Replace Canadian Wheat Board with World's 4 Large Traders?

Some farmers in Western Canada think they can make marginal improvements in their cash flow and net income by marketing outside of the Canadian Wheat Board monopoly. These tend to be producers near to the US border and therefore near to receiving points for the world's four large oligopolist traders. The differences are usually a matter of a few dollars per tonne relating to inefficiencies in markets or distances travelled by the wheat to point of sale.

Farmers farther away from those delivery points are held to a disadvantage by virtue of the cost of transport. Don't worry, they will compete on price because they must. If they can deliver to these same points, then it becomes a race to the bottom as the lowest price "wins".

To deal with some of this issue, the Canadian Wheat Board has become a master at logistics, ensuring equity of access to markets for all producers, providing that access fairly throughout the annual season.

The argument is that private traders bring a high level of competition to the market which will force traders to pay a higher farm gate price.

Does this actually work in other markets? The trading houses of Japan offer a clear analogy. Their experience is that they find they have to compete for consumer or business customer dollars. That means they have limited opportunity to raise prices to improve the economics of their respective businesses.

What do they then do? They demand higher quality at lower prices from their suppliers. Those two requirements can work together, but there is a limit to how low a supplier price can be before that supplier is working for nothing. Happens all the time.

But that's because those suppliers or sub-contractors are captive suppliers, one might argue. Are wheat farmers any different? There are logistical issues of distance, time and space to deal with. As with all oligopolies, the four major traders aren't about to commit economic suicide by by attacking each when over time they face a rather inelastic demand for grains and grain products and inelastic supply for the production of those products.

At any particular time, those traders have need of a particular type of grain with specific characteristics. Whoever needs that specific wheat is could be the only demand at that moment.

Additionally, the traders have invested hundreds of millions of dollars in successfully commoditizing wheat. That means they have figured out to make any wheat with nearly any characteristic produce any product with its desired characteristic. This is done at enormous cost. Yet the consumer may not be prepared to absorb all that cost. The result is, no matter how careful a farmer is at producing high quality wheat, that wheat can be replaced by any quality wheat. The farm gate price is then a race to the bottom.

"But that big government monopoly is only in it for the nice bureaucratic jobs it creates.", is the comment often expressed by anti-CWB forces. So now we're talking about judging the ethical standards and motivations of one organization against another.

Can anyone seriously believe that the world's four large oligopolist grain traders are at heart going to be more generous to the farmers than the Canadian Wheat Board controlled by a farmer elected and controlled board of directors?

What some of these farmers and the current Canadian government regime and Minister Ritz are forgetting in their mad rush to seize short term pennies of gain disguised as ideological "purity" is that a monopoly might be bad when it isn't yours and you don't control it.

But let's see how other countries see the ethical standard of the four large traders.

http://www.guardian.co.uk/business/2011/jun/01/argentina-accuses-grain-traders-tax-evasion

You mean Argentina had to revoke the exporting license of Bunge!

Oops.

When consumers can contact producers directly through through producers' own agents, producers and consumer can both win.

Mike