of assumptions, including one that the U.S. would close the border to imports, and Tyrchniewicz said the results should generate a lot of debate.
“I would be concerned if anyone just bought this hook, line and sinker,” he told a meeting in Regina.
