"WINNIPEG, MB, Aug 22, 2008 (Resource News International via COMTEX) -- The Winnipeg office of Informa Economics is standing firmly behind the findings of its Canadian Wheat Board study, but has chosen not to respond to claims the report was flawed.
Informa's 92-page report, released July 31 and commissioned by the Alberta government, found the CWB's marketing monopoly was costing Western Canadian farmers roughly half a billion dollars annually in lost revenue and higher system costs.
On August 8, the CWB responded to the report by saying Informa's study was based on incorrect assumptions, flawed premises and simplistic comparisons.
"We conducted the study in a clear and straight-forward manner and we decided that the CWB criticisms are either based on trying to discredit us or are simply based on misunderstandings. We're not going to put out a lengthy detailed point-by-point response, although that is something that we certainly could have done," said Chuck Penner, senior consultant for Informa Economics and the main author of the report.
"We weren't sure we wanted to get into a mud-slinging battle because that does not serve anybody," Penner continued.
Nevertheless, in an interview Penner was willing to address the some of the main issues raised by the CWB's rebuttal.
The CWB said Informa's report selectively focused on only 11 of 60 to 70 markets into which it sells wheat each year, "rejecting high-values markets like Canada, the US and Europe."
Penner said data availability was the first reason they chose to focus on the markets that they did. Informa used UN international price data, however numbers were not available for every market because not all countries choose to say what price they pay for food.
Second, Informa wanted to look at markets where the CWB had either the greatest market share and/or the greatest consistency of market share, because those markets represent the cases where the Board should have been able to exert market power, Penner explained.
"In some ways, it was looking at the best cases for the CWB. We also added in some other markets where Canadian export volumes were large, because those would be the ones that have the largest effect on the CWB Pool accounts," he continued.
The report is not suggesting that high prices are never secured by the CWB, Penner explained.
"But even in some of these smaller markets, or identity- preserved markets...higher prices really do not depend on a single-desk approach."
Penner also addressed the second of the CWB's key points, that the report had misused Quorum Corporation grain handling and transportation data by making efficiency comparisons between wheat and canola. The CWB says Quorum specifically warns that such a comparison cannot be made.
Penner acknowledged that Quorum clearly communicated some cautions about the data and said Informa was not discounting those.
Rather, the authors of the report recognized that Quorum Corporation's wheat and canola data was based on different methodologies but felt nonetheless that the data represented a fairly sound approximation of the total cost of moving grain from an in-land to an export position, Penner said.
He added that Informa's analysis was based on their own interpretation of the data, not Quorum's.
Penner also countered the CWB criticism of comparison's made in the report between Canadian and US elevator prices. The Board argued that because less US wheat is sold abroad than Canadian wheat, the American market has an 'intrinsic price advantage' and as a result comparisons with the Canadian market should not have been made.
Because similar points have been raised before, Informa chose to look at spring wheat and durum, Penner said. The percentage of US spring wheat and durum that goes to export is approximately 60% and 45%, respectively.
"Those are not a small shares by any means. We took the view that their domestic prices are strongly linked to export prices, just like Canadian prices. So it is a valid comparison" Penner explained.
Finally, in regards to the issue of double counting handling system costs, "the criticism appears to be based on the incorrect inference that the system costs in the US are lower than in Canada, which would allow for higher elevator bids in the US. In fact, only the non-freight costs are lower in the US," according to an explanation provided by Informa.
The total system costs including freight are actually higher in the US, by an average of C$11.68 per tonne. This means that the US elevator bids should be (based solely on system costs) lower than the CWB values by C$11.68 per tonne. Instead, US elevator bids averaged C$15.97 per tonne higher than the CWB final payments
As a result, the report's author found it was valid to combine the two components (system cost and price differential) to represent a total difference of C$27.65 per tonne between an open market and the current western Canadian system."
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Informa's 92-page report, released July 31 and commissioned by the Alberta government, found the CWB's marketing monopoly was costing Western Canadian farmers roughly half a billion dollars annually in lost revenue and higher system costs.
On August 8, the CWB responded to the report by saying Informa's study was based on incorrect assumptions, flawed premises and simplistic comparisons.
"We conducted the study in a clear and straight-forward manner and we decided that the CWB criticisms are either based on trying to discredit us or are simply based on misunderstandings. We're not going to put out a lengthy detailed point-by-point response, although that is something that we certainly could have done," said Chuck Penner, senior consultant for Informa Economics and the main author of the report.
"We weren't sure we wanted to get into a mud-slinging battle because that does not serve anybody," Penner continued.
Nevertheless, in an interview Penner was willing to address the some of the main issues raised by the CWB's rebuttal.
The CWB said Informa's report selectively focused on only 11 of 60 to 70 markets into which it sells wheat each year, "rejecting high-values markets like Canada, the US and Europe."
Penner said data availability was the first reason they chose to focus on the markets that they did. Informa used UN international price data, however numbers were not available for every market because not all countries choose to say what price they pay for food.
Second, Informa wanted to look at markets where the CWB had either the greatest market share and/or the greatest consistency of market share, because those markets represent the cases where the Board should have been able to exert market power, Penner explained.
"In some ways, it was looking at the best cases for the CWB. We also added in some other markets where Canadian export volumes were large, because those would be the ones that have the largest effect on the CWB Pool accounts," he continued.
The report is not suggesting that high prices are never secured by the CWB, Penner explained.
"But even in some of these smaller markets, or identity- preserved markets...higher prices really do not depend on a single-desk approach."
Penner also addressed the second of the CWB's key points, that the report had misused Quorum Corporation grain handling and transportation data by making efficiency comparisons between wheat and canola. The CWB says Quorum specifically warns that such a comparison cannot be made.
Penner acknowledged that Quorum clearly communicated some cautions about the data and said Informa was not discounting those.
Rather, the authors of the report recognized that Quorum Corporation's wheat and canola data was based on different methodologies but felt nonetheless that the data represented a fairly sound approximation of the total cost of moving grain from an in-land to an export position, Penner said.
He added that Informa's analysis was based on their own interpretation of the data, not Quorum's.
Penner also countered the CWB criticism of comparison's made in the report between Canadian and US elevator prices. The Board argued that because less US wheat is sold abroad than Canadian wheat, the American market has an 'intrinsic price advantage' and as a result comparisons with the Canadian market should not have been made.
Because similar points have been raised before, Informa chose to look at spring wheat and durum, Penner said. The percentage of US spring wheat and durum that goes to export is approximately 60% and 45%, respectively.
"Those are not a small shares by any means. We took the view that their domestic prices are strongly linked to export prices, just like Canadian prices. So it is a valid comparison" Penner explained.
Finally, in regards to the issue of double counting handling system costs, "the criticism appears to be based on the incorrect inference that the system costs in the US are lower than in Canada, which would allow for higher elevator bids in the US. In fact, only the non-freight costs are lower in the US," according to an explanation provided by Informa.
The total system costs including freight are actually higher in the US, by an average of C$11.68 per tonne. This means that the US elevator bids should be (based solely on system costs) lower than the CWB values by C$11.68 per tonne. Instead, US elevator bids averaged C$15.97 per tonne higher than the CWB final payments
As a result, the report's author found it was valid to combine the two components (system cost and price differential) to represent a total difference of C$27.65 per tonne between an open market and the current western Canadian system."
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