In the last 50 years the Prairie grain-economy has experienced enormous change and progress. Driven by advances in agronomy, improvements in farming methods, and new technology applications, we achieved remarkable yield-increases and crop-diversification. With modest increases in domestic consumption, in good years we now export more than half of what we produce. But are we earning enough value in global markets commensurate with the quality of what we export, and even more importantly, are producers getting a fair share of the export-proceeds we earn?
Our answers are “no” and emphatically so to both! At the root of both ends, value-suppression and margin-squeeze, is captivity of our overseas exports to bulk-trades and a lack of competition among their custodians. Euphoric over the abolishment of the single-desk marketing system, the Canadian Wheat Board, neither politicians nor their policy-servants would dare acknowledge the structural-problems our grain trades face, let alone try to fix them. At the root of this denialism lies a staunch faith in unfettered market forces, the corollary of which is to refrain from intervention.
Ironically, what we are proposing is a market-driven approach, not bringing back a public-monopsony like CWB, or even regulatory remedies. The solution is staring us in the face, what has happened in North American markets with the opening of direct-sales channels; this half of grain-trades is functioning efficiently under market-forces. We are proposing the same solution to overseas export-markets, direct-sales that can be fulfilled in containers, rather than remaining captive to bulk-systems.
Here we make another effort to present the challenge that our grain-economy faces, captivity of overseas exports to bulk-systems, no different than under CWB, but now in private hands and not functioning competitively. The consequences are not getting sufficient value from our export-sales and squeezing producer-margins. The solution is direct-sales; to this end, we must containerize and attract overseas buyers to procure from production sources, like corporate buyers do across North America.
We then try to bring attention to the role public agencies play at the production-end of the grain-economy, through crop-research, grading-testing, quality-assurance, and regulatory-oversight. The results speak for themselves: huge yield-increases and crop-diversification over the years. The dual-value-conundrum faced at the market-end, suppressed export-proceeds and squeezed producer-margins, can be overcome for a fraction of the public-funds being spent on enhancing our production capacity.
Having abolished the CWB, and thereby liberalized grain-trades, the call for public action may be perceived contrary to the thrust of the policy efforts over the last half a century, but in fact is to complete unfinished business, to fix a structural-problem inherited from the CWB-era. What we are calling for is a modicum of support from public agencies to recast our global-image to attract overseas buyers to engage in direct-imports – trade-facilitation to make our grain-exports more market-driven.
Bulk-trap revisited: export-value conundrum
Trade liberalization had the desired competitive effects on domestic and transborder grain-trades. The key to success was direct-sales, end-users procuring what they needed from production sources by cutting out intermediaries with no value to add to grain-trades. Advocates of CWB’s single-desk system had argued that with much fewer buyers than sellers, producers would become price-takers, but competitive forces prevailed for consolidation-distribution cost savings to be shared equitably between producers and end-users – what market-forces were supposed to ensure.
The same effects, however, did not materialize in overseas export markets, where the surplus from domestic and transborder sales had to be sold, half of our grain output but growing in share. These exports remained captive to bulk-trades, even though advocates of trade-liberalization argued they would become competitive with a multitude of private grain-companies replacing the public-monopsony. The real problem was structural: highly integrated bulk-systems are not very conducive to market-competition. Replacing a public-monopsony with private companies was supposed to make trades more competitive, but the structural-problem remained.
Here we summarize the problems posed by the captivity of overseas exports to bulk-trades, not just squeezing of producer margins but also suppressing export-proceeds in the aggregate. We reiterate our conviction that, as in North America, salvation can only be found through direct-exports fulfilled in containers. Contrary to conventional wisdom, containerization will result in cost-savings by eliminating the need for consolidation at origin, and distribution at destination. Also, more competition from overseas buyers will boost producer-margins and export-proceeds, while also paving the road to further specialization in higher-value crop varieties.
The trap: captivity to bulk-systems
The bulk-system that our overseas grain exports are captive to is a relic, inherited from a bygone era when the only way to move grains was to consolidate at country-elevators and transport by rail to coastal-terminals for export in bulk-vessels. CWB bought, consolidated, and exported grains, paying producers an advance, and at year-end distributing the surplus to producers – net proceeds after handling, transport, marketing, and overhead costs. There was no competition or profit; CWB was a price-taker from global markets and paid all the net proceeds to producers.
With the abolishment of this system, in domestic and transborder trades producers gained the freedom to sell to end-users, and market competition set in to achieve cost savings and sharing of those savings between buyers and sellers, but overseas exports remained captive to bulk-systems. Advocates of trade-liberalization had assumed that the same would happen through bulk-systems with many private grain companies competing, like end-users across North America procuring directly from producer-sources. But they were overlooking the fact that the structure of bulk-systems would impede competitive forces from ever taking hold in export markets.
Grain companies exporting in bulk are price takers from global markets, bidding on bulk-trade contracts in competition with other grain-exporters, like CWB had. It was assumed that grain companies would compete in the same way in their procurement practices, but this was mere wishful thinking. There are two ports on the west-coast and two railways to get there, and to participate in grain-trades you need inland-elevators to consolidate and coastal-terminals to ship through. It was not too difficult to figure out that a handful of grain-companies would take control of the bulk-system, with little chance of new entrants to create a competitive industry.
Basically, we have an integrated bulk-system as in the CWB era, only now a handful grain-companies are in control of it. There is an appearance of competition, but buyers know that price-competition is not in their best interest. Instead, they stick to narrow price differentials to buy what producers have, the surplus from North American markets that they have nowhere else to sell. Also, respective volumes that grain companies can handle is determined by their terminal capacity; rather than engaging in price-competition for market-share, they are motivated to buy more terminals, leading to even more consolidation among what is already an oligopsony.
Consequences: margin and value squeeze
As we discussed in our last article, producers face a highly fixed cost structure; even costs generally regarded as variable (seed, fertilizer, equipment, etc.) are fixed to land size, not output, and must be committed to in advance. Producers’ wellbeing is highly dependent on crop-yields that are beyond their control; the more they produce, the more surplus they have that must be exported. They get fair market value from North American sales, but exports are captive to bulk-trades where a handful of grain-companies subject them to a margin-squeeze. There is little chance of putting profits away from good crop-years to cover the losses from poor ones.
The drawbacks of the bulk-trap do not end there. Grain companies are driven by a consolidation-imperative, procuring as much volume as they can. They end up selling to importers in bulk at global prices that tends to undervalue the quality of our grain-exports. The only way of getting value commensurate with the varieties and grades of crops we grow is marketing to end-users, but this is not how bulk-traders operate. As a result of exporting all the surplus in bulk, our total export-proceeds are suppressed; with the market power they have, traders maintain their cut, while producers get very little if any premium for higher quality crops.
The same way as they would deny that they are not paying fair market-prices in procurement, grain-companies will not acknowledge that their trading-practices leave too much on the table to importers by selling in bulk. Canada has the best classification-grading systems in the world, but our exports (wheat-barley as well as canola) are undervalued in global markets through bulk-trades. Moreover, since producers do not get a premium at their end, they are denied an incentive to switch to more valuable crops that can fetch higher prices in world markets – specialty-crops or even higher grades or varieties of staples, like durum-wheat or malt-barley.
These realities, the dual value-conundrum of our grain-exports, are felt acutely by grain producers. They know they are suffering but fail to articulate the root-cause of the problem: captivity of overseas exports to bulk-trades. Producer-associations and public-agencies are in a state of denial, hiding behind the free-market façade that they believe has been achieved with trade-liberalization and asset-privatization. We will come back to this denialism, but at the outset we must acknowledge that our country is doing next to nothing to even measure the margins we realize from different trade-channels, let alone come up with remedies to fix the trading-system.
Solution: direct-sales and containerization
Rather than regulatory remedies, we advocate a market-driven approach to get out of the bulk-trap that we are stuck in through direct-sales that can be fulfilled in containers. By attracting overseas buyers to procure the grains they need directly from production sources, like North American corporate buyers do, we will create competitive markets. Producers will get out of the margin-squeeze they are under, while as a country we will get higher value for the crops we grow and export, boosting export proceeds in the aggregate. This will also pave the way to value-driven crop-diversification by incentivizing producers to shift to higher value crops.
This shift will face resistance from vested bulk-interests invested in a highly capital-intensive infrastructure, further fueled by false fears that containerization would be too costly and impractical for such large volume trades. This was the case a few decades ago, but advances in intermodal systems have already revolutionized global trades, including grain-trades in Europe and across Eurasia all the way to the Pacific. North America at large has some catching up to do, but on the West Coast we already have enough empty containers returning to Asia to fill with 15 MT of grain, a volume that can be expanded by attracting more inbound traffic to our ports.
On the issue of costs, grains are cheaper to transport in unit-trains of hooper-cars than in container-trains, but not by as big a margin as generally assumed. The real savings that containerization will bring are in eliminating consolidation costs in inland and coastal-terminals, and even greater savings in storage and distribution costs at the receiving end. Container-loads of grain can be delivered directly to end-user facilities; buyers can receive quantities of specific varieties or grades of grains they need to meet their processing requirements. Also, containerization ensures product integrity preservation from production-sources to end-user facilities.
The real challenge we face in containerizing grain-trades is not in cost or logistics but in marketing. We are a major grain producer and exporter but primarily known for delivering grains in ship-loads; we consolidate and export in bulk, with little contact with end-users of our grains. We face a challenge in recasting our image as a premier source of grains where end-users from all around the world can procure a huge variety of crops from production sources and get them delivered to their door-steps in containers. As an online-platform we are tackling this challenge, but we need to mobilize producer-associations and public-agencies behind this cause.
Production sphere: a stellar record in public support
We are calling for more support from public-agencies on the marketing end of the grain-economy, mainly in recasting Canada’s global image to support the paradigm shift from bulk-trades to containerized direct-sales. After a decades long struggle to abolish the CWB, and the euphoria that set in its aftermath in ending government involvement in grain-trades, there is a tendency to ignore this call. We will get into the type of support that is needed later in this article, but first we want to put things in perspective in reference to the production side of the grain-economy.
Our gain economy did not take root naturally with settlers landing in Acadia or as farming spread to Quebec and Ontario. It took a century of research effort to adapt seed varieties to weather and soil conditions. Even after the Prairies became a prime grain-growing region, there were a lot of challenges ahead to fight disease and infestation. In the last half a century, the focus shifted to diversification to new crops in search of higher value – cereals, oilseeds, and pulses. These efforts continue not only for new varieties but also new grades of staple crops like wheat and barley.
Advancements in the grain economy are often taken for granted but would not have happened left in the hands of individual farmers or to market forces alone. They took concerted collective effort and public funding, in not just Canada but even the US where any progress tends to be attributed to private-initiative or free-enterprise. For the latter, you can read up on the A&M movement, but here we will try to remind you of how agricultural research advanced in our own backyard with public funding – led by government agencies, but also with public universities participating.
Our arduous journey in wheat production
Though the first wheat growth in Canada is traced back to early 17th century in Nova Scotia, its spread as a commercial-export crop to Quebec and Ontario was during the 19th century. New seed-breeds were needed for the harsh climate; early fall-freeze prevented crops from maturing while winter-growth was virtually impossible. Red Fife cultivar proved a success in Ontario and spread to the Prairies, but farmers still struggled with early winters. The real breakthrough came with Marquis, an early-maturing cultivar, introduced in 1903 but took another 10 years to commercialize.
The colonial government under British rule had fully recognized that neither estate-owners nor new settlers were going to overcome these challenges, thus established the Dominion Experimental Farms (DEF) in 1866, which came under the Department of Agriculture with Confederation. The core efforts were focused on seed-research, but together with improvements in farming-methods – soil-tillage, crop-rotation, fertilizer-application, drainage-irrigation, farm-machinery, land-reclamation, as well as costing-guidelines. DEF was where Marquis was developed, and in the coming decades would make Canada famous for high-quality hard red spring wheat.
Into the 20th century, universities established across the Prairies also started to play critical roles in agriculture – Saskatchewan had started as an agricultural college, while both Alberta and Manitoba had founding-colleges in agriculture. In time, they became centers-of-excellence, greatly advancing the cause of agronomy. To this day, Agriculture and Agri-Food Canada (AAFC) remains a sprawling ministry; its Science and Technology Branch alone has 20 R&D centers and 30 satellite research locations across the country – 2,200 employees and 400 research scientists under its wing.
With both federal and provincial funding, seed-improvements continued into the latter half of the 20th century. With proven rapid maturation attributes, Marquis remained the standard but there were waves of disease and infestation threats to guard against, as well as draught resistance attributes to improve. Of first and foremost importance were yield-increases; wheat output increased from 10 MT in 1920 to 15 MT in 1960, and to 35 MT in 2020 of which 75% was surplus to export. Equally significant were quality improvements driven by end-use attributes, grades most suitable for breads, noodles-pastas, semolina-couscous, cookies-cakes, etc.
A remarkable record in crop diversification
In the post-WW2 era, with all grain-trades in the hands CWB, grain exports were on the rise with new markets opening, but all in wheat. There were pressures to add new crops into the mix, to boost exports and offer rotational options to farmers to get the most out of their land. In response, the focus in agronomy-research turned to new crop varieties to diversify the grain economy. At the same time, pressures were building to limit CWB’s mandate to wheat-barley to encourage new crops.
By far the most significant development was canola, a rapeseed derivative carrying our name – a prime source of cooking-oil as well as high-protein animal-feed. It was the outcome of seed-breeding efforts starting in the 1960s at the Universities of Manitoba and Saskatchewan, mostly federally funded by AAFC and NRC. In the last 50 years its production increased to more than 20 MT to become our second largest crop behind wheat, both in output and export volumes – in fact generating more value than wheat. Now it is going through a second revival as a source of biofuels.
Over this period, another success story has been soybean, which has now become our 3rd largest volume crop, doubling in output in 15-20 years to 5-7 MT/yr., 70-75% for export. This used to be a mostly Ontario-crop, but with early maturing seeds, it has spread to Manitoba and Saskatchewan, now Prairies with 20% of the volume – Ontario still 40%, and Quebec-Maritimes another 20%. Our success has been in breeding higher value food grades (soy sauce, tofu, edamame, miso, etc.) compared to much larger producers, the US and Brazil supplying mainly global feed-markets.
We have also had enormous success in growing other legumes like lentils, field-peas, dry-beans, and chickpeas – soybean is also a legume but generally regarded as an oilseed. Little known on the world stage for these ancient crops known as pulses, in just a few decades we have become a leading source, growing close to 10 MT/yr., exporting 75% of that. In the record crop-year of 2020, our legume export volume (pulses and soybeans combined) was two-thirds of canola, but even higher in value.
The agronomy research efforts are not confined to new crop varieties, merely driven by a diversification-imperative. Our staple-crops, wheat and barley, are given just as much attention through new seed-cultivars to fight infestation, improve drought resistance, and refine end-use attributes. In the wheat domain, through diligent research and testing into end-uses – milling, baking, processing, production, etc. – we have developed 5 classes in Eastern Canada and as many as 9 in Western Canada.
The barley domain had been neglected for a while, with too much of the output having to be sold into feed-markets at low prices. Recently, this was rectified with renewed efforts into barley seed varieties that have proven to be much higher quality and suitable to high-end brews – e.g., new cultivars like Synergy and Connect replacing Copeland and Metcalfe. We are now poised to export more than 5 MT of barley (raw or malted) to high-end brewers around the world, craft/pub breweries.
Regulatory and quality-assurance systems
Whether we look at it in terms of volume, quality, or variety, Canada has developed a very impressive crop portfolio over the last 50 years. We owe much of this advancement to government efforts and funds provided for crop-research, not just in labs but also in the fields. Of course, all this progress could not have happened without producers’ embrace of change, which we must acknowledge. Also, a big part this success-story was another agency, Canadian Grain Commission, through regulatory-oversight and quality-assurance responsibilities over the grain-sector.
The CGC, originally called Board of Grain Commissioners, was created in 1912. Its mandate might have changed over the years, as during WW1 government seized control of grain-trades in 1915 and set-up CWB after the war for one year. When CWB was brought back in 1935, the two agencies worked together very effectively with full control of not just grain-trades but also crop-regulations and grain-handling systems. In the post-CWB era, CGC continued with a dual mandate. The first is fair-farmer-compensation, ineffective at best if not a useless mission; the second is crop-quality-assurance, which is very effective, carried out through two programs.
Under the grain quality program, CGC establishes standards, procedures and equipment for grading, sampling, inspection, weighing and other aspects of grain handling; it provides grain inspection and safety testing, grain sanitation, grading and analytical services; and it provides weighing oversight, and grain quality and safety analysis-monitoring; and collects and publishes information about Canadian grain.
The grain research program forms the basis of Canadian grade specifications and grain quality assurance system. To this end, CGC conducts research to assess, improve and develop scientific procedures and technologies used in grain quality and safety determination; it assesses Canadian grain harvest quality and studies how grading factors affect end-use properties; and develops new uses for Canadian grain and evaluates new varieties as part of variety registration process. Moreover, CGC undertakes and sponsors a wide-range of research on grain and grain products.
Market reforms: more of a checkered history
The purpose of the above discussion was to remind you that the grain-economy we have in Canada was not created through a natural play of market-forces and private-enterprise. It took considerable public effort to develop the scientific base and the regulatory framework to fuel its advancement from the production end. Even in this mature state, support-infrastructure is needed to advance the grain-economy to remain competitive on the world stage through crop research and diversification.
The next question to pose is: what good is all this advancement if we cannot get enough value from what we export? One half of our grain output is sold to domestic and transborder markets where sales-channels are functioning quite well under the discipline of market forces. The other half, what we sell to overseas markets, is largely captive to bulk-trades that suppress export-proceeds and squeeze producer-margins. The salvation in this regard is opening direct-sales channels to overseas markets by connecting producers and overseas-buyers, like across North America.
The paradigm-shift we are calling for, from bulk-trades to direct-sales, is a market-driven approach, but we need more visibility into the virtues of our grain-economy to attract buyers. In this vein, we are calling for some modicum of support from public agencies, which is not forthcoming. Here we want to reflect on our past efforts to understand where this resistance is coming from, which in a nut-shell stems from Canada’s checkered history at the marketing-end of the grain-economy, in stark contrast to our achievements at the production-end we discussed above.
The early grain-marketing scene
Towards the end of the 19th century Prairie farming had grown beyond subsistence. With the region’s limited population, its surplus had to be sold to larger domestic markets in Eastern Canada or exported. It sounded good on the surface but with a consolidation pattern setting in, farmers fell captive to nearby grain-elevators, where they became price-takers from trading interests. These pressures started to give rise to cooperative initiatives for more market-power, like had been the case in Ontario.
These initiatives provided a cushion, but farmers were barely getting subsistence-prices; traders were appropriating all the surplus, with real power residing at the Winnipeg Grain Exchange. This era came to an end with WW1; the government took control of wheat exports and soon after created the Board of Grain Supervisors to set grain prices and takeover marketing of all crops. With markets still in turmoil, the Canadian Wheat Board was created to offer fixed-prices, but only for one year.
The dissolution of CWB in 1920 ushered in a new era for the Prairie grain-economy, with farmer-owned cooperatives taking the matter into their own hands, expanding their elevator-networks, and setting up wheat-pools to consolidate and sell grains (still mostly wheat) directly to end-markets, not only domestic but also export. This cooperative-era was a golden-period for farmers, with the full surplus from grain-trades returning to them, without any of it being appropriated by intermediaries.
As content as farmers were, it was a short-lived period of comfort. Wheat-pools had failed to see the dangers that the Great Crash of 1929 was about to bring to grain-trades. Taking comfort in the provincial guarantees behind them, they failed to hedge against grain-prices that went into free-fall. Before getting to government guarantees, all their own assets, a huge stock of grain-handling facilities were at stake. The wheat-pools were insolvent and at the mercy of the federal government.
Bringing back the Canadian Wheat Board
The ensuing Great Depression that would last a whole decade devastated all corners of the economy, but agriculture was hit particularly hard. The US Midwest turned into a disaster zone; the combined effects of drought, erosion, and terribly misguided voluntarism gave rise to what would be remembered as the Dust Bowl, displacing hundreds of thousands of farmers. Our Prairies were devastated as well, but it would have been a lot worse without a more effective government response.
In retrospect, it is not clear why it took 6 years, but at least the government brought back CWB to stabilize grain markets in 1935. With the onset of WW2, concerns went beyond just prices to food-security at large; most crops were brought under the Board’s control and membership made compulsory for Western Canadian farmers. When reintroduced in 1935, CWB was seen as a survival-measure to counter the effects of the Great Depression, and its extension through WW2 a wartime-measure.
The Board’s status was not meant to be permanent; extension of its mandate had always been subject to parliamentary approvals. Unlike at the end of WW1, when the government was adamant about terminating it in one year (1919-20 crop year), through the Great Depression and WW2 the circumstances were deemed urgent enough for its continuation. But after WW2, few would have predicted its survival for 30 more years over all crops, and another 40 years over wheat and barley – in fact in 1965 its status had been made permanent, not requiring periodic extensions.
In the post-WW2 era, when the US was still pursuing its course with New Deal policies, reconstruction of Europe and Japan underway under the tutelage of the Western Allies, and a large part of the world (USSR and China) under communist-rule, our public-monopsony over grain-trades was not at all an anomaly. During this Cold War, state-ownership and managed-trade were common practice on the world-stage, particularly in agriculture where food-security and farmer-wellbeing were protected turfs, not just in the socialist-block but also western liberal-economies.
In today’s political environment, there may not be too many producers who would look at this single-desk-system with any sympathy, but in the post-WW2 era CWB was an effective marketing-agency in selling Canadian grains to world markets. There was no evidence that CWB was settling for any lower prices than private multi-nationals engaged in grain-trades; even better, producers were getting their share of the surplus. Also, CWB was effective in managing the grain handling and transport system in moving grains to our export positions and shipping to final destinations.
Winding down the single-desk-system
With these prevailing sentiments, it was not surprising that CWB had become an accepted norm until the 1970s, serving producer-interests and maintaining stability. But pressures for change started to mount with global shifts in economic philosophy – more faith in market-forces, free-enterprise, and trade-liberalization. We saw this in all industry segments, pushed by all international organizations, and embraced by most sovereign governments – neo-liberal thinking taking hold in all global trades.
Canada was no exception to this paradigm-shift, with liberals and conservatives alike embracing free-markets and free-enterprise. The era of state-owned-enterprises and managed-trade was over, with a shift away from regulated to free markets. Our farm-economy was already a bastion of free-enterprise in the hands of enterprising farmers. A public-monopsony was not deemed necessary to protect producers – free-trade left to market-forces would work in the hands of private-enterprise.
The most pressing pressure was coming from domestic markets, producers believing that they would get higher prices by selling direct, while end-users knowing that they would still save costs by getting rid of intermediaries. With this consensus, why was the CWB not abolished at once for all crops? Wheat made up a huge share of grain-exports, where it was believed that a single-desk system would be more effective in marketing to command higher prices from world-markets. Instead of splitting the markets along domestic and export lines, however, crop domains were separated.
Once CWB’s mandate was curtailed to non-feed wheat and barley, a huge wave of crop-diversification got underway – canola, soybean, and pulses. They were being sold in growing volumes to domestic as well as transborder markets through direct channels, while surpluses in each of these crop domains were also being exported. Over the next 2-3 decades, these trends provided supporting evidence that CWB was not needed in any marketing capacity, whether in domestic or export markets – the same conclusion was extended to the remaining board-crops, wheat and barley.
Throughout this protracted debate, one fundamental difference was overlooked: the sales-channels in domestic and transborder markets were very different than overseas ones. What made the former function competitively was the direct nature of sales, from farms to end-users that could be fulfilled by truck or railcar deliveries, with no need for consolidation or distribution by intermediaries. But overseas exports were captive to bulk-systems: grains consolidated through inland-elevators, moved to coastal-terminals, and shipped in bulk-vessels to export-destinations.
Earlier CWB was the sole custodian of bulk-trades, not by owning all the bulk-system assets but by controlling grain-flows through them. As grain-trades were freed from CWB’s monopsony, private grain-companies got into the act, but they were all tied-at-the-hip on the same integrated bulk-system, with little incentive to engage in price competition. We have been ignoring this fundamental structural problem all along to the detriment of not just producers but the Prairie grain-economy at large.
How to unleash our grain-export potential
We are among the top-10 grain producers in the world, and highly dependent on exports, with almost half of what we produce – double the share of US, the world’s largest exporter, and among the top-10, only behind Ukraine and Australia that export two-thirds of what they produce. In the last 25 years, our export volumes have doubled, and with continuing yield increases and slow domestic consumption growth, we must be prepared to export an even larger share of what we produce.
We have always been known worldwide for the quality of our wheat exports, which from 1935 to 2012 were sold to world markets through a public-monopsony, CWB. After CWB’s mandate was curtailed to wheat and barley in the 1970s, our export mix diversified greatly; wheat-exports continued to increase in volume but now they are only half of what we export. Our new crop, canola, is now our second largest export item, with also soybean, pulses, and others in our much-diversified export mix.
Over the last half-century, we have achieved great progress in the grain sector, coming up with seed-cultivars suitable to weather and soil conditions, introducing new crop varieties to diversify the production base, and making huge advances in farming methods and technology applications. A great part of our success in this great leap forward has been our public institutions – federal (AAFC, CGC, NRC) and provincial – taking the lead directly or indirectly through research institutes.
Taking all this for granted, policy debates obsessively focused on the role of CWB in grain-trades, patting ourselves on the back for abolishing CWB, an agency we had been demonizing for decades. With this mission accomplished in 2012, we declared victory, as if all problems were solved through trade-liberalization and privatization. The reality was that there was a huge problem still standing in our way, captivity of our overseas exports to bulk-trades, preventing us from realizing the full value commensurate with the quality of our crop-exports and holding producers back.
Glaring underperformance in export-value
CWB was a monopsony that producers were captive to, but it was a non-profit public agency that returned all the surplus from grain-sales back to producers. Its critics claimed CWB was not realizing fair value for our exports, and due to its operational inefficiencies inflating costs, thus not serving producers well. Private traders would get higher export-prices, and by competing among themselves, return a higher share of those proceeds back to producers – magic of private-enterprise and free-markets.
When CWB’s monopsony was curtailed to wheat and barley, private traders were quick to point out that all the new crops (canola, soybean, pulses, and other) were getting higher prices to benefit producers. But this had little to do with their trades falling into private hands; Canada had developed these high-value crops at huge public-cost to benefit producers. There was no evidence that private-traders were getting any higher prices than CWB would, nor that handling-and-transport costs had declined; only difference was that private-profits were coming off farm-proceeds.
We see no evidence that handling or transport costs through the same bulk-systems have come down with the changing of hands from CWB to private trading-companies – if anything they increased as a result rail-costs becoming compensatory, a different matter that would have happened under CWB as well. Moreover, private traders have no magic powers to get higher prices from global markets, nor do they have any incentive to compete to increase producers’ share of export-proceeds – thus, the margin-squeeze that comes with the structural problems in bulk-systems.
More importantly, the fundamental problem of value-suppression did not go away. We cannot get prices commensurate with the quality and diversity of our grain-exports through bulk-trading practices. We brag about our classification and grading systems, but once we consolidate and sell in large quantities, we leave a lot of value on the table. The only way to overcome this value-conundrum is to reach out to end-users to sell direct, but grain-companies are too heavily invested in terminals to be moving away from bulk-trading practices – thus, the consolidation imperative.
A case of institutional neglect if not denial
The mission to deregulate and privatize grain-trades became so political or even ideological that we had overlooked the need to monitor the outcome of dismantling the CWB, with literally no effort to assess whether the desired results were being achieved. The results in domestic and transborder trades were so positive that there might not have been any need to worry about this half of our grain-sales. But on the export-half the structural problems and their consequences, in terms of both export-proceeds and producer-margins, were so obvious that the neglect was inexcusable.
We already had the Canadian Grain Commission in place with a century-long record playing regulatory and oversight roles. CGC had a stellar record in developing our classification, grading, and testing systems to ensure quality-assurance in the grain industry, as well as leading crop-research, advancement, and diversification efforts. It had also been charged with compiling and reporting data on the grain industry, including increasingly detailed production and export statistics. But the latter did not go much beyond volumes in tonnage, ignoring sales or export value statistics.
This latter neglect was rather ironic since in addition to ensuring that “domestic and international markets regard Canadian grain as dependable and safe”, CGC’s mandate explicitly includes ensuring that “farmers are fairly compensated for their grain”. But this never went beyond payment-protection and resolution of grade or dockage disputes, matters that could have been dealt with through ordinary legal channels. When all sales were under CWB’s monopsony, fair value or compensation did not matter, but as the system opened to competitive channels, this had become much more important, a matter to be tracked and monitored for all crop varieties.
Now that grain-trades are deregulated and privatized, there is a pressing need to track export-proceeds and producer-prices, as well as what export-sales yield compared to domestic-sales since the structures of their respective channels are very different. There are detailed volume statistics reported regularly but little if anything to track the value-chain to assess what value exports are fetching, and what producers are getting from those export-values. We attribute this to willful-neglect on the part of successive governments, not wanting to know the outcome of their actions in the belief that market-forces cannot go wrong left to the private-sector.
Wake-up call: what could and should be done
In our capacity as grain-industry analysts and producer-advocates, our verdict is quite simple: our grain-exports are underperforming, and producer-margins are being squeezed. We are not calling for the CWB to be brought back, or even for much milder regulatory remedies to correct the structural problems in bulk-systems; our solution is market-driven. We are trying to facilitate the formation of direct sales channels to overseas markets, the same as those that have formed naturally in domestic and transborder markets, where end-users buy directly from producers.
If our solution is market-driven, why is it not happening naturally? There are two obstacles to overcome, one we can deal with on our own, but the other requires some public support. The first one is the need to containerize our grain-exports, the only way direct-sales can be fulfilled across oceans – basically containers serving the same function that truck or railcar deliveries do in fulfilling direct-sales across North America. There are container-supply problems and logistics-challenges in this regard, but we have the expertise and the operational capacity to overcome them.
The second is that the world knows very little about our grain-economy. We are a major producer and exporter of grains, but Canada is a black-box to the world, just a place where grains come from in bulk-vessels. This poses a challenge in recasting our global image as a premier source of grains where overseas buyers can procure a huge variety of quality crops that can be delivered to their doorsteps in containers. We want to promote Canada with all our virtues: a land of advanced farms growing a huge variety of crops that buyers can trust to highest quality-assurance standards.
It is in this promotional and marketing capacities that we are looking for help and support from public-agencies and producer-associations. After a decades long struggle to deregulate and privatize the grain-trades, the prevailing sentiments are not to get involved at the marketing end of the industry. The reality is that they are already spending huge sums of money at the production-end; it is not too much to ask for a fraction of that to fix the marketing-end. After all, what is broken is unfinished business on their part, captivity of overseas-exports to bulk-systems.
We are now developing our new trade-facilitation platform, Prairie Grain Mall, an online marketplace with virtual-stores and virtual-pavilions. The former are basically farm-outlets, while the latter are to promote the collective virtues of the Prairie grain-economy. These virtual-pavilions will be designed and developed on themes like crop-research, farming-methods, sustainability, and quality-assurance, hopefully sponsored by AAFC and CGC, and ones on crop-varieties by producer associations.