Like the US, Canadian farm policy can be seen as having evolved as a set of policies best fitted to the culture and context of the Canadian farm system in the light of the character of the Canadian political processes and the circumstances of the markets in which Canada has operated.
Once again, geography and history are important. Canada is a young country - established under the British North America Act in 1867, which embodies the Canadian constitution, and was only patriated to Canada in 1980.
Most of the farm land (and population) lies within 150 miles of the US border. The west coast is ÔisolatedÕ by the Rocky Mountains (and two other adjacent ranges), while the three Prairie Provinces (Alb., Sask., and Manitoba) are separated from the east by the Canadian Shield north of the Great Lakes. Thunder Bay is an ocean going port for 9 months, thanks to the St. Lawrence seaway. The west (and the ÔPalliser TriangleÕ - a wedge of farm land with its point at Winnipeg and its vertical side from the Albertan border to just north of Edmonton) was tied into Canada with the building of the Canadian Pacific Railway (CPR) linking Montreal to Vancouver, completed in 1885. Prior to this, the quickest way from Montreal to Vancouver was round the Horn in a sailing ship.
The western provinces and the grain-growing prairies were not settled until the building of the railway, which was financed through the new Federal Government giving grants of land to both new settlers direct and also to the Canadian Pacific Railway company - who sold this land to new settlers to finance the building of the railway. Most of these settlers came from Europe, especially Central Europe, on the promise of the land of milk and honey, only to find that the Canadian Prairies only grow grain when there is rain, and the rains are not reliable. Otherwise, they are dry grasslands with few trees, long and very cold winters (September to May) and short and very hot and dry summers, plagued with flies and mini tornados and hail storms which can wipe out complete crops in particular localities. The land was distributed on a grid square (1 mile by 1 mile sections= 640 acres) basis, with most allocations being 1/4 sections in the first instance. Most farms in Saskatchewan and Manitoba, especially, remain less than a full section in size (less than 640 acres), with many part-time farmers.
Prior to this, Canada existed as four rather spearate and independent entities: Ontario, previously called Upper Canada - largely WASP and British, and settled only in the southern belt, capital and financial centre Toronto; Quebec, previously called Lower Canada - being lower down the St. Lawrence river, and predominantly French, capital Quebec city, main financial centre, Montreal, which was also the HQ of the CPR; the Maritime Provinces of Nova Scotia, New Brunswick and Prince Edward Island (Newfoundland did not join Canada til 1947), with a mixture of French and Scots, mostly fishing and farming; and British Columbia, isolated from the rest of Canada and only persuaded to join the Federation by the building of the CPR.
Upper Canada had accumulated a number of British sympathisers from the US war of Independence, and had been at war with Quebec until General Wolfe defeated the Lower Canadian French in the battle of Quebec city and the two provinces came under British rule. There is a more or less continual battle between Quebec and Ontario which permeates Canadian politics as a result of this history. Until the discovery of oil in Alberta and northern Saskatchewan in the 1970s, the western provinces (the three prairie provinces) remained economically poor compared with eastern Canada (especially Ontario and Quebec) which held most of the economic and political power.
In short, Canada is a triumph (or shame) of the power of human politics over the constraints of physical geography. The country is geographically rather silly - 95 % of the people live within 150 miles of the US border, making it an extremely long and thin country, which defies the natural transportation routes which are moslty north/south rather than east/west. Canada continues to exist because it is not the US, this common determination being the major reason why Canada continues as a separate country.
British North America Act, 1867 (re-patriated to Canada as the Canadian Constitution in 1980). Parliamentary system works on the UK model.
"In each province, the legislature may make laws in relation to agriculture in the province" "The Parliament of Canada may make laws in relation to agriculture in any or all of the provinces and any law of the legislature of a province relative to agriculture shall have effect in and for the province as long and as far as it is not repugnant to an Act of the Parliament of Canada."
Thus
Agric: 168m acres /293,089 census (commercial) farms (ave 573acres/farm) farms with > $82,000 gross sales = 25% of No. and 74% of sales
Farm pop. = 4.3% popn.; 3.2% GDP (14% in Sask.; 0.4% in Newfoundland) agri-food system accounts for 8% of GDP (1994), 15% of employment and 25% of trade surplus
Farm receipts 50/50 crops /l'stock (Sask 70% crops; Que 14% crops)
Trade - Ag trade as % of total trade: X 7.7, M 5.7 Ag. exports C$15 bn, 1994, trade balance of + C$3 bn. Grains & Oilseeds = 65% Ag X. major trading partners - %AgX: US (27.3%), FSU and China (26.6%), DCs (20.1%). Japan (14.6%) - %AgM: US (57%), EC (10.1%)
Share of world Ag. X: 3.4%; of Ag. M 2.0% - Wheat (20.%); Barley (24%); Rapeseed (45%). Hence price taker in all but wheat (close subs. for others) but for wheat Can X = 3.6% world consumption - so even here largely a price taker.
The figure below outlines the major development of farm policy from two major roots - Transport and Credit.
The strands become inter-twined and over-lap to generate a principle concern with market performance - can farm markets provide both the economic engine for development and a fair return for the farmers as political constituents. In other words, Canadian farm policy wrestles with the same problems as other devloped countries.
The span of regulation (as of mid 1990s) is illustrated in the next picture:
The outline meaning of these abbrevations is as follows:
Current Dominant themes: Growth - Market Orientation - Competitiveness - Stability
ÒThe Vision embodies five goals for the sector:
The policy changes included:
History
The following table outlines the major dimensions of the regulated rail freight rates. It seems certain that the railway's cost of moving grain in 1900 was substantially less than the fixed rate they agreed to in 1897. It was only by the 1960s - 1970s that the railways found they were losing money on grain traffic. They (The CPR and the Canadian National Railways) would have stopped hauling grain if they could, but were legally required to haul the grain that the CWB wanted to move. However, the railways were not legally obliged to invest in rail track or waggons (cars) or engines to cope with the grain movements, so the CWB found that it could not move the total volumes it needed to because the railways had insufficient capacity. Complaints to the government resulted in subsidies to the railways to allow investment and maintenance of branch lines, and investment in grain cars (the government bought 5,000 dedicated 100 tonne hopper cars for the CWB to move grain).
| Year | Rates:
Regina to Thunder Bay cents/cwt |
Miles of
track |
Vol. of grain moved
M. tonnes |
Wheat price
$/cwt. |
Long Run Variable Cost of rail movement (cents/ cwt) |
| 1906 |
18 |
6,000 |
0.6 |
1.45 |
<<18? |
|
1920 |
24 |
15,000 |
2.7 |
4.17 |
? |
|
1935 |
20 |
19,000 |
5.0 |
1.33 |
? |
|
1975 |
20 |
18,700 |
18.2 |
6.63 |
52 |
|
1981 |
20 |
15,000 |
23.7 |
10.4 |
100 |
Meanwhile grain farmers in western Canada were determined that the Crow Rates should stay - these were the only costs that they could rely on as being fixed. If they were not fixed, then the railways would overcharge through their monoply. The Crow's Nest Pass Rate was regarded as the Western Canadians' birthright.
Consequences of the fixed freight rates.
1. Subsidized freight rates mean losses to railways and inability to finance maintenance and investment in track or rolling stock, leading to subsidies from government to purchase grain hopper cars and maintain branch lines (predominantly used for grain traffic). Inevitable fights about how much is necessary to make railways financially "whole", and insufficient subsidy to keep rail capacity adequate to move Canada's exports.
2. Given that Canada is a price taker on world markets, the grain price is fixed at the ports (Vancouver and Thunder Bay) so subsidy (gross rail losses excluding government subsidies) means that grain prices are higher in western Canada than they would otherwise be (by 80¢.cwt. in 1981)
3. As a result there is an incentive to produce (but more importantly export) raw grain rather than produce other things and process grain through livestock or into oils and meals (rapeseed) or flour in western Canada. Thus, there is a loss of value added in these activities in western Canada.
4. Given some information (models) of grain and livestock production in western Canada, and some estimates of values-added in further processing associated with these changes in production, the effects of changing the freight rates to minimum compensatory levels (Long run variable cost of rail movement) can be estimated:
The impact of charging grain producers the full rate on grain movements would be to reduce the gross receipts from grain production in western Canada while reducing the costs of livestock production and eliminating railway losses and government subsidies. Thus the grain producers' loss is offset by railway, government and livestock producers gains (the residual not shown here is accounted for by gains to grain processors and on seed retained in western Canada).
The possible (best estimates of) effects of these changes are to reduce grain production, encourage livestock production and feed use within western Canada and associated processing. The net gain in values-added (approximately equivalent to national income) as a consequence of the change is an indication of the inefficiency of the Crow rate. However, there is still the substantial economic and political problem of how to compensate the losers (grain producers). A possibility is to convert the stream of future estimated losses into a capital sum; issue government securities (bonds) to this amount and distribute these to the grain producers in proportion to their grain land holdings. Farmers could then "clip the coupons" (ie collect the interest) or sell the bonds to finance diversification etc. The government could redeem its debt at any time by buying in the bonds, while the initial distribution could be targeted to those most in need, through negotiation with farmers' groups about the total and the distribution.
Finally, in 1995, the Crow Rate was repealled: The following is an edited version of the text of the Government explanation of the change in policy
Reasons for change: There are at least four compelling reasons to reform the western grain transportation system:
Key components of reform The western grain transportation reform package includes five components:
...A system will be put in place to ensure the provision of necessary information, monitoring and review processes - to track system revenues, costs, efficiency achievements and an appropriate sharing of benefits. - Minimum Compensatory Rates or special rates for moving canola by rail to eastern Canada will be eliminated. - The transportation pooling calculation used by the Canadian Wheat Board to determine its local delivery point prices across the prairies will be revised, effective August 1, 1996, to be a more accurate reflection of market returns and costs. Transitional assistance will be available (see below). - Further consultations and analysis will be undertaken before the end of 1995 with respect to grain car allocation procedures and the future ownership of government-owned grain cars.
Origins. Grain production and marketing has always been a precarious business in western Canada, which is where most of it takes place. Not only is production highly variable and sensitive to climatic conditions which are at the limit of profitable grain growing (especially in terms of moisture), but also the prices received for grain are largely determined in the world market with all its attendant variability.
The Standard Deviation for real grain revenues is about 40%, even with the various methods of stabilising these returns in place. These conditions, coupled with the linear distribution/transportation system which gives rise to potential monopoly exploitation of the grain farmer, have led to an emphasis on "orderly marketing" and cooperation which is not evident south of the border.
b. CWB's Operations:
Objectives:
Instruments:
Western Grains Stabilisation Act (WGSA - 1976). Introduced to stabilise grain margins in western Canada (the CWB area - mainly the three Prairie Provinces with a little bit of BC).
Differs from previous stabilisation instruments under the ASA (Ag. Stabilisation Act) in that:
Example Calculation of WGSA payments:
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Notes: Payout per producer = (sum of 3 years levies paid in by producer ÷ sum of total farmer levies) * total payout amount. Eligibility ratio reduces net cash receipts for those receipts which are not eligible (corporations and production in excess of farm limits - $60,000 total receipts per farm). Participation Ratio records the proportion of total eligible net receipts to the net receipts of those actually signed up for the voluntary scheme.
There were some problems with this original calculation in that in some years the same calculation carried out on a per tonne basis yielded different results. In 1984, the WGSA would not have triggered a payout based on the original calculation as above, so a second trigger was introduced - the per tonne calculation, which eliminates the variation in cash flows associated with variations in total production. The payout was then made on whichever of these two calculations gives the greatest potential payout. Spriggs (Canadian Journal of Ag. Econ. 33 (2), 1985, 209 - 230) estimates that this change generates payments 20% higher than without it.
In 1985, the US Food Security Act reduced loan rates and thus reduced world grain prices which triggered a payout of $859 million in 1985/6 and $1,398 million in 1986/87, putting the WGSA into deficit of $1.5 billion. Total contributions under the provisions of the Act barely covered the interest on this deficit.
In spite of the WGSA, the returns of grain farmers were disastrously low in 1986/87 and a Special Canada Grains Programme was introduced as a temporary measure ($1 billion) to provide assistance following the decline in world prices consequent on US policy changes in the FSA 85. This programme made per tonne payments direct from the Federal Government based on 1985 areas and yields and an estimate of the "price depressing" effects of the US and EC export subsidies which can be seen as "legitimate" protection of Canadian farmers from the trade effects of other countries policies. The Special Programme was extended to the 1987/88 crop year ($1.2 billion).
A Cash Flow Enhancement Programme, as an Interim Measure announced October 1990: to provide interest free cash advances of up to $50,000 against undelivered grain; about $1.4bn is expected to be advanced, providing about $95m in interest relief; effective only for the 1990/91 crop year
Developments of the Stabilisation schemes
CANADIAN SAFETY NET PROGRAMMES - 1991/2
Gross Revenue Insurance Plan (GRIP) - effective for all grains 1991/2. This programme is intended to replace existing crop insurance programmes operated by federal and provincial governments with contributions by producers. Came into operation for crop year 1991 in most provinces.
Net Income Stabilisation Account (NISA) - effective for all grains, 1991/2 This programme allows participating farmers to contribute to an individualised trust account in good years, which then provides funds in poor years. It is a replacement for the WGSA, which is discontinued.
Clearly a number of details had to be finalised for this plan to become operative: a) The net income trigger (suggested set at the provincial level within national guidelines) b) the schedule of contributions from farmers and from governments, and allowable variations; c) methods of 'loading' accounts at the outset of the programme, so as to allow for payouts in the early years, (a transition would be possible from the WGSA for Wheat Board area farms, which transferred WGSA payments to these NISA accounts).
Third Line Defence Seen as the development of disaster insurance programme to cover those circumstances when neither NISA nor GRIP are sufficient to prevent serious loss of net revenue by producers, such as prolonged droughts and depressed world prices (often due to other countries policies). The details have not yet crossed the Atlantic, if they have even been finalised in Canada, but essentially provide for the establishment of further ÒSpecial ProgrammesÓ in the event of US or World market events leading to a collapse of world grain prices (+/- equivalent to US retaining the capability of the EHP)
Some comments on GRIP Gross Revenue Insurance Plan (Grains and Oilseeds) (See Gray et al. Choices, Third Quarter, 1991, p34 - 35)
Implications for efficiency:
Implications for Equity i) Shifts burden towards Provincial taxpayers (Saskatchewan's tax bill for safety net support goes up by 355% from $C42.5m to $C196.5m). ii) No payment caps - large farmers get more.
Suggestions for Improvement: move to area based programme, away from crop and producer specific yields and areas. In fact, by 1995, GRIP had already been terminated in Saskatchewan, replaced by a development and adjustment programme in this province.
1995: Budget Statement: ÒFinancial Security for Producers"
"The key to financial security for producers is long-term, stable growth. Research, market development and transportation reform are all critical elements of the government's growth and diversification strategy for the sector. Backing this up will be a safety net system to help farmers manage their financial security.
Starting in 1995, federal and provincial Ministers have agreed to a comprehensive national safety net program including whole farm income stabilization that builds on the NISA approach, crop insurance for all commodities, and companion programs, as required to meet specific provincial circumstances.
As a result of this Budget, the federal cost of the new safety net system will be $743 million in 1995-96, $713 million in 1996-97 and $600 million in 1997-98. This $600 million will be matched by $400 million from the provinces, as agreed in December 1994 by federal and provincial Ministers of Agriculture. Altogether, this represents a substantial commitment to support a sector with net annual income of about $4 billion, while recognizing agriculture's inherent instability and the government's severe fiscal limitations. Program spending will be allocated as follows.
As well, the cost of administering safety net programs will be reduced and NISA operating costs will be cut. Administration fees will be put in place for major programsÓ.
Thus, Canadian policy has shifted, at least for grains and red meats, from market intervention towards development of meaningful and sustainable stabilisation schemes - the emphasis for Canada, faced with both production instability (volatility) because of weather, and with price volatility because of world market and excahange rate fluctuations. But - question - the difficulties of designing effective stabilisation programmes are severe - why especially?
Much of Canadian policy development seems to be explained by the geography and history of the country. Early settlement was predominantly east of the great lakes (Ontario was originally called Upper Canada - being on the upper reaches of the St. Lawrence river, and southern Quebec as Lower Canada). Farms were the mainstay of the political and social life - preservation of the family farm and ÒorderlyÓ marketing a plausible outcome of this history. The settlement of the prairies happened relatively recently (last quarter of the 19th C and first quarter of 20thC), and depended fundamentally on the construction of the Canadian Pacific Railway from Toronto (on Lake Ontario) north of the great lakes and straight across to Vancouver. The CPR both opened up Western Canada and also resulted in the rapid settlement of western Canada - the railway was partly financed through federal land grants to the CPR, who then sold land (every other square mile - a ÒsectionÓ) to pay for the construction. Immigrants from central and Eastern Europe (especially) settled the Canadian Prairies and converted buffalo ranges into the grain belt (a wedge with its eastern point south of Lake Winnipeg and its western boundary on the eastern edge of the mountains) during a 50 year period from the construction of the CPR to the beginning of WWI.
This rapid settlement by small farmers with very limited capital and faced with ÔmarginalÕ conditions - water being the seriously limiting factor, winters both long and seriously cold, summers hot, dry and infested with vicious flies - contributed to the strong co-operative spirit in western Canada, exacerbated by their exposure to monopoly power by both railways and private elevator companies and the long single-track transport haul either to the East (Thunder Bay at the head of the Great Lakes) or west to Vancouver. Lack of competition on this transport route was a major contributor to the development of western grain and transportation policy (the Crow, the CWB)
In contrast, the settlement south of the border (North Central US) took place over a much longer time span, and occurred against a more Òcircular and spokedÓ geography. The Mississippi/Missouri river system provided a natural and cheap transport system for bulk commodities (though the continual dredging and maintenance of navigable channels is not free to the state - provided through the US defence budget being carried out by the US Marine Corps engineers - it is largely free to the trade), while multiple rail links to the Lakes and the west and east coasts had developed earlier and provided valuable competition to the river system. Couple this with the American culture of free-enterprise, and the emergence of a quite different grain marketing and policy complex in the US is quite understandable (I think).
The 1990s sees the uneasy marriage of these two quite different systems - blessed through the signing of the Canada/US Free Trade Agreement - CUSTA - (1989) subsequently extended to include Mexico as the North American Free Trade Act (NAFTA). Two major rows have emerged as a consequence of the CUSTA:
i) The Canadian row over the potential establishment of a ÒSingle North American Barley MarketÓ - or Continental Barley Market (CBM) in effect, removal of the CWBÕs single seller rights over Canadian Barley into the US market, and which could be seen as the Ôthin end of the wedgeÕ in the erosion of the CWBÕs single selling rights over all Canadian grains.
In June, 1993, the Canadian Government implemented an ÒOrder in CouncilÓ with effect from August 1st., 1993 to establish the CBM. The action was challenged by the three prairie grain co-ops in the high court and was deemed ultra vires - outside the law, which required a parliamentary decision to amend the CWB act rather than being allowed through an executive order-in-council. Thus the CWBÕs single selling rights were (probably temporarily) restored.
ii) The Wheat War of 1994: Pre CUSTA, Canada had a system of import licenses for wheat (effectively denying imports) while the US imposed a $0.21/bu. tariff on wheat imports, over which the US had traditionally imported a quantity of Canadian durum wheat (from which pasta is made). CUSTA involved the removal of both the tariff and the import license system, effectively creating free wheat trade between Canada and the US. Exports of wheat (durum, milling and feed) increased substantially from Canada to the US from 1992/3, though still only to 3% of total US supplies. However, these imports created tension in the US and appeal to US trade legislation to limit such trade. These trade disputes culminated in a US International Trade Commission (USITC) inquiry in January, 1994 under ÒSection 22Ó. Section 22 of the US Agricultural Adjustment Act (1933, as amended) allows the US to impose import tariffs or restrictions in the event that imports to the US Òmaterially interfereÓ with the price support, payment and production adjustment programmes of the US, notwithstanding CUSTA. Prior to this manifestation of the dispute, durum wheat producers in North Dakota had protested that Canadian freight rates (the Crow) constituted an export subsidy contrary to CUSTA, but this was ruled against by the US Trade Representative, since the transport rates applied to all Canadian exports, and were not specific to exports to the US (indeed, such subsidy as then existed only applies to exports to the US through either Thunder Bay or Vancouver). Similarly, an earlier attempt had been made to claim that the CWB was dumping (i.e. selling below acquisition cost) durum wheat into the US market, but this had similarly been ruled against, on the grounds of no evidence. What are the major arguments?
The Continental Barley Market Debate: The Canadian/US Market Pre 1993 the Canadian and US barley markets were largely separate. Price differentials between the two markets exceeded transport and handling costs (the Canadian market typically being higher, mostly because of the malting barley premium in Canada). The CWB argue that it is able to Òprice to marketÓ (that is price discriminate between buyers to maximise returns to member producers) and that unrestricted sales Òoff-boardÓ to the US would depress the US and hence the effective world price against which the CWB has to sell in other markets. In addition, the CWB is able to command a substantial premium for malting barley, which does not appear in the competitive US market. The CWB operates a separate malting barley pool, and has sole trading rights over malting barley, including domestic sales, where it manages to charge a 20% premium over equivalent US prices. Typical malt-feed price differentials in Canada are of the order of $60/t compared with $25/t in the US. This malting premium would disappear in any event as a result of CUSTA, (regardless of the CWBÕs control over exports) since the free trade act removes the trade barriers between Canada and the US (Carter).
Canadian Production and Trade: Canadians plant some 70% of their barley area to lower yielding malting varieties, yet only use some 15% of this area for malting (total production 12 - 13 Mt, of which 5% goes for malting). About 60% of the total Canadian crop is used domestically, mostly for feed, the balance being sold through the CWB. Current exports to the US amount to only 2% of the Canadian crop. Carter argues that the CWB practice of limiting barley exports (to target premium export markets), results in the CWB realised barley price being above the Òoff-boardÓ open market local price (by about 3%), while comparisons between the CWP realised price (initial plus final payments) and the US Minneapolis price reveals a premium in the US of about 4% over the last ten years.
US Production and Trade: The US farmers plant 60% of their area to malting varieties and use some 70% of that area for malting (9 - 10 Mt total production, of which 1% goes to malting). Most is grown in the Northern plains (the Dakotas and Minnesota - mostly malting varieties) and the west (Idaho, Montana, Washington State and California - mostly feed), and accounts for only 5% of total feed supplies - the bulk being made up by corn and sorghum. The malting market in the US has been growing tighter, with major maltsters contracting larger areas and holding large stocks against variations in supply, while Carter argues that the Pacific North West of the US is in substantial feed grain deficit (contrary to the CWBÕs view).
The World Market: Most barley around the world is for feed, 10% approx of world supplies are used for malting, though in Australia and the US the proportion of malting barley in the total crop is closer to 33%. The EU, Australia, Canada and the US are the major exporters (85% of world trade), Saudi Arabia, Japan and Former Soviet Union (FSU) are the major importers - 60% of the world market. Most trade is conducted through the private trading companies - direct sales from single selling agencies (SSAs) like the CWB to single buying agencies (like the Japanese Food Agency or the Chinese Ceroil Food Inc. or the FSUÕs Exportkhleb) account for about 10% of the trade.
The Questions:
1. Can the CWB Price Discriminate and does it pass back the potential benefits of this to producers? Carter argues that single desk selling can only produce higher returns if the agency can price discriminate - that is sell into different markets between which there is no arbitrage - markets are sufficiently separate that traders cannot buy in the cheap market and sell in the dear market to equalise prices (net of transport and handling charges). Simply trading on quality differences does not count here, since a private competitive trade would be expected to manifest genuine quality premia. Against the potential benefits of price discrimination must be set the potential inefficiencies and higher costs of the single selling agency. Carter points out that the basis of the potential gains is questionable since the CWBÕs share of the total market is small and also that most of the trade is carried out through the private grain trade in any event. CarterÕs paper reports some statistical testing of the CWBÕs argument that it can and does price discriminate and finds no support. He also finds no evidence that the CWB can influence the US price by restricting sales into the US market. Against this, Brooks argues that the CWB prices grain through the private trade on condition of the final purchaser and that the private trade is simply acting as a commission agent, not as an independent seller of Canadian grain, - hence preserving the ability of the CWB to discriminate, and also argues that the share of the market is quite irrelevant to the ability of the CWB to price discriminate between markets (true). Brooks states that the CWB can command a premium for barley in the Japanese market (for instance) because the US EEP does not apply to the Japanese market, and argues that the CWB can increase this premium through restricting sales to Japan - which would be impossible in a competitive market.
2 How efficient is the grain handling and transportation system in Canada and would this be improved through competition in a CBM? (total elevation charges at both primary and terminal elevators appear to be substantially higher in Canada than the US - by as much as four times).
3. How efficient is the market pricing system in Canada? How do Canadian producers know the real price at which their product is being sold, given that the CWB operates the price pooling system? If they do not, then their production decisions (which varieties to grow) will be inefficient and a CBM would improve this efficiency. Again, Carter cites literature which demonstrates pricing inefficiency in the Canadian barley market.
4 What is the effect of the US EEP? It might be that Canadian imports simply replace a larger volume of US exports under this programme, and thus are as temporary as the EEP. Carter argues that EEP has raised the US barley price, thus encouraging Canadian barley exports to the US so long as the EEP is maintained, though the effect is small.
5. In short, are the gains to be made from a single seller agency enough to offset possible inefficiencies in a regulated market? Carter argues not, and hence that a CBM would be in Canadian producers interests, notwithstanding the loss of the malting barley premium (which Carter argues is going to disappear in any event as a consequence of CUSTA - now NAFTA, regardless of what the Canadians do about retaining the CWBÕs export monopsony). However, Gray et al. present some evidence that the elimination of the CWBÕs monopsony would reduce Canadian farmersÕ revenues, especially through the loss of the malting premium, but also on the feed market, arguing that transport and handling efficiencies are small to non-existent. Veeman (CJAE, 41, 1993, 283 - 287) reviews the opposing arguments and concludes that, on balance, a CBM would be likely to show modestly small gains (in a comparative static sense) over the single selling agency (the CWB). However, she points out that the major political debate is about distribution of gains and losses, not about the overall efficiency of the marketing system. Those close to the US market (southern Alberta) stand to gain, while those more removed from the US market (Saskatchewan and Manitoba) may loose - since the price pooling system tends to equalise returns at present. However, the CWB is under pressure to substitute grower contracts for delivery quotas and to introduce more regional, geographic, price differentials in its pooling arrangements in any event - in the interests of efficiency, which will also lead to gains and losses between those close to and removed from market outlets. Perhaps these difficult political issues will be easier to resolve within the CWB framework rather than outside it.
The Wheat War (Alston et al. CJAE, 42, 1994, 231 - 251) Durum wheat exports post CUSTA from Canada to the US have been encouraged as a consequence of the US EEP programme (which generates a premium in the US market for durum wheat). They will be further encouraged (as will other grain exports) by the removal of the Crow subsidy - the Western Grain Transportation Act subsidy, w.e.f. 1995) which will make road haulage south more competitive with traditional east/west rail movements. Weather conditions in 1992 - 1993 - poor harvests and predominance of feed grains and shortages of milling quality grain, contributed to a surge in Canadian exports (from the region of greatest excess supply). North Western US farmers (the wheat growers) are opposed to NAFTA as they see their market being undermined by Canadian exports, hence exerting political pressure on the US government - hence the Òsection 22Ó referral by the administration. However, as Alston et al. point out, section 22 actions are now illegal anyway, following the GATT agreement, though agreed action to increase tariffs under specific conditions (between the affected countries - the US and Canada in this case) is technically allowed for under Article 28 of the GATT.
The USDA argue that Canadian exports to the US depress the US price and thus add to the costs of the US deficiency payment costs and loan rate activity, and also damage US farmers returns (apparently based on Ôexpert opinionÕ rather than any explicit model of the north American wheat market). Alston et al. present the outline of a quantitative model of the North American market, which explicitly deals with the heterogeneity of the market between milling, durum and feed wheats and the likelihood that substitution between the same type of grain from different origins is less than perfect, and conclude on the basis of this model that the USDA substantially over-estimates the effects of Canadian exports to the US on the US market.
Although the USITC (International Trade Commission) did eventually reach a split and contentious conclusion that some control was justified on Canadian exports, the US did not take action under this legislation (which would have been contested by Canada). Instead, the US negotiated with Canada under Article 28 of GATT and the Canadians have agreed to a temporary restraint on wheat exports to the US for the 94/5 crop year - through Òtariff rate quotasÓ - limited US imports, with over quota imports charged higher tariff. The two governments also established a binational commission to examine all aspects of the Canadian and US marketing and support systems, due to present preliminary recommendations in May, 1995 and a final report by the end of July, 1995. (Now out in its huge entirity, and not yet fully read and digested by your lecturer!! - it doesnÕt actually appear to say very much except that the problem is difficult with many sides and that a Ôwatching briefÕ will have to be kept on the situation, with both countries committed to behaving within the GATT WTO rules and procedures.)
Conclusions The integration of the CWB system with the loan rate/set-aside/DP system in the US is clearly giving rise to at least adjustment problems in the North American grain market. What are the possible outcomes?
i) complete elimination of all government and regulation in the NA grains market and the establishment of a competitive market - very unlikely except in the long term, since there are too many interests in maintaining the status quo, which is not yet accepted as completely unsustainable, though FAIR alters the nature of this debate - see above.
ii) further erosion of the support system in the US (as outlined in the US notes above) coupled with a more market oriented approach by the CWB - substitution of forward contracts between farmers and the CWB for the delivery quota system, more discrimination in prices within the CWB price pools, more information to farmers on the price prospects for CWB sales, substitution of storage premia for delivery quotas for Canadian producers, and possible removal of the Single Seller authority from the CWB (though this will take a considerable time to push through politically in Canada, at least if the history of the Crow is anything to go by, especially since the CWB does not actually cost the Canadian taxpayer anything, except in those cases where the initial payment guarantee actual results in a deficit in the pool accounts which is under-written by the taxpayer, which has only occurred three times in recent history).
iii) the present status quo, which seems unlikely to survive, given the commitment of both governments to the concept of free trade.
In short, I would expect further evolution of the CWBÕs practices to mirror those of a private grain trading house, with the single difference that the CWB will be maintained as a wholly producer owned operation, thus potentially passing all profits (and exposure to losses) back to producers. There will be continued pressure from the Canadian grain growers to ensure that the modified CWB retains as much competitive advantage over the private trade as is allowed under international agreements and rules.
For another view of the difficulties of integrating the North American markets, see attached pdf file: "US Perspectives on the Canadian Grain problem - a critical appraisal", by Johnson, North Dakota State University