Parliamentary Research Branch

PRB 98-2E

THE CANADIAN WHEAT BOARD

Prepared by:
Sonya Dakers, Science and Technology Division
Jean-Denis Fréchette, Economics Division
      September 1998

Over the past 50 years, the Canadian Wheat Board (CWB) has been the single-desk seller for marketing Canada’s grain. While the volume of the world grain trade has expanded during the CWB’s period of operation, the number of players has decreased; by the early 1980s, only a handful of agencies controlled 75% of the selling and buying in the world.

The CWB’s validity as a policy instrument has always been controversial. From 1917 until the end of World War I, and again in 1935, the government established the CWB to ensure the orderly sale of grain under difficult conditions. In its original form, the Board was a compromise tool for increasing returns and stabilizing income, and was based on voluntary participation. In 1943, when agriculture and the supply of food to Canada’s allies once again became an important national goal, farmers’ participation in the CWB became compulsory.

The CWB had in 1949 also become the sole marketing agency for oats and barley; however, oats were removed from CWB jurisdiction on 1 August 1989 and barley bound for the U.S. was removed on 1 August 1993 by order in council. On 10 September, within 10 days of its date of application, this decision was dismissed by the Federal Court on the grounds that such a change could be made only through legislation passed by Parliament, not by Cabinet order. The challenge had come from Prairie Pools Inc., which argued that the CWB’s orderly marketing powers were too historic and fundamentally important to be arbitrarily altered by Cabinet decree. Since there were indications that a solid majority of growers opposed the removal of barley from the jurisdiction of the CWB, producers called for a plebiscite on the issue. On 20 November 1993, the new Liberal government announced it was dropping a court appeal of the 10 September decision (which had been initiated by the outgoing Conservative government). The barley issue continued to fester until a referendum in early 1997 demonstrated that 63% of Prairie farmers supported marketing their barley through the Board.

The CWB’s chief mandate is to market wheat grown in western Canada in the best interests of western Canada’s grain producers, who pay all costs of Board operations. The designated area includes the three Prairie provinces and a small part of British Columbia. The CWB is the sole marketing agency for export wheat and barley and the main supplier of these grains for human consumption in Canada. Canadian feed grains for domestic consumption can be marketed either through the CWB or direct to grain companies. The CWB is a large grain marketing agency, with sales between $3 and $6 billion.

Through the operations of the CWB and its pool accounts, Prairie grain farmers are paid a price for their grain reflecting overall market conditions rather than the day-to-day fluctuations of international trade. The CWB administers the government-guaranteed initial prices paid to producers and operates a system of annual averaging (pooling) of producers’ prices. The CWB keeps separate accounts, or pools, by crop year for each grain it markets. As soon as the CWB receives payment in full for all grain delivered to it by producers during any pool period, it deducts marketing costs to determine the surplus in each pool. This surplus is distributed as a final payment on the basis of producer deliveries to that pool. If a deficit occurs, the Canadian Wheat Board Act states that losses shall be paid out of moneys provided by Parliament. The Governor in Council designates a member of the Cabinet to act as Minister for the purposes of the Act.

CWB Wheat and Barley
Price Pooling Deficits Since 1943
(in millions of dollars)

Note: The only durum wheat pool deficit was in 1990-91 ($69.6 million).
The only malting barley deficit was in 1986-87.

The CWB uses the primary elevator companies located in grain-producing areas across western Canada to accept delivery of grain from producers, to make an initial payment, and to store, handle and ship CWB grain as required. The CWB generally does not own or operate physical marketing facilities but uses various grain-handling and marketing companies as agents to buy, handle, and sometimes sell grain on its behalf. It sells to state trading agencies or to international grain companies. For their part, customers from 70 countries are provided with a wide variety of sales and delivery options. The overall marketing strategy of the CWB can best be characterized by its objective, which is to ensure that the kinds and quantities of grain needed to meet sales commitments are delivered where and when required.

Whether the CWB should continue to market barley to the U.S. is only one of the questions being asked about the role of the CWB as a single-desk marketing agency. Since the advent of the Canada-U.S. Free Trade Agreement of 1989 (FTA), the U.S. government has alleged that certain Canadian exports are violating the agreement; these include hogs, softwood lumber, cattle and durum wheat. In February 1993, the binational trade adjudicating panel absolved the CWB from dumping durum across the U.S. border, but recommended an annual confidential audit of CWB selling practices.

Despite this finding, the North Dakota Wheat Commission continued to use its bargaining power within the context of NAFTA (the North American Free Trade Agreement, signed in January 1994) to lobby for trade sanctions against Canadian durum imports. Late in 1993, it accused the CWB of using "liberal freight subsidies and predatory pricing practices" to gain unfair trading advantages. According to Canadian industry officials, their American sales had increased because the U.S. was exporting large volumes of durum wheat under its Export Enhancement Program, thereby depriving domestic processors of the durum they need to make pasta and creating a premium market for top quality Canadian durum.

In mid-January 1994, President Clinton ordered the International Trade Commission to conduct a six-month study of Canada’s durum trade practices. (Canada exported 708,000 tonnes of its total 2.25 million tonnes of durum to the U.S. during the 1992-93 crop year.) The results of the first independent audit of the CWB for the period 1 January 1989 to 31 July 1992 were released on 10 March 1994. Of the 105 contracts for durum wheat sales completed, only three were found not to be in compliance with Article 701.3 of the FTA, which requires that the CWB not sell durum wheat to the U.S. below the acquisition price of the goods, plus any storage, handling or other costs incurred with respect to them.

On 22 April 1994, the U.S. notified the GATT (General Agreement on Tariffs and Trade) Secretariat of its intention to renegotiate tariffs on wheat and barley under Article 28. After signalling its intent, the U.S. would have to wait 90 days to impose new tariffs on durum wheat, after which Canada would also be free to cut off U.S. exports of equal value. Possible targets were U.S. wine, pasta and breakfast cereals. The Canadian dairy and poultry industries expressed concerns that the supply management system might be threatened by efforts to placate the U.S. wheat states.

Under the terms of a bilateral agreement with Canada reached 1 August 1994, the U.S. said it would not pursue renegotiation under Article 28, thus avoiding a potential food trade war. The agreement, valid to 12 September 1995, imposed punitive tariffs on wheat exports to the U.S. above 1.5 million tonnes; a record-setting amount of 2.5 million tonnes was shipped south in 1993-94. The deal did not affect the 400,000 tonnes of barley, semolina and wheat, mostly from Quebec and Ontario, not handled by the Canadian Wheat Board.

A Canada-U.S. joint "blue ribbon" commission was established in September 1994 and given a year to study the dispute and half a year to make preliminary recommendations. On 22 June 1995, the Canada-U.S. Joint Commission on Grains released its interim report, in which it recommended the elimination of discretionary pricing policies in both countries. This would mean ending the U.S. Export Enhancement Program and having the CWB operate "more at risk of profit or loss in the marketplace," with greater transparency in its pricing methods. The CWB’s price-pooling practices were said to be undercutting prices, even though its mandate is to operate in a business-like manner and to sell wheat for no less than market value. The Commission recommended allowing producers to decide for themselves whether to participate in Canadian wheat and barley pools. The final report (11 September 1995) elaborated on the operation of the two grain marketing systems and recommended the establishment of a Consultative Committee to address short-term cross-border issues.

Supporters of the CWB blame U.S. pressure since the coming into force of the Free Trade Agreement for moves to reduce the marketing powers of the CWB. In their view, it is the government guarantees on initial prices and central desk selling that allow the CWB to deliver higher returns to Prairie farmers.

The growing number of critics of the CWB in recent years have been asking for more transparency in CWB dealings and for farmers to have more pricing options. Memories of the battle that created the CWB out of the chaos and weakness of the free market of the 1920s and 1930s are now dim. Progressive farmers are no longer necessarily those who see strength in cooperative action; the young generation of commercial farmers shows evidence of preferring individual management skills to collective approaches. It is clear that the formerly unchallenged position of the Board has become controversial in the freer trading environment of the 1990s.

In October 1990, a Review Panel released its report on the challenges and opportunities facing the CWB in the 1990s and beyond. As well as looking at marketing, transporting and handling grain, the Review Panel recommended that the CWB relinquish its five-person team of politically appointed Commissioners in favour of a corporate structure made up of a President and Vice-President chosen by a part-time Board of Directors. Farmers would be a majority on the Board of Directors, which would also include representatives of industry and government. A corporate structure would purportedly make the CWB more accountable to its shareholders, the farmers of Canada, while the chief executive officer would be free to operate the day-to-day running of the CWB.

In response, in Spring 1992 the Board adjusted its pooling system to allow farmers to truck their grain to U.S. export markets direct, rather than through the elevator system; however, the Board vehemently opposed giving up its monopoly role in the marketing of barley to U.S. customers. Consequently, individual farmers began defying the Board’s role and marketing their grain to the U.S themselves. The Cabinet responded on 17 May 1996 by approving an order requiring wheat and barley exporters to show an export permit from the Canadian Wheat Board at the U.S. border.

In an attempt to end the acrimony over how wheat and barley are sold, in 1995 Minister Goodale appointed a nine-member Western Grain Marketing Panel to look at all aspects of Canadian grain marketing, including the CWB monopoly. On 9 July 1996, he released the findings of the year-long study. The Panel suggested allowing a quarter of western Canada’s annual $5-billion wheat crop to be sold at market prices, along with 100% of the $250-million feed-barley crop. The CWB would remain the sole buyer of both categories of wheat, paying either the current spot price or the average pooled price as the grower chose. The Panel also made recommendations respecting the governance and accountability of the CWB. The findings did not seem to resolve differences in the farm community over the role of the CWB.

On 3 December 1997, the government introduced amendments to the Canadian Wheat Board Act (see LS-281). Bill C-72 proposed turning the Crown corporation into a mixed enterprise to be directed by a full-time Chief Executive Officer and a part-time, partially elected Board of Directors. It proposed that any changes to the Board’s monopoly on wheat and barley marketing would be subject to order in council and producer vote.

Bill C-72 was referred, on 19 February 1997 and before second reading, to the House of Commons Standing on Agriculture and Agri-Food. The Committee heard from about 100 witnesses and made some major amendments to Bill C-72, particularly regarding the corporate governance of the Canadian Wheat Board. The bill as amended by the Standing Committee was reported to the House of Commons on 16 April 1997.

The amended version of the bill provided that ten directors would be elected by producers. Other amendments further increased the power of the board of directors and clarified the status of the CWB and the role of the contingency fund. Bill C-72 died on the Order Paper when Parliament was dissolved on 25 April 1997 for a general election.

On 25 September 1997, Bill C-4, An Act to amend the Canadian Wheat Board Act and to make consequential amendments to other Acts, received first reading in the House of Commons. It was referred, on 8 October 1997 and before second reading, to the House of Commons Standing Committee on Agriculture and Agri-Food. Bill C-4 is essentially based on Bill C-72 as amended by the Standing Committee in April 1997, with some technical and other changes (see LS-292). The most substantive changes would allow for the CWB’s mandate to be extended to other grains and for the board of directors to designate one director as chairperson. The Committee made one or two additional changes when it reviewed the bill, the most significant of which would clarify that only producers of a grain would be able to request the Minister to have that grain added to the CWB’s mandate. Provision was also made to ensure that the farm community would have adequate public notice of such a request. The bill was reported back to the House of Commons on 7 November 1997.

Between 24 March and 2 April 1998, the Standing Senate Committee on Agriculture and Forestry held public hearings on Bill C-4 in Brandon, Regina, Saskatoon, Calgary, Edmonton and Winnipeg. The Committee heard from 92 individual farmers, 34 farm organizations, and three provincial Ministers of Agriculture. In Ottawa, the Committee also heard from the Minister responsible for the CWB, and officials from the CWB and from Agriculture and Agri-Food Canada.

In its report tabled in the Senate on 14 May 1998, the Committee recommended that:

i) the board of directors be consulted on the appointment of the President of the corporation;

ii) the Auditor General of Canada be allowed to audit the corporation; and

iii) clauses on inclusion and exclusion of grains be deleted altogether.

The Standing Senate Committee also recommended that electoral districts for the election of producer directors be structured so that five directors could be elected from Saskatchewan, three from Alberta, and two from Manitoba; that one vote be provided to each permit book holder; that the contingency fund be capped at $30 million; and that individual accounts be established for the three activities financed by the contingency fund (adjustments to the initial payment; early pool cashouts, and potential losses from cash trading). Bill C-4 received Royal Assent on 11 June 1998.