Canadian Wheat Board

[silverback]

You see Nejar, the CWB is the best marketer of our grain as they always get the highest price - always.

Just ask Vader.

We need to stop asking so many questions and just roll over and go back to sleep for the next 50 years - again.

[Vader]

silverback, you are putting words in my mouth. I did not say always. But if you look at my previous post, there is hard evidence that at least in durum wheat into US mills it is rare for the CWB not to get a premium.

Think about gasoline. How often would you find that premium gas was being sold cheaper than unleaded. When the CWB has a premium product then the selling price will always have that premium attached to it. If you can compare apples to apples, ie., exactly the same quality specs, the same delivery position, the same finance package etc. etc. then I am sure that you would find very small premiums accruing to CWB sales. Perhaps the value is more on the flip-side in that the absence of the CWB would allow farmer to farmer competition to drive down prices especially in those high value markets where the single desk premium is greatest such as Japan.

Customers have told the CWB that they value the quality of the Canadian product but not as highly as the CWB values it. In fact what drives customers to pay a premium to the CWB is as much to do with the service as with the product. And that service is a package which includes Canada's variety registration system, the Canadian Grain Commission and even our pesticide management system. So again you see the value is not so much created by the CWB as it is preserved by orderly marketing. It is like the water runing through a Hydoelectric dam. Either with the dam or without the dam the water is going to run downstream (grain flowing to the market place). But with the dam in place you control the flow and generate a lot of power that would not be there otherwise. The CWB creates a resevoir of energy that enables farmers to have more market power through the orderly release of grain through its marketing system.

[silverback]

Are you saying the wheat board is in charge of the Grain Commission and the pesticide management agency? How good is the wheat board at assuring world wide customers of easy, prompt access to the grain they want? I believe that our transportation system is not efficient enough and constantly creates problems for our customers. If I need to buy something, I will sometimes pay a little more or buy something of lesser quality if I don't have to go through the hassle of a vendor who makes it difficult for me to get it home.

One more question Vader. You think the Wheat Board is the only thing we need in Western Canada. What would happen to the board if it only marketed 2/3 of what it does now? If the volumes of a crop year were cut by 1/3? I am guessing they would find a way to survive. Why then would it be wrong to compete to buy that 1/3 from an open market? If the board is so good at what they do there should be no reason to fear that scenario, everyone would sell through the board anyway, right?

[Vader]

No, silverback, I did not say that the board is in charge of the Grain Commission or the PRMA, I said that they form a package of services. And yes that package includes transportation which time and again has given us a black eye. That part of the package does not do us any great service and certainly causes our customers to want to consider alternate suppliers. The railroads and the west coast grain handlers are not "team players".

As far as handling 2/3 of the grain it would be the same as in my hydroelectric dam analogy, if 1/3 of the water is leaking away you don't generate nearly as much power.

People always ask why the board is afraid to compete. Fear is not the right description. The CWB's position is simply that competition is not good for farmers. Competition is good for the people who are buying the product. If we were not in an oversupply situation perhaps it would be different. If our customers were beating down our doors for the last scraps of grain in the bins then competition would drive prices up. Right now as the world produces the largest crops in the history of the planet competition drives prices down.

[nejar]

Vader
What gives the CWB the right to arbtrarily say that competition is not good for Western Canadian Farmers. You sounf like Pierre Trudeau.

[silverback]

Once again I stand in awe of the comments made by you Vader.

"Competition is not good for farmers". How utterly ridiculous that comment is. You are obviously saying that the grain companies are evil entities that are going to destroy the farmers of Western Canada, and the CWB is going to save us by controlling our lives and our grain. Right?

If this is the position of the CWB, why don't you put out a press release to all farmers clarifying your point?

[Vader]

You guys just don't get it. You spend most of your day to day lives buying stuff. You buy your pick up truck, your groceries, your long distance service provider, your farm fuel, your fertilizer, your combine, and on and on and on. In every one of these situations competition is good. It is good because you are the buyer.

On the flip side every corporate entity in the world secretly (some not so secretly) desire to eliminate competition and if at all possible to have a monopoly. Why is that? Because to them competition is a bad thing.

So you see competition in and of itself is not universally good. If you think that it is you had better take a course in Economics 100.

When it comes to farmers selling grain competion does only one thing. It drives down grain prices. I am not talking about the competition of grain companies buying your grain from you. That is the opposite side of the coin.

Perhaps where we differ is in your view as to whether the Canadian Wheat Board is a buyer of your grain or a seller of your grain. I quite understand that if you view the CWB as the buyer of your grain that you want competition. What you want is for the Canadian Wheat Board to be reduced to just another grain company out there buyer your wheat and barley. In this role they would be virtually powerless as they would be under-capitalized and completely without market power in the world of multi-national grain companies. Just look at the corporate consolidation going on in that sector. Our domestic grain companies are having great trouble surviving as the goliaths battle it out for market share. On that battlefield the CWB grain company would become completely insignificant and would have absolutely no ability to impact on the profitability of your farm.

On the other hand if you see the CWB as the seller of your grain as I do then the conclusion is also obvious. I do not want to see you competing against the CWB (me and my grain) to drive the price of both of our grain down to the benefit of our international customers. I want the CWB to set the price of grain sales to Japan, China, England, Italy and dozens of other countries and I don't want you competing with them, either directly or through your multi-national grain handler.

Competition is good for farmers when they are purchasers. Competition is bad for farmers when they are sellers.

Have I made myself clear?

[TOM4CWB]

Vader;

The stand you take is for simple minded people.

However, the world is complex, not simple and certainly not the experience of many who grow and sell many times over what you produce.

I hope you can be humble enough to listen to many who experience the exact opposite of what you state as "a fact".

Buyers do compete for a product, and do drive prices up. Take a look at auto fuel for one second. Please listen to folks with practical experience and common sense... they have life experiences that prove their point!

[Vader]

tom4cwb,

auto fuel is perceived to be in short supply so ... yes buyer competition is driving prices up.

Show me a situation where a commodity is in a perceived oversupply, and where buyer competition is driving up prices.

[agstar77]

Vader is right buyers only compete for products that they fear are in short supply. Witness the lineups for gas . If you can create the perception that food is scarce you can name your price. It is not in the interests of multinational grain to create shortages , they deal in volume, price doesn't matter. They will sell at whatever price is necessary to move volume and you know who will take the short end of the stick.

[wd9]

Vader, the thing that drives many of us up the wall is the way terms are used by the CWB but are not defined in the real world that way. I hate to get into this one, but there is too much frost to combine till lunch time anyways.

Monopoly: exclusive ownership through legal privilege, command of supply, or concerted action. A commodity controlled by one party.

If wheat was only sold in Canada, and Canada could not import from any other country, only selling Canadian farmers wheat, the CWB has the legal right to charge in pure monopolistic fashion whatever they want because they have a monopoly.

The reality is the CWB is just one of many sellers worldwide and carries no monopolistic power to sell. What producers receive is simply a dollar cost average of all the wheat produced in Western Canada, sold on the open market worldwide as is legislated.

Vader, you shouldn't confuse monopolistic pooling, or the legal right to sell all the Western Canada's wheat and malt barley production with that of a true and real world monopoly. I must say, the CWB spin doctors have always done a good job of this. The CWB doesn't even have a Canadian pooling monopoly as eastern Canada is not included.

If Canada was the only country in the world that produced wheat, and the CWB was the only "seller" of this wheat worldwide, then it would be a monopoly. The only monopolistic action in Western Canada is the pooling, not the pricing. That is a big difference.

True legalistic monopolies scarcely receive less money than an open market system. Sony and Phillips and the compact disk is more than proof enough. A portion of every CD produced and sold in the world S & P get a cut. The problem is the Western CWB is not a true monopoly and therefore is forced to simply be another seller, albeit a big one, its only perceived advantage.

[Vader]

wd9, I agree with you about the whole monopoly thing. I do not use that term in regard to the CWB. I know that people find it offensive and that the definition does not fit.

Western Canadian farmers (and the entire grain handling system) must strive to maintain a reputation for a highly differentiated quality product. When it comes to #1 milling wheat and durum we have that to a limited extent. Certainly other countries compete in that market but the supply can be somewhat limited. Hence there is an opportunity to extract a premium. The CWB acting as a single desk seller of this premium product does have the ability to maintain this premium pricing structure.

The CWB does not have a monopoly but they can influence prices in an upward direction. You could argue that they could also influence prices downward and this is true. The question to ask is what motivates the CWB sales department. Certainly they do not answer to shareholders, nor do they work on a quantifiable margin. The problem is the federal government involvement and producers distrust of the feds. If the CWB was completely delinked from the federal government, and there was no minster-in-charge, no spending approvals, no govenment appointees on the board, and the CWB was completely controlled by farmers, then there would be no other conclusion but that the CWB worked only in the producers interest to drive prices upward. The best intentions of the CWB can be to work in the farmers interest and this attitude can be drilled down throughout the organization but the proof is not there as long as the government is involved.