Melvill,
I read a couple of days ago the CWB article about US Wheat.... and to the CWB response... "As the world turns" was my gut reaction...
Now I see this interesting Oct. 4 article from US Wheat:
1. Monopoly Myth Busting
Prepared from USW Staff Reports and Analysis
The Sept. 24 issue of MyCWB,an online newsletter from the Canadian Wheat Board (CWB), commented on our Sept. 6 Wheat Letterstory describing the open market system in the U.S. as the wheat buyer's best friend. The CWB picked a partial quote from our story to set itself up as “the farmer's best friend.”
Ignoring the marketing maxim that meeting your customers' needs is the pathway to success, the CWB went on to recite a couple of oft-repeated myths about the export monopolies. In the interest of fairness, Wheat Letter includes the MyCWBarticle, verbatim, here:
In the Sept. 6 edition of Wheat Letter, the U.S. Wheat Associates state that the U.S. wheat industry’s hallmark open market system is the “buyer’s best friend." The article goes on to state that wheat marketing practices of Canada and Australia "are helping to artificially drive up global wheat prices unnecessarily.” Actually, the CWB makes no apologies for operating a single-desk marketing system that is the farmer’s best friend. The results of numerous American-led trade challenges against the CWB have shown that its single-desk model does not distort trade. However, analysis by reputable agricultural economists has shown that the single desk structure does provide farmers with higher overall returns, estimated at over $300 million a year.
We think those myths should be exposed for the fantasies that they are – and we challenge the CWB to publish this response, verbatim, on its Web site.
Myth #1
The CWB claims its beloved "single desk" does not distort trade. An Australian representative at the WTO negotiations has made the same claim about that country’s monopoly, but it is a claim that simply ignores the facts. The primary feature of monopoly pricing is the ability to set prices administratively. Both the CWB and the AWB look at the openly derived prices in our market and then set their prices to meet their goals in each market. In the few cases where the CWB has its customer "over a barrel," as its spokesperson recently suggested, it may be able to extract a higher price than the market would otherwise dictate. Most often, however, the monopoly sets different prices for different markets – different prices than what an open market would have otherwise dictated. That ability unquestionably makes trade flow differently than it would have in an open system, and that is precisely the definition of trade distortion. Their monopoly pricing systems inherently distort trade; it is their very purpose! To claim otherwise defies basic economics, yet the CWB and AWB repeat the "not-trade-distorting" myth at every opportunity.
Here is another example of monopoly trade distortion. Recently, an executive with a large Latin American miller told USW he had contacted CWB specifically to purchase Canadian wheat. CWB turned him down flat – sorry, no wheat for you. Let’s compare that to the open market system. Even if you had to sweep every bin in the U.S. to gather a metric ton of wheat, that miller would have as much right to purchase those last kernels as any other buyer.
Myth #2
The CWB also claims that reliable studies show their system returns more to western Canadian wheat and barley growers than the growers would have received in an open market. This is a totally skewed selection of the literature on the subject. The CWB chooses to ignore highly credible economic studies that prove exactly the opposite, that Canadian growers receive less per ton, on average, than their similarly situated U.S. counterparts who grow essentially the same class of wheat.
Lower Returns
The monopolies do not benefit from the discipline of competition and even good management cannot make them efficient grain handlers. Despite their claims to the contrary, the equivalent CWB Pool has consistently returned significantly lower prices to Canadian farmers when compared to the returns generated by U.S. open market prices over several crop years. For example, when the final CWB Pool Return for its flagship Number 1 CWRS 13.5 protein at Vancouver, British Columbia, is compared to the standard U.S. Number 2 NS/DNS 14 protein wheat export class at Portland, Ore., on average, the U.S. HRS open market price has returned more than US$13.00 per MT over the annual final CWB Pool return in each of the past three full crop years. The difference to date in the current crop year is far bigger than the historical average.
This means that if a U.S. wheat producer simply divided his crop into 14 parcels (about the same as the number of public, estimated Pool Outlook Returns released each year by the CWB) and then sold one parcel each day the CWB released a new pool outlook estimate, the U.S. producer would achieve a price premium of more than US$13.00 per MT over the final price CWB returns to Canadian producers. And the system gives U.S. producers the opportunity to extract the price goals they set for their own operation through applied market analysis and a well-managed wheat pricing and marketing plan.
Why is the open market more efficient? From the market price achieved at the U.S. export point, U.S. producers pay no automatic deductions for excessive grain handling, marketing or administration fees or overhead charges. The grain trade and handling industry – both in-country and at export – must earn its money from the market place by profitably buying, selling, handling and positioning physical wheat as well as by using hedging tools to manage market risks. U.S. grain handlers must be prepared to buy each and every day from producers even when there are no buyers, and sell each and every day to customers even when producers are unwilling to sell. Also, U.S. exporters cannot arbitrarily sell a producer’s wheat below market prices in one targeted market without losing the money themselves. They cannot pass an administrative decision loss back to a pool of producers who may not collectively realize the money is missing until it's all over but the shouting.
The facts are crystal clear: not only is the open market the wheat buyer’s best friend, it is also the farmer’s best friend.
[Editor’s Note: Read the Sept. 6 Wheat Letter article “The Wheat Buyer’s Best Friend” at http://www.uswheat.org/wheatLetter/doc.]
I read a couple of days ago the CWB article about US Wheat.... and to the CWB response... "As the world turns" was my gut reaction...
Now I see this interesting Oct. 4 article from US Wheat:
1. Monopoly Myth Busting
Prepared from USW Staff Reports and Analysis
The Sept. 24 issue of MyCWB,an online newsletter from the Canadian Wheat Board (CWB), commented on our Sept. 6 Wheat Letterstory describing the open market system in the U.S. as the wheat buyer's best friend. The CWB picked a partial quote from our story to set itself up as “the farmer's best friend.”
Ignoring the marketing maxim that meeting your customers' needs is the pathway to success, the CWB went on to recite a couple of oft-repeated myths about the export monopolies. In the interest of fairness, Wheat Letter includes the MyCWBarticle, verbatim, here:
In the Sept. 6 edition of Wheat Letter, the U.S. Wheat Associates state that the U.S. wheat industry’s hallmark open market system is the “buyer’s best friend." The article goes on to state that wheat marketing practices of Canada and Australia "are helping to artificially drive up global wheat prices unnecessarily.” Actually, the CWB makes no apologies for operating a single-desk marketing system that is the farmer’s best friend. The results of numerous American-led trade challenges against the CWB have shown that its single-desk model does not distort trade. However, analysis by reputable agricultural economists has shown that the single desk structure does provide farmers with higher overall returns, estimated at over $300 million a year.
We think those myths should be exposed for the fantasies that they are – and we challenge the CWB to publish this response, verbatim, on its Web site.
Myth #1
The CWB claims its beloved "single desk" does not distort trade. An Australian representative at the WTO negotiations has made the same claim about that country’s monopoly, but it is a claim that simply ignores the facts. The primary feature of monopoly pricing is the ability to set prices administratively. Both the CWB and the AWB look at the openly derived prices in our market and then set their prices to meet their goals in each market. In the few cases where the CWB has its customer "over a barrel," as its spokesperson recently suggested, it may be able to extract a higher price than the market would otherwise dictate. Most often, however, the monopoly sets different prices for different markets – different prices than what an open market would have otherwise dictated. That ability unquestionably makes trade flow differently than it would have in an open system, and that is precisely the definition of trade distortion. Their monopoly pricing systems inherently distort trade; it is their very purpose! To claim otherwise defies basic economics, yet the CWB and AWB repeat the "not-trade-distorting" myth at every opportunity.
Here is another example of monopoly trade distortion. Recently, an executive with a large Latin American miller told USW he had contacted CWB specifically to purchase Canadian wheat. CWB turned him down flat – sorry, no wheat for you. Let’s compare that to the open market system. Even if you had to sweep every bin in the U.S. to gather a metric ton of wheat, that miller would have as much right to purchase those last kernels as any other buyer.
Myth #2
The CWB also claims that reliable studies show their system returns more to western Canadian wheat and barley growers than the growers would have received in an open market. This is a totally skewed selection of the literature on the subject. The CWB chooses to ignore highly credible economic studies that prove exactly the opposite, that Canadian growers receive less per ton, on average, than their similarly situated U.S. counterparts who grow essentially the same class of wheat.
Lower Returns
The monopolies do not benefit from the discipline of competition and even good management cannot make them efficient grain handlers. Despite their claims to the contrary, the equivalent CWB Pool has consistently returned significantly lower prices to Canadian farmers when compared to the returns generated by U.S. open market prices over several crop years. For example, when the final CWB Pool Return for its flagship Number 1 CWRS 13.5 protein at Vancouver, British Columbia, is compared to the standard U.S. Number 2 NS/DNS 14 protein wheat export class at Portland, Ore., on average, the U.S. HRS open market price has returned more than US$13.00 per MT over the annual final CWB Pool return in each of the past three full crop years. The difference to date in the current crop year is far bigger than the historical average.
This means that if a U.S. wheat producer simply divided his crop into 14 parcels (about the same as the number of public, estimated Pool Outlook Returns released each year by the CWB) and then sold one parcel each day the CWB released a new pool outlook estimate, the U.S. producer would achieve a price premium of more than US$13.00 per MT over the final price CWB returns to Canadian producers. And the system gives U.S. producers the opportunity to extract the price goals they set for their own operation through applied market analysis and a well-managed wheat pricing and marketing plan.
Why is the open market more efficient? From the market price achieved at the U.S. export point, U.S. producers pay no automatic deductions for excessive grain handling, marketing or administration fees or overhead charges. The grain trade and handling industry – both in-country and at export – must earn its money from the market place by profitably buying, selling, handling and positioning physical wheat as well as by using hedging tools to manage market risks. U.S. grain handlers must be prepared to buy each and every day from producers even when there are no buyers, and sell each and every day to customers even when producers are unwilling to sell. Also, U.S. exporters cannot arbitrarily sell a producer’s wheat below market prices in one targeted market without losing the money themselves. They cannot pass an administrative decision loss back to a pool of producers who may not collectively realize the money is missing until it's all over but the shouting.
The facts are crystal clear: not only is the open market the wheat buyer’s best friend, it is also the farmer’s best friend.
[Editor’s Note: Read the Sept. 6 Wheat Letter article “The Wheat Buyer’s Best Friend” at http://www.uswheat.org/wheatLetter/doc.]
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