Posted: Thursday, July 21, 2011 10:00 AM
Vote would pressure move from monopoly to free-market system
Canadian wheat farmers are voting on whether to move from a monopoly to a free market system, but they may not have a choice.
The Canadian Wheat Board has sent ballots to 68,000 farmers asking whether they want to continue selling wheat and barley through the board or on the open market.
Vince Peterson, vice president of overseas operations for U.S. Wheat Associates, said the vote is a symbolic, non-binding action to put pressure on Canada's government, which has introduced legislation to end the wheat board's monopoly as of August 2012.
The board's vote is designed in hopes of averting the change, but that appears unlikely, he said.
Bill Toews, an elected director on the board and a farmer in Kane, Manitoba, said the vote may only amount to "slapping the federal government's wrists" and have little impact.
The legislation requires a vote to determine farmers' views, he said, but the government has decided to go ahead with the changes anyway.
"The main point is we think farmers have a right to have a say in the future of the marketing organization," he said.
The board decided to conduct the vote to determine what farmers want, and will try to convince the government to act accordingly, he said. The completed ballots must be postmarked by Aug. 24.
Loss of the board means farmers will lose the ability to garner additional premiums from the marketplace and the loss of Canada's standing in international markets, Toews said.
He fears Canadian grain companies would not maintain quality controls in the "hustle and bustle" of trying to maintain their profit margins.
An open market in Canada would level the playing field for U.S. wheat exporters, Peterson said.
"When we're talking with millers in the Philippines about the advantages of soft white wheat and U.S. spring wheat, they won't have the 'But I can buy it from Canada $10 cheaper' excuse," he said.
The U.S. has long had complaints about the distortions of a protected monopoly system like Canada's. Producers had to turn their wheat over to the board, which would sell it out of a pool and give back farmers a net return minus expenses.
"On any given day, the board and that pool could simply choose a price to sell the wheat at," Peterson said, noting the board often sold wheat at prices $5 to $8 per ton lower than U.S. prices and returned less money to the Canadian farmers.
Toews said the board has been found by the World Trade Organization and the North American Fair Trade Agreement to be a fair trader. He said U.S. critics of the board may actually admire the Canadian system and wish they could have a similar program.
Peterson expects a transition to a more unified North American wheat market.
"Right now, even though we're all the same continent, we have this artificial barrier of a border because we have two such different systems," he said. "They are not compatible with one another in terms of how wheat is marketed."
With the board gone, Canadian farmers, grain handlers, traders and merchandisers will have the ability to sell into the U.S. market, Peterson said
Tom Mick, CEO of the Washington Grain Commission, said the implications for the U.S. are unknown. Farmers in states that border Canada may meet in the near future to discuss the possible impacts, Mick said.
"We potentially see that quite a bit of grain could move down into the United States, and some could move into both the domestic and export markets," he said.
That raises questions about how the grain would be identified and graded, whether it would receive a special designation, what the volume might do to the U.S. marketing system and the potential effect on the U.S. reputation for wheat quality.
What would be the impact on prices?
"That's the big question mark," Mick said. "There could be no impact, there could be a significant one. My crystal ball just doesn't allow me to guess here until we know some of the other issues."
Peterson said Canadian prices have been "severely" artificially depressed compared to U.S. domestic prices, so more wheat might enter the U.S. "just because it can."
Canada has a good infrastructure of grain handling facilities and private companies, similar to the U.S., Peterson said. He expects large Canadian and international companies would be able to begin to operate in the new system fairly quickly.
"The Canadian market will get a competitive, daily-bid, dynamic market just like the U.S. market is," he said.
Canadian Wheat Board: www.cwb.ca
U.S. Wheat Associates: www.uswheat.org
Washington Grain Commission: www.washingtongrainalliance.com