Farmers need to know if the Canadian Wheat Board is getting good prices for their grain.
A recent C.D. Howe Institute report not only fails to adequately study that issue, but also uses a false comparison that muddies the situation, says a senior economist who has studied the wheat board’s performance.
“The (Daily Price Contract) has nothing to do with the selling price of the wheat board. It’s a formula price, that’s it,” said University of Saskatchewan agricultural economist Richard Gray, whose previous price comparison work on wheat board returns is positively referred to in the report.
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“To imply that from (the DPC’s performance) somehow that the Canadian Wheat Board is selling at a lower price is ridiculous.”
But that is what the report does. Not only in its conclusion, but also right up top in bold letters the report says, “the Canadian Wheat Board has been earning poor financial returns for farmers over the last three years, based on our benchmarking analysis.”
At one point in the study, conducted by Sylvain Charlebois of the University of Regina’s business school and Indian Head, Sask., farmer and analyst Richard Pedde, the researchers note that the DPC was “a significant departure from the CWB’s price pooling philosophy.”
However, it is the sole basis for their conclusion that the CWB does a generally bad job marketing grain.
“We benchmark the performance of one specific program, the Daily Price Contract program, which serves as a window on the CWB’s overall performance, and conclude that it does not deliver on its mandate.”
The researchers estimated that farmers using the program in 2007-08 received an average of $32.81 per tonne less than U.S. farmers at the same time, and the board lost about $75 per tonne on hedging activities for the grain.
The wheat board contests these conclusions on the specific returns of the contract program, saying the report’s authors misunderstand the realities of selling grain through the U.S. elevator system, where most grain does not receive the posted elevator price.
Gray’s criticism is about the researchers’ overreaching conclusions, which go far beyond the relatively small DPC. The problem, Gray said, is that the DPC was established to deliberately not represent the CWB’s regular returns. It was a program that tried to give farmers access to an average of cash prices available at a string of Montana elevators, minus a basis composed of many elements.
While Charlebois and Pedde found an interesting instability in basis levels during the program’s life, which Gray said the wheat board should explain, he added that can’t be drawn into a conclusion that the CWB does a generally bad job.
“It’s just a formula price,” he said.
Gray said that establishing a rigorous benchmarking system to judge the performance of the wheat board’s programs, especially the huge price-pooling programs, is a necessary function for the wheat board to provide to farmers. But, he said, this report does nothing to improve knowledge.
“I think there should be more of these comparisons made, but it should be done in a very systematic way and carefully,” said Gray.
“But this didn’t inform that debate very much.”
