On Oct. 18, the government of Canada introduced Bill C-18 to remove the Canadian Wheat Board as the sole seller of wheat and barley produced in Western Canada.
The removal of the CWB means that market forces will be relied upon to supply goods and services in the grain handling and transportation system.
The reliance on market signals is appropriate only when there is a reasonable amount of competition and when there are no important public goods to be provided. The market does not operate efficiently and effectively when these elements are not present, and policy intervention is often required.
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There is considerable evidence that the conditions for a well-functioning market do not exist in the grain handling and transportation system. Both the grain handling and railway industries are highly concentrated, with a few large firms dominating the industry.
This high concentration is linked to problems with the level of service provided by railways and has resulted in farmers loading producer cars to bypass the higher priced elevator system.
Farmers, and the grain handling and transportation system in general, also rely on critical public goods, which in recent times have been provided by the CWB.
Access to the United States market is critical at the industry level. The CWB has played a key role over the past 25 years in successfully defending Canada against trade disputes launched in the U.S. It has also played an important role in ensuring that regulatory tools, such as a revenue cap and level of service requirements, are used to address market concentration issues.
With the removal of the CWB, both the railways and the grain companies will have much greater latitude to raise prices.
Although much has been made about a voluntary CWB providing marketing choice and competition, in reality the board will at worst disappear and at best operate on a limited scale. Without its own grain handling facilities, both on the Prairies and at port, a voluntary CWB is simply not viable.
In the absence of a viable CWB, producer car facilities will no longer have a sales outlet. Nor do they handle a sufficient volume of grain to make a voluntary CWB viable. As a result, producer cars will be severely stretched financially and no longer in a position to limit the grain companies’ power to raise handling fees.
As well, without the CWB in place, no industry player will have the desire and the financial wherewithal to supply the public goods required to maintain market access and deal with market concentration.
Because the conditions for a well functioning market are not present, full-scale deregulation of the grain handling and transportation system would seem to be a poor public policy decision. Given this, are there policy options that could provide freedom of marketing choice while ensuring a reasonable level of competition?
The answer is yes. One option is to remove the CWB as the sole seller of grain to customers in Canada, the U.S. and Mexico but retain it for customers in other countries.
Such a policy option would allow farmers to sell their wheat and barley directly to pasta plants, maltsters and flour mills in North America, thereby allowing market forces to guide economic activity and innovation. This option also ensures that the CWB remains a major player in the industry, one that is able to provide counter vailing power and important public goods.
This policy option involves compromise, which has to take place now. Once the proposed changes to the CWB are made, it will be impossible to reintroduce the CWB into the grain handling and transportation system. Such compromise, however, will not occur as long as farmers, the industry and government all believe that there is only one solution.
Fulton is a professor at the Johnson- Shoyama Graduate School of Public Policy, University of Saskatchewan.
