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Wheat Next?

What the end of the Wheat Board’s single desk means in the long run

by Kyle Farquharson

Agriculture Canada received two permits for "experimental field trials" of genetically modified wheat in 2012, but department records indicate that Canada geese may have spread GM seed from the field trials to other locations. [Photo: agrilifetoday]
Agriculture Canada received two permits for "experimental field trials" of genetically modified wheat in 2012, but department records indicate that Canada geese may have spread GM seed from the field trials to other locations. [Photo: agrilifetoday]

VANCOUVER, BC—On the anniversary of his government’s decision to end the Canadian Wheat Board’s monopsony, federal Agriculture Minister Gerry Ritz was in a celebratory mood.

“[M]arketing freedom has delivered better market signals, more transparency, better competitive prices and most importantly increased cash flow,” Ritz told reporters gathered at a Saskatchewan farm in August.

Ritz noted that the prices fetched by wheat and barley have increased over the previous year, enabling Canadian farmers to enjoy enhanced cash flows. It’s a boon the minister attributes to the liberty of grain growers to market their product directly to buyers and pursue the best possible price.

While the minister’s argument may contain a kernel of truth, the reality is more complicated than his rosy assessment suggests. In years to come, the end of the Wheat Board’s single-desk system may portend a further consolidation of farms, readier entry into the Canadian food supply of genetically engineered (GE) crops, greater volatility in food prices and the demise of the Canadian Wheat Board (CWB) itself. A single-desk buyer is a monopsony purchaser from multiple suppliers.

Of consequence to farmers, 2012 was both the warmest year on record in the contiguous United States and marred by the worst drought in five decades. Crop yields dipped well below the previous year’s output, spurring grain prices to record highs by June. As a consequence, the market for Canadian grains was exceptionally strong for much of the year. For proponents of the Conservative government’s policy toward the CWB, the timing could not have been better.

But Darin Barney, a McGill University professor and Canada Research Chair in Technology and Citizenship, pointed out that one year is a very short time frame in the world of agriculture.

“Producers benefitted this year from high prices due to poor growing conditions in the United States and elsewhere, but this has nothing to do with the end of the single-desk, whose impact on farmers will be felt in times when the market for Canadian grain is not so favourable, or suffers periodic shocks,” he wrote in an e-mail to The Dominion.

“The measure of the value of the single desk to Canadian farmers is not what they can get for their grain over the short term in a strong market, but what they will get over the long term through periods of market downturn,” according to Barney.

Moreover, market signals suggests that, while 2012 was an unusually strong year for prairie grain farmers, the year to come may not be as favourable.

In stark contrast to the arid conditions of the previous year, the state of Kansas—the foremost wheat producer in the US—saw three times the typical level of rainfall for the month of May in 2013, according to the National Weather Service. The result thus far has been a more plentiful harvest and an attendant decline in wheat prices on US markets.

The prices of wheat and other grains on global markets have historically been volatile, but a series of factors has conspired to exacerbate this volatility since the turn of the 21st century.

These include unusual weather events, the diversion of arable land for ethanol production, growing demand for food in India and China, commodities market deregulation under the US Clinton administration, a move by investors (both institutional and individual) into commodities and commodity futures in the early 2000s after the collapse of the dot-com bubble and the global recession of 2007–08.

Sasha Breger Bush, a lecturer at the University of Denver and expert on the relationship between food commodities and financial markets, said the elimination of the CWB’s single desk exposes both prairie farmers and consumers to the vicissitudes of the market—a new normal in which some will fare better than others.

“Without the wheat board, world prices will pass right through to your farmers in Canada,” she said.

“It’s not impossible, once the wheat board goes away, for farmers to do better in certain contexts; they might be able to produce more, and export more, at higher prices.”

Indeed, in the year following the Harper government’s decision to eliminate the single-desk arrangement, this has largely been the case. Many wheat and barley farmers in the Canadian prairies have seen their profits rise on the strength of relatively high prices. But there’s another side to the coin. Breger Bush, who is also the author of Derivatives and Development: A Political Economy of Global Finance, Farming and Poverty, told The Dominion, “What disappears is the stability, and the certainty. So [farmers] are just as likely, depending on movements in global prices, to do less well.”

With the single desk out of the picture, market highs will be higher and lows lower for both farmers and consumers. There’s also likely to be an influx of investment in futures and other derivatives contracts for Canadian wheat and barley—the result of some farmers hedging their bets and market liberalization of the Canadian grain industry, Breger Bush added. Over time, this may also produce a self-reinforcing amplification of volatility on the international grain market, as investors and commodity speculators swarm into one of the world’s foremost wheat-exporting regions.

Over time, as costs associated with transport, marketing and storage mount for individual producers absent the negotiating clout of the CWB monopsony, economies of scale dictate that larger farms and businesses will thrive while smaller operations will founder. Small and medium-sized farms, short-line railroads and producer cars (rail cars hired and loaded on an individual basis by farmers) will increasingly find themselves out-competed for market share by their larger counterparts, and further, more rapid consolidation of the Canadian grain industry is likely.

“The winners [in the ending of the single desk system] will be the handful of transnational grain companies—Viterra, Cargill, Richardson Pioneer, Louis Dreyfus—that already dominate grain handling on the prairies and are now moving into the marketing business, and the railway companies who will no longer have to contend with the organizational strength of the Wheat Board,” Barney further told The Dominion.

Absent an influential lobbying force in the form of the CWB, multinational agribusinesses that patent and sell seeds also have the opportunity to gain a much greater foothold in the Canadian grain market.

In 2004, the CWB played an instrumental role in impeding a decision by the Canadian government to allow Roundup Ready wheat—a genetically engineered crop produced by Monsanto—onto Canadian farms.

Although broad scientific consensus indicates that the GE products already on the market for human consumption are safe, the prospective introduction of Roundup Ready wheat and barley into Canada would not come without risk. For farmers, the pitfalls of GE crops include their unpopularity in key export markets Europe and Asia (where labelling of foods containing GM ingredients is legally mandated in many countries) and the extra financial liability associated with the spread of patented seed varieties to the fields of farmers who have chosen not to plant GE crops.

Like all other wind-pollinated grasses, wheat is adept at disseminating its seed. But grass seed can be spread in numerous ways: by animals such as Canada geese, in grain elevators where farmers store and purchase generic seed, by vehicles that inadvertently spill small quantities while in transit. Agribusiness firms have developed a reputation for jealously safeguarding their patents on seed varieties, and Monsanto has litigated against some Canadian farmers (such as Percy Schmeiser of Saskatchewan) for saving seed that the corporation claimed as its intellectual property.

Currently, Monsanto is testing its Roundup Ready wheat in some fields in Western Australia. (A single-desk wheat board system prevailed until 2009 in Australia, which may become the first country to approve Roundup Ready wheat.) In the event that patented seed varieties of wheat and barley eventually make their way into the Canadian prairies, expect more lawsuits against prairie farmers to follow.

Since announcing its intention to dismantle the CWB’s single desk in 2011, the Harper government has channelled its majority mandate in the House of Commons as justification for what some farmers term a fundamentally undemocratic process. Since the establishment in 1998 of a board of directors that included elected farmer representatives, prairie farmers have voted consistently to maintain the single-desk arrangement.

Farmers voted this way again in a 2011 plebiscite, with 62 per cent of respondents indicating a preference to maintain the monopsony on wheat. (For barley, the plebiscite revealed a nearly even split of opinion.) In December of that year, a federal court ruled the Harper government’s move to axe the single desk, through Bill C-18, was unconstitutional. The ruling was overturned on appeal.

Though the single desk has long been a popular (if imperfect) system, the voices of dissent against the monopsony have remained loud and prominent within the ranks of prairie farmers, particularly as the Canadian farm industry has consolidated over the years, more farmers have felt inclined to market and sell their product to the customer of their choosing and multinational agribusiness corporations have sought new territories to colonize. Time will tell whether the CWB can survive as a voluntary co-operative and what impact the ending of the single desk will have on Canadian and world agriculture, grain price volatility and food security.

Kyle Farquharson is a journalist and freelance writer based in Vancouver, on unceded Coast Salish territory. His interests include the relationship between the economy, the environment, politics, social justice and human rights.

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