The Canadian Wheat Board: Won't anybody think of the consumers?

The Canadian Wheat Board - a cartel for Canadian wheat producers - is experiencing the sort of troubles that all cartels have to deal with at some point or another: some of its members believe that they could do better on their own. We've all seen this story before, but a distinguishing feature of this issue is that the CWB cartel is enforced by the federal government.

So far, the debate has centred around the costs and benefits of the cartel for farmers: some are clearly winners, but some - especially those whose transportation costs to the world market are relatively low - would do better  by negotiating their own prices. CWB defenders aren't shy about impugning the patriotism of those who would abandon it ("This is as wrong as it is un-Canadian"), and even the New York Times noticed the fuss.

But I haven't seen any media report that has made the connection between high prices for producers and high food prices for consumers.

Comments

[Robert McClelland]

Bread is $1.49 a loaf. Exactly how much do you think the magic free market fairies will save the poor, gouged consumers?

[Marc Lee]

Stephen,

The CWB is an export cartel that pools the supply produced by Canadian farmers in order achieve greater market power and therefore higher prices (incomes). In the absence of of the CWB, farmers would likely have to sell to the two or three large US-based agribusiness firms who dominate the trade (this is why the US hates the CWB so much). While such a move would lower incomes for Canadian farmers there is no guarantee that this would lead to lower prices for consumers due to the structure of the market.

Having talked to farmers about the CWB, it seems to me that the CWB leads to higher prices for most farmers most of the time. It also greatly mitigates risk. And it's not like farmers are making a killing out there. Do we value arrangements that enhance the lot of farmers when they are competing in international markets against producers in the US and the EU that are much more heavily subsidized by their governments?

Economists generally support arrangements like copyright and patent protection that create monopoly power for creators of new works, a major distortion in market forces. Supporting farmers to pool their supply is much less distortionary, and yet it gets attacked by economists.

[Christine]

A rather entertaining debate on the AWB's single desk status from growers' perspectives is at:

http://www.abc.net.au/lateline/content/2006/s1799724.htm

Wilson Tuckey and Barnaby Joyce are two of Australia's more ... um ... notorious Senators. And the debate is enlivened by the recent AWB Iraq bribery scandal.

[Stephen Gordon]

Yikes.

It occurs to me that this particular transfer from consumers to producers will be generally regressive: low-income households spend a higher proportion of their income on food.

[snowbird]

Robert McClelland asks, "Bread is $1.49 a loaf. Exactly how much do you think the magic free market fairies will save the poor, gouged consumers?"

I'm visiting Florida, and pay US$0.99 per loaf at Albertsons. With an exchange rate of 1.1774, I make the difference to be C$0.324, or 21.8% less.

Cheers!

[thwap]

And what was the return to the farmer who grew the wheat?

I could probably get lower prices from slave labour in many industries. Or by avoiding safety regulations or environmental standards.

To talk about (potentially) lower prices and nothing else is simplistic.

[Adam]

If the farmer can't get a return growing wheat, he should find something else to go (i.e. get another job). Or do you think it should be illegal for you to stop patronizing your your local bakery if the owner is worried he might go out of business? I've never understood why some people are convinced that farmers have a God-given right to farm, even if no one wants to buy what they produce (which is what getting no return means).

[thwap]

These strawmen aren't as much fun as you imagine they are.

Independent farmers are the only alternative to unsustainable, unaccountable, uncontrollable corporate farms and the bio-tech monsters who can push anything down our throats.

I acknowledge the claim that it is possible to drive farm prices still lower by abusing independent farmers and delivering lower prices based on unsustainable practices. Okay? I get it.

It's just that I'm not impressed with this fact.

The CWB acts as a form of insurance, and provides a decent return for the independent farmers who belong to it. It means slightly higher prices at the grocery store, but I'm okay with that.

N-e-x-t?

[Neil]

Boy, have you people got it wrong: the cwb is the reason prices of food are higher in Canada then the U.S. the cwb has stopped value added industry in westwern canada for the god given rights of eastern canada..all wheat board grains leave western canada to be processed, it might be going to the U.S. and then coming back as macaroni or going to eastern canada to be made into flour...either way it is far more costly to ship the raw product then ship a box of macaroni...this system isn't cost efficent...very expensive.
The other thing the cwb strikes deals to sell my grain to foreign countries that buy it at reduced prices...why do they offer great deals on my grain? I have no say what i get for my grain or how much i can sell...or to who it is sold...
Mr. Mohamed Kacem, the Director General of OAIC (the Algerian state trading organization involved in wheat and durum production, handling and imports), recently told an Algerian newspaper that CWB provides the Algerian office with a series of guarantees and benefits that are not to be found anywhere else. "... (CWB's) selling prices in Algeria are very low, since our country benefits from preferential prices," Mr. Kacem said. "This preferential price saves Algeria several tens of dollars per tonne purchased. No other country gives us such benefits