August 29, 2011

 

Canada's ruling party must strip Canadian Wheat Board's trade monopoly

 

 

US wheat producers are hoping that Canada's conservative ruling party follows through this fall with its plans to takeover the Canadian Wheat Board's (CWB) monopoly on the buying and selling of all Canadian wheat from Western provinces.

 

CWB claims it distorts global wheat markets and puts US wheat exporters at a disadvantage.

 

In June, Agriculture Minister Gerry Ritz announced that the government is determined to enact changes to enable Western Canadian grain farmers to choose whether to sell grain on the open market or through the CWB.

 

Currently, all barley and wheat grown in Manitoba, Saskatchewan, Alberta, and part of British Columbia must go through the CWB.

 

Legislation enacting these changes is expected to move this fall, and US wheat producers believe that it could increase their export opportunities in third-country markets.

 

They have long argued that the CWB is able to leverage its monopoly powers to sell Canadian wheat at cheaper prices than US exporters in markets where they both compete. This gives Canada an unfair advantage, they charge.

 

On its website, CWB, which opposes the change, says its single desk benefits farmers by eliminating competing sellers in Canada that would undercut each other's prices to grain buyers.

 

The CWB, because it has access to all wheat from the Western provinces, is also able to strategically market, including by selling at different prices in different markets, according to the statement.

 

"We are confident the entire global wheat supply chain would benefit from this significant change," US Wheat Associates President Alan Tracy said after Canada announced its intentions. "In that environment, the market would respond more rationally to economic signals rather than react to trade-distorting monopoly pricing decisions."

 

The legislation may not eliminate the CWB, but only strip it of its monopoly purchase and sale powers. However, that would still mean that US and Canadian wheat exporters would compete on more equal terms, potentially leading to more US export opportunities, according to two US Wheat Associates sources.

 

They said it was unclear whether and how the CWB could operate if stripped of its monopoly powers.

 

According to the CWB website, the CWB has no shareholders, no retained earnings, negligible assets, and no grain-handling infrastructure, such as county elevators or port terminals. "Its only significant 'asset' is its legislation mandate to sell all of the wheat, durum and barley grown in Western Canada," it states.

 

Absent that mandate, one Canadian opponent of changing the CWB doubted that CWB would survive, as it would then be forced to compete with other grain entities that currently are forced to cooperate with CWB. That said, this opponent conceded that many details of the forthcoming legislation remain completely unclear.

 

US Wheat Associates officials said they are hopeful that Canada succeeds in approving reform legislation soon, but conceded that there is little they can do at this point besides watch the process unfold. They said they had only had very general conversations with the Office of the US Trade Representative about this issue.

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