‘An upheaval in the way that grain is handled’

The end of the single-desk Canadian Wheat Board signifies a major shake-up in the grain industry

Tannara Yelland
CUP Prairies and Northern Bureau Chief

SASKATOON (CUP) — In the eyes of University of Saskatchewan professor Murray Fulton, the demise of the Canadian Wheat Board presents more than an economic impact on the grain industry – rather, it signals a philosophical change.

“What we’re seeing is an upheaval in the way grain is handled,” said Fulton, a professor of economics and policy with the Johnson-Shoyama Graduate School of Public Policy. He presented a paper on the future of the CWB in December, shortly after a critical vote in Parliament.

Passed on Nov. 28, the Conservative government'’s Bill C-18 will go into effect on Aug. 1, 2012, ending the CWB’s monopoly on selling Canadian wheat and barley internationally. Western Canadian farmers produce 21 million tonnes of wheat, barley, and durum annually, 80 per cent of which is exported overseas.

While the bill does not legislate the dismantling of the board, it remains to be seen what kind of role the board will play, if any, in a deregulated grain market.

“This reflects a change in who is calling the shots in the grain industry,” Fulton said. “We have moved from an industry where farmers controlled a significant number of key institutions, key organizations within the grain industry, to where they don’t control much at all.”

Until recently, small farmers were integral to the operation of an agricultural market, which in turn was an important part of the Western Canadian economy. Co-ops such as the Manitoba and Saskatchewan Wheat Pools sprang up in the 1920s, which purchased grain from farmers at what farmers considered fair prices. After the establishment of the CWB in 1935, the wheat pools existed mainly to run grain elevators.

Over the past several decades, though, the farmers who have had some control over the CWB have been fighting a losing battle to retain power in their own industry. Small, family-run farms have been increasingly replaced by larger operations, many of which seem to fancy themselves competitive in international markets.

Large agricultural firms – the big three in Western Canada are Viterra, Cargill, and Richardson – have also been moving into the market and have challenged the idea that there should be a single purchaser of Western Canadian grain.

“If you go back in the late ’80s there were the last large payments to farmers by the federal government to support incomes,” Fulton said. “In 1995, the farmers lost the crow rate.” Fulton explained the crow rate is a reduced rate at which farmers could ship their grain on a specific rail line.

“The agricultural co-ops – Saskatchewan Wheat Pool, Manitoba Wheat Pool – they all disappeared in the early 2000s. So bit by bit, these parts of things that farmers controlled are falling away. This is kind of the last of the change that’s happened.”

With the CWB removed from its role as the sole purchaser of Western Canadian grain, Fulton said it is very much up in the air whether the board will continue to exist at all or not. And while the board has “indicated it’s going to try to continue to operate,” it faces stiff competition in the form of the large agriculture companies.

The companies also control about 90 per cent of the capacity for handling and storing grain at the three main ports in Canada. While the board can offer farmers a good deal and has extensive connections in the international market, it would need one of the large firms to lend it space at a port. Fulton is skeptical that this will happen, since it would mean a company putting another firm’s needs before its own.

“It would be a bit like a GM car dealership saying, ‘We have display space, we can advertise Fords in our showroom,’ so that people coming in could buy Fords from them as well,” he said. “They probably wouldn’t do that, and the reason is that they think they can sell Chevs if they keep Fords out of the showroom.”

If the board does fail in the newly opened market, there are many possible outcomes. Proponents of the board’s removal claim this will allow farmers to extract a fair market price for their grain, which would, of course, be good for farmers. They have laid out scenarios involving increased economic activity and more jobs, and say this will be a boon for the larger economy as well as for individual farmers.

Opponents of the bill believe that in the free market, farmers are likely to suffer dramatic losses at the hands of corporate giants, fearing that without the CWB to step in during times of trouble, farmers will be at the mercy of the market.

The reality, as Fulton sees it, will likely be different. Some farmers who live close to larger centres and have access to all three companies may see a modest increase in the money they get for their grain, because the firms will compete for the grain. Others who only live in the vicinity of one company may lose money. Neither group is likely to see a significant change.

The larger economic change will be on the side of the agribusiness firms, which stand to gain an enormous amount of money. By Viterra’s own estimation, it will be bringing in an extra $40 million to $50 million per year by 2014. Much of this money will come from farmers, Fulton suggested.

“Now, you take that over all the farmers and for each farmer that’s not all that much,” he said. “Some farmers won’t see much of a change at all; they may even benefit.”

Still, Fulton says the economic impact is of secondary importance compared to the fact that control of grain market will increasingly shift into the hands of the large agribusiness firms and the railroads, and out of the hands of farmers.

“I don’t think it’s going to have a huge impact on the overall economy,” Fulton said. “I do think that this is going to put a lot more money in the hands of the agribusiness companies, the rail companies, the grain companies.”