national
farmers union
Ottawa, Ontario
November 4, 1997
Preface:
The National Farmers Union thanks the House of Commons Standing Committee on Agriculture and Agri-Food for this opportunity to present the NFU's views on Bill C-4.
The NFU is the only voluntary, direct-membership national farm organization in Canada. NFU members strive to develop economic and social policies which maintain the family farm as the basic food-producing unit in Canada.
The NFU represents farmers across Canada, the majority of whom are grain and oilseed producers. Farmers have become very efficient at growing grain. However, farmers realize that their livelihoods, and their futures depend as much on their success in marketing that grain as on their ability to grow it. For this reason, the NFU actively promotes orderly marketing for grains, oilseeds, and other farm commodities.
Producers gain several advantages from orderly marketing including risk management; predictable and fair delivery opportunities; relatively stable and predictable prices; security of payment; and market development.
The Canadian Wheat Board (CWB) differs fundamentally from private grain companies. Private grain companies seek to maximize profit for their shareholders. Those companies do so by buying grain from farmers at the lowest possible price and then selling it at the highest possible price. In contrast, the Canadian Wheat Board also sells grain at the highest possible price, but then returns all profits less expenses (a modest 4.7 cents per bushel) back to farmers. Where private grain companies profit at the expense of farmers, the CWB makes profits for farmers.
The NFU represents the vast majority of western Canadian farmers in its support of the CWB and in its desire to see it strengthened. This support has been demonstrated by every legal means available--public meetings, letters, demonstrations, CWB Advisory Committee elections and a convincing barley vote.
The real measure of Bill C-4 is whether and how it serves to enhance the stability and viability of western grain producers. In considering this Bill, the NFU urges the members of the Standing Committee to keep this measure in mind and to include only those sections which pass the test.
National Farmers Union Submission
to the
House of Commons Standing Committee
on Agriculture and Agri-Food
on Bill C-4
An Act to amend the Canadian Wheat Board Act
Ottawa, Ontario
November 4, 1997
Index:
Introduction
The Canadian Wheat Board rests on three pillars: price pooling, government financial partnership, and single-desk selling.
The NFU supports increased flexibility in Canadian Wheat Board (CWB) operations and more options for farmers. However, the desire for increased "flexibility" should not be used as a pretext to break the structural pillars of the CWB. Bill C-4 damages two of these three pillars and has the potential to damage the third.
Weakening and partially dismantling the CWB in this way will neither increase options for farmers nor flexibility for the CWB. For this reason, the NFU opposes many of the changes to the CWB proposed in Bill C-4.
The Kraft, Furtan, Tyrchniewicz report showed that the CWB increased western Canadian wheat producers' returns by an average of $265 million annually. The recent Schmitz et. al. study, The CWB and Barley Marketing: Price Pooling and Single-Desk Selling, showed that the CWB increased western Canadian barley producers' returns by $72 million annually.
These studies did not find any chronic structural problems with the CWB which required dramatic changes to the CWB to cure. On the contrary, they found that the CWB and western Canadian farmers produced and marketed the highest quality wheat in the world at the highest prices in the world.(1)
The studies also found that the partnership between farmers and the CWB put hundreds of millions of dollars into farmers' pockets annually through higher prices in the world market and lower marketing costs. Many of the changes proposed in Bill C-4 threaten the price premiums and other benefits farmers derive from the CWB.
CWB Jurisdiction and the Inclusion Clause
The CWB currently has jurisdiction over prairie wheat and barley for human consumption. As mentioned previously, the vast majority farmers are very happy with the way that the CWB markets wheat and barley on their behalf. These farmers look forward to an opportunity to add other grains to CWB jurisdiction. For this reason, the NFU welcomes the "inclusion" mechanism (section 47.1) included in Bill C-4.
Farmers who grow rye and oats are not well-served by the current open-market system. There is little trade in these commodities and, thus, little chance for price discovery. There is no systematic market development either. Farmers would welcome the opportunity to add these grains to the CWB mandate and enjoy all the benefits that would bring.
Farmers want choices and the inclusion (section 47.1)and exclusion (section 45) mechanisms will give them choices. Together, these two mechanisms are fair and balanced and they respect the fundamental right of farmers to choose their marketing systems. These mechanisms will ensure that the majority will of farmers is respected.
These mechanisms are prudent and measured. Adding or removing grains from CWB jurisdiction will require considerable time, several steps, and, ultimately, a producer vote. This will provide plenty of time for producers to study the issues and for the industry to adjust.
The right of farmers to collectively and democratically choose their marketing options is fundamental, recognized through numerous precedents, and has lead to a balanced mixture of open market and orderly-marketing systems in Canada. There is some opposition to adding an inclusion mechanism to the CWB Act. However, only those individuals and organizations who have a complete disregard for farmers and democracy or who have a vested interest in denying farmers the opportunity to collectively market their own grains could oppose giving farmers this power. Only those who wish to confine producers to the open market and fear the results of producers designing their own marketing option would oppose this clause. Having recently come through a vote on whether to remove barley from CWB jurisdiction, it would be unfair in the extreme to argue against giving farmers the power to add grains.
However, farmers do not want the option of adding grains to a weakened or partially dismantled Canadian Wheat Board. The inclusion clause is a welcome and long-awaited opportunity for prairie farmers, but it will be useless if it comes attached to a set of amendments which weaken or destroy the CWB. Unfortunately, many of the provisions of Bill C-4 - such as cash buying and the end of the government guarantee of adjusted initial prices - do just that.
The NFU strongly supports an amendment to the CWB Act that will allow producers to democratically add grains to CWB jurisdiction, but only if the Bill which contains such an amendment protects and strengthens the CWB and the three pillars upon which it rests.
Price Pooling
Grain prices are governed by supply and demand. When the bins are full, prices are low. As the August-July crop year progresses, prices tend to rise considerably. Farmers are thus caught in a dilemma: they need to sell their grain as soon as possible after harvest to pay bills and reduce interest charges, but this is when prices are lowest. Farmers who choose, or because of financial conditions are forced, to deliver their crop early in the August-July crop year, forego the possibility of higher prices later in the year. Price pooling solves this problem and allows farmers to deliver some grain at harvest and still receive the higher prices for that grain that come later in the year.
Pricing and selling grain, however, is not as simple as merely holding it until later in the year and selling it when the price rises. As every farmer knows, while grain prices usually rise in the winter and spring, they often also fall suddenly and unexpectedly. Many farmers who have held open-market grains and oilseeds into the spring have missed the peak of the market and had to either hold their crops in their bins for another year or to sell at a low price. CWB price pooling eliminates this risk by allowing farmers to deliver their wheat and barley throughout the year and enjoy a high average price for the entire crop.
Without price pooling, farmers would want to sell and deliver their crops when they believed the market was highest. This would create clogged elevators at some times and empty ones at others. Price pooling allows the CWB to space farmers' deliveries throughout the year. Canada's grain transportation system is barely adequate to transport prairie grain to port. Without a huge investment in terminals, hopper cars, elevators, and locomotives, the Canadian system would not be able to handle highly variable and unpredictable wheat and barley deliveries.
When farmers fought for order and fairness in grain marketing between 1910 and 1940, they fought for price pooling. In the fight to establish the prairie Wheat Pools and early incarnations of the Wheat Board, farmers asked first and foremost for pooling. Single-desk selling is a critical component of the CWB but to the farmers who grow western Canadian wheat and barley, pooling is indispensable.
Cash buying: Bill C-4 section 9.1
Bill C-4, section 39.1 threatens to destroy price pooling--and with it, the CWB and the incomes of hundreds of prairie grain farmers. Section 39.1 reads as follows:
Cash Purchases of Wheat 39.1 -
Notwithstanding sections 32 to 39, the Corporation may enter into a contract with a producer or any other person or entity for the purchase and delivery of wheat or wheat products at a price other than the sum certain per tonne for wheat as set out in section 32, and on such terms and conditions as the Corporation considers appropriate.
This section would give the CWB carte blanche authorization to buy wheat and barley(2) from any person or any company, any place, any time, and under any arrangement that the CWB elects. This section is vague and unclear. It provides for a wide range of scenarios from once-in-a-decade limited purchases from grain companies, "the trade," to fill a particular contract and avoid demurrage to the total elimination of pooling wherein the CWB purchases all western Canadian wheat and barley on a cash basis.
Cash buying from "the trade"
Almost unanimously, proponents of cash buying point to the 1994/95 barley situation. Cash-buying-proponents argue that in 1994/95, the CWB had potential high-priced sales contracts to Japan that it could not fill because it could not attract barley to fill those contracts. The argument goes that had the CWB been able to get the barley it needed through cash buying from the trade, the high-price sales to Japan would have raised pool returns to all farmers who delivered barley to the CWB.
The goal of increasing revenue to farmers is laudable. It is exactly the goal that the CWB should be focusing on. However, even if buying barley from the trade has the potential to increase farmers' returns in the short term, it has the potential to lower them in the long term and to threaten the continued success of price pooling and the existence of the CWB.
Before discussing how cash buying threatens pooling and the CWB, let us look at the 1994/95 barley situation and determine whether it demonstrates a chronic failure of the CWB which requires a fundamental structural overhaul of the CWB or if it was an infrequent unfortunate occurrence.
Table 1 below clearly shows that in 1994/95 farmers would have profited had there been multiple sellers of Canadian barley. Hypothetically, multiple sellers, using cash buying, could have bought and exported more western Canadian barley to Japan and farmers would have benefited through higher prices. The authors quantify this benefit at $7 million (see R.H. column of table 1).
Table 1: Impact of introducing Multiple Sellers on Canadian Feed/Malting Barley Prices and on Total Canadian Producer Revenue (3)
Table 1 does show that farmers lost money in 1994/95. However, Table 1 most clearly shows that 1994/95 was an aberration. In that year, the CWB's inability to source barley cost farmers $7 million. On average, however, the CWB increased farmers' revenues by $72 million annually. Moreover, 1994/95 was the single year out of the last ten when there is any reason to question the performance of the CWB in marketing barley.(4)
The 1994/95 barley situation does not represent a chronic structural flaw in the CWB. Nor does it support calls for a fundamental overhaul in the way that the CWB buys grain. Given the potential problems that cash buying will cause (outlined below), it would be wrong to institute this measure to correct a problem that has only surfaced in one year out of the last ten.
Cash buying barley from the trade has the potential to damage pooling, and hence the CWB, in the following ways:
Cash buying from farmers
In addition to buying barley from the trade, some, including the authors of the Western Grain Marketing Panel report, have argued that the CWB should have the power to buy wheat and barley directly from farmers on a cash basis. This is merely a thinly-veiled attempt to create an unworkable "dual market" that would lead to the destruction of price pooling and the Canadian Wheat Board.
Proponents claim that cash buying would give farmers more "flexibility," more "options," and allow them to receive the full payment for their grain sooner. However, such a system would destroy price pooling. Cash buying barley or wheat directly from farmers would have the following harmful effects:
In conclusion, cash buying, whether from farmers or from the trade, will destroy price pooling, a fundamental pillar of the CWB. The vast majority of western Canadian farmers support price pooling because it provides them with inexpensive risk management and predictable, orderly, and fair delivery opportunities. The problem that cash-buying is proposed to solve--the CWB's inability to source grain in exceptional years--is an insignificant and infrequent one. And while farmers want options and flexibility, the vast majority who support the CWB do not want these options and flexibility if they threaten price pooling or the CWB itself.
The purpose of the CWB Act is to give shape to the CWB. For the last 50 years, the CWB Act has done this through clear legislation stating that the CWB will buy grain on a price-pooled basis, be the single-desk seller for western Canadian wheat and barley (with the exception of domestic feed barley) and do so with all prices, borrowings, and approved foreign sales guaranteed by the Canadian government. Bill C-4 marks a break with this 50-year tradition in that it no longer seeks to give clear shape to the CWB. Section 39.1 of Bill C-4 could allow for continued pooling or it could allow for the abandonment of pooling and the move to cash-buying exclusively. Bill C-4 is loose and vague. Moreover, it makes possible a CWB fundamentally at odds with the current structure which the vast majority of farmers support.
The NFU strongly recommends that the government delete section 39.1 from Bill C-4 and that no Bill go forward which contains such a section.
Initial-price adjustment guarantees
The government's guarantee of the CWB prices, borrowings, operations, and credit sales form a second pillar of the CWB. This partnership with government is vital to the CWB and saves farmers over $60 million annually. This saving more than covers the total cost of operating the CWB: $45 million annually. For this reason, farmers are extremely opposed to any diminution of the government's guarantees.
Bill C-4 amends section 7(3) of the CWB Act and revokes the Federal Government's guarantee of CWB initial price adjustments. The government's rationale for terminating its guarantee is that current initial price adjustment procedures slow adjustments, make it difficult to attract barley in some circumstances, and delay payments to farmers. Removing the current Order-In-Council requirement should, theoretically, allow the CWB to more quickly adjust initial prices.
However, any potential for faster adjustments in initial prices made possible by the termination of the Order-In-Council requirement, may be counter-balanced by the CWB's reluctance to adjust initial prices if it will be liable for shortfalls.
The Federal Government will still guarantee the relatively high-risk portion of the CWB's price payments, the initial payment. The initial payment adjustments, which the Federal Government will cease to guarantee, have not incurred a deficit in the CWB's 61-year history. What does the government gain by relinquishing responsibility for the initial price adjustments? While the government gains nothing, the end of the initial price guarantee will cost farmers tens of millions of dollars. These dollars will be used to create a contingency fund to guarantee the initial price adjustments.
The termination of the government's guarantee will clearly cost farmers millions of dollars, save the government nothing, and by eroding one of the three pillars upon which it rests, weaken the CWB. These negative effects are not outweighed by the potential to adjust initial prices more quickly.
Farmers also worry that once the CWB had amassed a contingency fund of $100 or $200 million, the Government could increase the size of the fund and then sever its remaining borrowing guarantees, such as the initial price guarantee. Termination of government guarantees on initial prices might not come all at once but rather gradually. The Government might, bowing to pressure during the 1999 round of WTO negotiations to "expose the CWB to risk", make the CWB responsible for the first $50 million or $100 million in pool-account losses. The NFU opposes a move away from CWB prices guaranteed by the government to a system in which those prices are guaranteed by a contingency fund.
In light of the impending attack on the CWB in the upcoming 1999 round of WTO negotiations, the Federal Government should, both for practical and symbolic reasons, maintain a strong partnership with farmers through the CWB. Unless the government's resolve to protect the CWB and farmers from illegitimate pressure from the United States government and U.S. grain companies is rock-solid, the CWB could be crippled or lost during the 1999 talks. If the government's support is solid, it must demonstrate this by maintaining all current guarantees of CWB prices, borrowings, and operations.
Contingency funds
Section 6(1)(c.3) of Bill C-4 provides for the creation of a contingency fund "of the amounts specified by the regulations..." to be used:
The "Corporation" has the power to create that contingency fund through the use of a producer check-off or from monies deducted from other sources. Section 6(2) of C-4, states:
The Governor in Council may make regulations authorizing the Corporation to deduct an amount from any amount it receives in the course of its operations pursuant to this Act and to credit the amount so deducted to the contingency fund established under paragraph (1)(c.3)
Minister Responsible for the CWB, Ralph Goodale, has said, "Options for building up such funds include allocating to a separate account CWB profits on lending operations and a checkoff on producer sales." (7) Whether the CWB takes money directly from farmers through a checkoff or whether it takes it indirectly by taking "CWB profits on lending operations," producers will have to pay to create the contingency fund. This is a cost to farmers and a very good reason not to create a contingency fund. Further, the fund will be used to "provide for potential losses" on cash buying and to guarantee initial price adjustments. As stated above, cash buying is unwise and unnecessary and the Government should continue to guarantee initial price adjustments. Thus, the contingency fund would be unnecessary.
The status of the CWB
Section 4 (2) of the Canadian Wheat Board Act states:
The Board is, for all purposes, an Agent of Her Majesty in right of Canada, and it may exercise its powers under this Act only as an Agent of Her Majesty in right of Canada.
The amended section 4 (2), as stated in Bill C-4, reads as follows:
The Corporation is not an agent of Her Majesty and is not a Crown corporation within the meaning of the Financial Administration Act.
This move to a mixed enterprise endangers the Government's guarantee of CWB prices, borrowings, and operations and the CWB itself.
The loss of crown agency status, coupled with the reduction in government price guarantees outlined above, and occurring at this time when foreign governments are preparing to attack the CWB is legitimately disturbing to the vast majority of farmers who support the CWB. Farmers are familiar with moves to privatize the Australian Wheat Board and they are vigilant that the same fate should not befall the CWB.
In addition, this withdrawal of government support for the CWB at this critical time sends a disturbing message to foreign nations and corporations which will soon target the CWB with the aim to destroy it. The Federal Government cannot hope to defend the CWB internationally if it withdraws its support domestically
The NFU is aware of the Federal Government's contention that Crown Agency status is incompatible with a partially-elected board of directors for the CWB. This is may be false dilemma. The reality is that, if Bill C-4 were passed unchanged, the Federal Government would continue to guarantee the vast majority of the CWB's operations and borrowings--as it does with Crown Agencies.
While there may not currently be any Crown Agencies with a mix of appointed and elected board members, the government may wish to examine options for retaining the critical Crown Agency status. Alternatively, the Government may wish to revise the governance structure to allow increased producer representation while retaining Agency status.
The NFU recommends that the CWB remain "an Agent of Her Majesty in right of Canada" and that Bill C-4 be amended to remove all references to section 4 (2) of the CWB Act.
Pooling periods
C-4 amends section 31 of the CWB Act to read:
Subject to section 40, in this part, "pool period" means any period or periods, not exceeding one year in the aggregate, that the Corporation may order as a pool period in respect of wheat.
Whereas, currently, pooling periods are one year, the amendment allows for pooling periods of any length so long as they do not exceed one year.
There is a strong possibility that, if given the legislative authority, the CWB might move to quarterly feed barley pools. The argument for quarterly feed barley pools is that such quarterly pooling would allow greater arbitrage between the domestic and export feed barley markets and that this would lead to higher returns for some producers.
However, quarterly pooling will almost certainly have the following negative effects:
Because feed barley is price-pooled for export and sold on a cash basis within Canada, the Canadian price does not always perfectly reflect the world price. The misallocation of barley caused by the difference between the world price and the domestic price is called the "arbitrage loss." Critics of pooling point to these arbitrage losses as proof of the need for an overhaul of the CWB.
The recent Schmitz et. al. study, The CWB and Barley Marketing: Price Pooling and Single-Desk Selling, identified an arbitrage loss due to pooling and quantified that loss at $4.9 million annually. To put this in context, Schmitz et. al. quantified the increase in revenue to barley producers as a result of the CWB's single-desk selling monopoly at $72 million annually. Further, in order to totally eliminate arbitrage losses, the CWB would have to totally eliminate barley price pooling. If barley price pooling was totally eliminated and as a result, the $4.9 million in arbitrage losses were eliminated, farmers would save $1.21 per week each. It is unlikely that farmers could price and sell their barley for a better price than the CWB receives at a cost less than $1.21 per week.
$4.9 million cannot be dismissed lightly. It is reasonable to make changes to save some or all of that money and return it to producers. However, such changes must be weighed against the negative and potentially costly effects outlined above. While pooling does cause some problems with price arbitrage, the risks and problems associated with shorter pooling periods are greater. And since there seems to be no other compelling reason to move to variable pooling periods, annual pooling should be retained.
The NFU recommends that section 31 of Bill C-4 be deleted as variable pooling periods are unnecessary and potentially damaging.
Conclusion
The measure of the amendments in Bill C-4 should be that they enhance the stability and viability of western grain producers. Many of the sections of the Bill fail that test. They are therefore unacceptable to the vast majority of farmers and should be removed.
Specifically, the provisions which allow cash buying; terminate the government's guarantee of adjusted initial prices; set up a contingency fund; terminate Crown Agency status; and allow variable pooling periods weaken pooling, the government partnership, and the CWB. In so doing, they erode the security and prosperity of hundreds of thousands of farm families across the prairies. These provisions should be deleted.
Farmers want the best price for their grain. To that end, they want to maximize their options in how they price and sell(8) their grain. The preceding applies to CWB critics and supporters alike. Many farmers feel that the way to maximize their options is to have a choice between selling their wheat through the CWB or to the open market. This is the so-called "dual market."
At first glance, the "dual market" concept looks appealing. Farmers could sell to the CWB when it offered the best price and to private grain companies when they did. However, this rosy scenario overlooks several key factors:
Pooling and cash-buying cannot co-exist
Most "dual-market" proponents contend that they support the Wheat Board and that they like pooling, but that they would like to have a choice. These "dual-market" proponents support pooling, especially when it protects them from low prices, but want the freedom to capture occasional high prices in the spot market. If this were possible, it would indeed be desirable. Unfortunately, it is not possible to operate a price-pooled risk management system along-side cash buying.
Wheat prices change during the August-July crop year. To simplify, markets can be put into two classes: rising and falling. Let's look at what happens during these two types of markets.
In a "dual market", during a rising market, the private grain companies would get the majority of the grain. The CWB pooled price is an average price. Thus, when prices are rising, the pooled price will lag behind. This price lag would make competing cash prices look relatively more attractive even though the rising pooled price might eventually outstrip all but the highest cash prices. Because the pooled price will tend to lag behind the cash price, most farmers will opt for this price and deliver to the cash market.
In contrast, during a falling market, pooled prices will generally be above the cash price. In this circumstance, the CWB would receive the bulk of the grain. Further, the Government-guaranteed pooled price acts as a floor price option for farmers. The CWB would likely incur large losses as it did in the 1930 under a voluntary pooling system (See table A below).
Note that not only is it hard to predict how much grain farmers will deliver to the CWB but also that the CWB will receive the most grain during falling markets when it is hardest to market it.
Contractual pools would theoretically resolve some of the problems associated with the "dual market." However, unless penalties are high, producers will have an incentive to break their contracts if the spot cash price rises above the expected pool return plus the penalty amount. But if penalties are high, producers are hesitant to commit their grain. The aim of the "dual market" is flexibility but contracts with strict penalties greatly diminish flexibility.
A "dual market" would end the CWB's single-desk seller premiums
The Canadian Wheat Board is the single-seller of the highest quality wheat in the world: Canadian wheat. Because of its quality, cleanliness, and consistency, Canadian wheat is a differentiated product. Because the CWB is the monopoly seller of Canadian Wheat, the CWB can extract higher prices than multiple-sellers could. It is only common sense that a monopoly can charge higher prices than several sellers in competition.
Not only can the CWB charge higher prices, it can price discriminate. This means that it can charge customers different prices based on their ability to pay. This "market power" results in significantly higher returns for western Canadian farmers.
The January 1996 Kraft, Furtan, Tyrchniewicz report calculated that the CWB's market power increased wheat producers' returns by an average of $13.35 per tonne, or $265 million per year for the 14-year period between 1980/'81 and 1993/'94.
The January 1997 Schmitz, Gray, Schmitz, and Storey report calculated similar results for barley producers. That study found that the CWB's market power increased feed barley prices by an average of $3.52 for the period between 1985/'86 and 1994/'95 and it increased malt barley prices by $34.06 to $42.01 per tonne over the same period. This resulted in an average $72 million annual premium over the ten-year study period.
In a "dual market," the CWB would cease to be the single-seller of Canadian wheat and barley (domestic feed excepted), the CWB would loose its market power, and farmers would lose the $265 million and $72 million annual premiums.
A "dual market" would end the Government's guarantee of CWB prices
Between 1935 and 1941, the CWB operated in a voluntary pooling, dual-market system. The results were instructive. The Wheat Board, because it offered a floor price during falling markets, incurred huge losses (See Table A, below). The total losses between 1935 and 1940, $131 million, would be $1.4 billion in 1996 dollars. With potential losses of this magnitude, the Federal Government could not continue to guarantee the CWB's prices.
| Crop Year | Floor Price | Losses |
|---|---|---|
| 1935-36 | 87.5 cents | $11,858,104 |
| 1936-37 | 87.5 cents | $49,574,880 |
| 1938-39 | 80.0 cents | $61,525,691 |
| 1939-40 | 70.0 cents | $8,226,850 |
| Total: | $131,185,525 |
Nor would the CWB be able to guarantee its initial prices in a dual market. Farmers would be without a guaranteed initial price and be forced to accept initial payments of 50% or less of the estimated final price of their grain rather than the 75% of estimated final price they receive now as an initial payment. This sharp reduction in farmers cash-flow would further erode farmer support of the CWB.
Lacking its own elevators, the CWB would be at a large disadvantage in an "dual market"
In a "dual market," private grain companies would compete with the CWB for farmers' wheat and barley. However, the CWB would rely on those same companies to collect wheat and barley. This leads to a clear conflict of interest with one or more of the following results:
The end of price-pooling would end orderly delivery and transportation of wheat and barley
Farmers currently deliver their CWB wheat and barley to elevators throughout the year based on contract calls (formerly quota calls). They agree to do this because their final return is not affected by when they deliver. When farmers sell on the cash market, this is not the case. In a cash market, some farmers want to deliver at harvest to receive money to pay their bills. A greater number however wish to hold their grain until late in the August-July crop year to capture the higher prices that often occur at that time. Clearly, in a "dual market," grain would not flow into elevators smoothly through the year, but rather it would flood in after harvest or when prices were high and trickle in at other times.
The U.S. system can accommodate this chaotic grain flow because they have one bushel of elevator and terminal storage for every two bushels of grain production: Canada has one bushel of storage for every ten bushels of production. To accommodate a chaotic grain inflow with the same "ease" that the U.S. system does, Canadian farmers would have to indirectly pay for a five-fold increase in elevator and terminal capacity. However, given the recent rash of elevator closures, it seems that the trend is in the other direction.
Conclusion
The CWB and price pooling cannot exist in a "dual market" and therefore a "dual market" is impossible. We would soon have an open market almost identical in makeup and function to the current American system. However, to say that the CWB and price pooling cannot exist in a "dual market" is not to say that the CWB cannot compete or that cash buying is superior, but rather that the two systems are incompatible. It is impossible to give farmers a system that protects them from low prices but gives them the option to opt out and capture the high prices for themselves.
Back to Brief and Submission Index