An Alberta government report that seeks to discredit the claimed economic merits of the Canadian Wheat Board’s single marketing desk uses “false assumptions and selective data” to undermine the CWB’s value, according to the board’s CEO.
“This study is badly flawed,” Ian White said in a CWB release Friday. “The authors have made sweeping assumptions to create comparisons so simplistic that they are meaningless.”
The report, commissioned by the Alberta government, prepared by Informa Economics and released in late July, states the CWB earned “significant” premiums of up to $33 per tonne in 10 of 11 markets studied, “but then uses a number of incorrect assumptions to discount them,” the CWB said.
The report also assumes all wheat is the same and overall market share is what determines the CWB’s ability to exercise market power, White said in the release. The report “ignores the crucial fact that the wheat market is not homogeneous, but made up of many segments that purchase specific kinds of wheat. In certain segments, the CWB will hold a very large market share for a particular kind of wheat and thus earn substantial premiums.”
The board said the Alberta report focuses on only 11 of the 60-70 wheat markets into which the CWB sells, “rejecting important, high-value markets like Canada, the U.S. and Europe the report then wrongly adjusts and discounts the higher prices achieved by the CWB in 10 of the markets.”
“This adjustment does not reflect how grain marketing works in the real world,” White said. “Wheat is different, markets are different and our strategy as a single seller takes advantage of exactly that fact.”
The CWB said the report also “blatantly misuses” data published by the respected Quorum Corp., which produces the quarterly Grain Monitor report under contract to the federal government. Quorum has said in its reports that efficiency comparisons cannot be made between wheat and canola based on its calculations of export basis and producer netback for each crop, “yet that is precisely what Informa has done,” the CWB said.
The report also draws comparisons to U.S. elevator prices, which are based on a different set of market factors than Canadian wheat returns, the CWB said. U.S. wheat has an intrinsic price advantage, the CWB said, due to factors such as a lower proportion exported from the U.S. (40 per cent compared to 80 per cent in Canada). “This means less U.S. grain is sold into diverse markets outside North America where prices tend to be lower and transportation logistics more expensive.”
Also, the CWB said, handling system costs are counted twice in the comparison between U.S. and Canadian returns for wheat and durum. Farmgate values that already account for system costs are used, then a canola-versus-wheat comparison is added that also accounts for those same costs.
The CWB also said the report fails to acknowledge “dramatic differences” in U.S. and Canadian rail capacity. “The study also fails to account for the important role played by the CWB in keeping regulated rail freight rates in Western Canada lower than American rates,” the board said.
Based on all of the above, the CWB completely refutes a key finding of the report that an open market would generate significantly more revenue for Prairie farmers than the single-desk system.
“It is ironic that this false conclusion is being circulated in a year when the CWB marketing approach has delivered extraordinary returns to farmers,” White said. “We’ve conservatively pegged that benefit at $560 million for 2007-08.”
The CWB said it will run more in-depth analysis of the report’s methodology and conclusions and plans to share those results when complete.
The Western Canadian Wheat Growers Association, a pro-deregulation group, meanwhile hailed the Informa Economics report as confirming “what most farmers have known for years — that our returns would be much higher under an open market,” association president Cherilyn Jolly-Nagel said in a separate release.
The group cited the study’s estimates that an open market would improve Prairie farm returns by a minimum of $20.34 per tonne for wheat, $39.54 per tonne for durum wheat, $13.72 per tonne for feed barley and $25.57 per tonne for malting barley.
“It’s good to see this study put to rest many of the myths perpetuated by the CWB,” said Rolf Penner, the group’s Manitoba vice-president. “Many of us have gathered our own data showing the CWB’s poor price performance and so it’s good to see this confirmed by such a highly respected firm.”