Wednesday, October 6, 2010

Does the CWB get premiums in barley?

They say they do.  They have studies that say they do.  The one they refer to the most was done in 2005 by Drs. Schmitz, Schmitz and Gray (I’ll call them SSG).

SSG says the CWB gets more from malt barley sales than a “multiple-seller” market environment would.  They say that between 1995-96 and 2003-04, the CWB earned an average “additional earning” of $35.25/t on 6-row malt barley and $40.29/t on 2-row malt barley.  Dr. Richard Gray (the “G” in SSG) told me that the study showed that the CWB gets no premiums for feed barley.  According to Dr. Gray, these additional earnings on malt barley are part of the malt premium over feed barley.  SSG says that without the CWB, these “additional earnings” – the malt premium – will disappear.

SSG took a theoretical, econometric approach to this problem.  I took a simpler approach.  I compared the pool returns in each of the years they studied and compared them to the average domestic feed barley price in central Saskatchewan (around Saskatoon), which is about as close as you can get to the lowest priced feed barley in the country.  If the CWB prices are going to shine, this is where they will shine.

The CWB’s 2-row malt barley price averaged only $7.38/t over feed and the 6-row malt barley price averaged $6.98/t under (yes – UNDER) the lowest priced feed barley in the country. 

This data shows that the CWB “malt premium” over feed is the smallest malt premium of any major barley producing region in the world.

If, as SSG says, the malt barley price would drop $35 to $40/t without the CWB, this means that, without the CWB, the malt barley price in western Canada would be lower than the feed barley price.  

That  doesn’t happen anywhere else in the world; why would it happen here?

When a study using a sophisticated economical model says one thing (such as big premiums) and a simple look at real prices says another (such as no premiums) which should we believe?

We also need to ask the farmer-elected CWB directors – what are they doing to improve the malt premium over feed?

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