Thursday, October 6, 2011

Memo to Pat Martin, M.P.

With the debate about the future of the CWB soon to hit the House of Commons, expect to be inundated with bombastic pro-CWB rhetoric from MP Pat Martin, NDP critic on behalf of the Canadian Wheat Board.  We've already had a glimpse of his argument and there is no doubt we will get more of the same.

He says in various ways, how he believes that there is no economic reason for the removal of the single desk:
·         "disastrous for the prairie economy";
·         "He (Minister Ritz) has displayed a wilful blindness to ... economics";
·         "Where is the business case? Where is the cost benefit analysis?"

Mr. Martin is very clear that he believes removing the single desk is a bad idea.  And, although it seems he believes in basing decisions on sound analysis, it has never been clear what analysis he is using.  What piece of analysis says that the removal of the single desk will be disastrous for the prairie economy?

Unfortunately, Mr. Martin appears to think that he is above the standards to which he is trying to hold the government.  Mr. Martin wants the govt to make decisions based on cost benefit analysis yet he doesn't seem to think he needs to do the same.

Since he never refers to any analysis, I would like to share some that he and the NDP should consider as they prepare to defend the CWB on economic grounds:

1.       The CWB wheat marketing costs have gone up 56% in the last eight years.  In the same time period, grain company handling charges went up about 9% and rail costs went up about 21%. 
Removing the single desk will remove these costs that farmers have no choice but to pay.

2.       The way the CWB operates in the export feed barley market keeps the domestic market artificially low; the cost to western barley farmers is in the hundreds of millions.  In addition, the CWB often misses offshore opportunities because of the way it operates. 
Removing the single desk will allow feed barley to be freely traded offshore and into the US.

3.       The CWB’s annual pooled wheat price is often lower than the lowest US price in the same year.  Applied to the whole pool over the last seven years, this totals over $3 billion in revenue below what average US prices would have provided. 
With an open market, it’s pretty hard to imagine things being much worse than this.

4.       If the CWB system is so good, and we’re so dominant in the global durum market, why can’t Canadian durum farmers even cover their cost of production with revenue from growing durum while American producers can (and even earn a tidy profit as well)? 
In an open market, farmers will be able to sell their durum or wheat as a cash crop, reducing the need to grow other crops.

5.       With the CWB system farmers pay both the CWB marketing costs and the grain companies their tariffs for handling.  It’s a double whammy. 
Getting rid of the single desk will reduce total marketing costs dramatically.

6.       The CWB risk management program has a higher cost than for non-CWB crops
Marketing wheat in an “open market”, competition will drive costs out of the system – as it has done with non-CWB crops like canola.

7.       In 2007-08, the CWB lost a reported $226 million in discretionary trading in the wheat pool account and $90 million in the Producer Pricing Options (PPOs).  (If Mr. Martin doesn’t believe me, he can read about it in the CWB Annual Report.)
When the CWB loses money like this, farmers pay.

The list could be longer.  It’s not hard at all to find evidence of poor performance or high costs or inefficiencies affecting all crops. Even if you assume the CWB does get the premiums it says it gets, the high cost of the CWB system overwhelms any potential benefits. 

Add to this the lost opportunity in value added because of the single desk.  For example, I’m sure Mr. Martin is not aware that three malt plants would have been built in Canada in the last decade but, because of the CWB single desk, all three major investments were made in the US.  The cost to the Western Canadian economy is estimated in the hundreds of millions, including loss of potential jobs.  Hopefully, once the single desk is gone, it won’t be too late and we’ll see interest in investing in processing return to Western Canada.

If Pat Martin and his NDP colleagues are going to challenge the repeal of the CWB Act, they should at least educate themselves on the issues first.  They may not like the cost-benefit analysis featured here – even though much of the data comes directly from the CWB – but it’s no doubt more than they’ve seen or done themselves. 

Where is the business case to keep the single desk?  Where is the cost benefit analysis? 

It’s your move, Pat.

1 comment:

  1. One needs only look to the announcement that Mr. Harper made on Thursday in Regina, to show what happens without the single desk.

    Single desk will be gone in 10 months, and a pasta plant will start production months after. Add to that at least one other pasta plant in Southern SK that would have been built but for the CWB and that's a lot of "economic diversification" that wasn't allowed to happen because of the single desk.