Wheat Growers defend Alta. CWB report

The Canadian Wheat Board’s critique last week of a recent study of its performance in world wheat and barley markets has come under fire in a review of its review.

The study, prepared by Informa Economics for the pro-deregulation Alberta government and released late last month, claimed Prairie farmers would receive substantially higher returns for wheat and barley from the open market compared to the CWB’s regulated single-desk marketing system.

The study had estimated that an open market would improve per-tonne returns by at least $20.34 for wheat, $39.54 for durum, $13.72 for feed barley and $25.57 for malting barley.

The Western Canadian Wheat Growers Association, a pro-deregulation farmers’ group based in Saskatoon, on Thursday blasted the CWB’s analysis of the Informa study. CWB CEO Ian White on Aug. 8 had said in a release that Informa’s researchers “have made sweeping assumptions to create comparisons so simplistic that they are meaningless.”

In response to the CWB’s claims that Informa relied on “false assumptions and selective data,” the Wheat Growers said Informa “does not rely on a single approach to evaluate the CWB’s performance,” referring to United Nations price information at various port destinations to conduct a selling price analysis, as well as prices received by farmers at North Dakota elevators over the past six crop years compared to those for Saskatchewan farmers under the CWB, as well as USDA weighted average price data.

“Where assumptions have been made (by Informa), the benefit of the doubt has often been given to the CWB,” the group wrote. For example, it said, “adjustments should be made to CWB returns to exclude the effect of net interest earnings and any pool account deficits,” both covered by the CWB’s backing from the federal government, in a true assessment of its market performance.

Where the CWB criticized Informa as assuming “that all wheat is the same and that overall market share is what determines the CWB’s ability to exercise market power,” the group noted that Informa’s selling price analysis adjusts data to account for quality differences.

As for market share, the group quoted Informa’s study as saying that “in order to have a significant influence on prices, a seller must have sufficient market share in order to exert market power over buyers.” Generally, it said, economists put that figure at a minimum 25 per cent of market share for a seller to exert market power.

“One would think that at least one of the 450 employees at the CWB would have noticed they haven’t enjoyed a market share over 20 per cent in either wheat or barley in more than a dozen years,” the group said. Out of 11 wheat export markets studied, only in Ecuador could the CWB be said to have had sufficient market power at any point in the past five years to leverage price, the study said.

And while Canada’s wheat and barley may command higher prices in certain markets, that may have more to do with Canada’s reputation for grain quality, consistency, food safety, customer service and reliability, several of which have more to do with agencies such as the Canadian Grain Commission and the Canadian Food Inspection Agency than a single marketing desk, Informa wrote, adding that customer service and reliability are key to any success in the grain trade, public or private.

On that point, the Wheat Growers wrote, “we maintain that Informa has not fully and properly acknowledged the role played by western Canadian farmers and grain handlers in securing Canada’s reputation for delivering a high quality, consistent and safe product to customers.”

“Incredible admission”

The Wheat Growers also rip the CWB’s criticism of Informa’s comparison to U.S. elevator prices. The CWB had argued that U.S. wheat “has an intrinsic price advantage due to factors such as the dramatically lower proportion exported from the U.S.…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.”

“Our first reaction to this rather incredible admission is: If the U.S. market does indeed provide a higher return, then why doesn’t the CWB sell more into this market, rather than offshore markets ‘where prices tend to be lower and transportation logistics more expensive’?” the Wheat Growers wrote. “Shouldn’t the CWB be seeking out the best paying markets? That is what sellers do in an open market.

“If the CWB does indeed sell less grain into the U.S. market than the market demands and instead sells more grain into distant offshore markets, then this goes a long way to explaining why Informa found that CWB returns are so much lower than the returns obtained by U.S. farmers for grain of identical quality.”

The CWB also argued that 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 board said.

The Wheat Growers granted “it would appear that there is an element of double counting in at least a portion of Informa’s calculations… We will leave it to Informa to clarify the extent to which this may be the case, although we suspect any discrepancies are not material enough to invalidate the principal findings of the report.”

That said, “even in the one instance where the CWB argument may have merit, the CWB’s own admission that regulated freight rates in Canada are lower than in the U.S. only serves to strengthen Informa’s argument.”

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