Wheat and Western Canada
Econ 4300
2008
Monopolies in western Canada
• 1670-1870 – the Hudson’s Bay Co.
– Monopoly seller
– Monopsonist buyer
– Red River colonists could not deal in furs
Monopolies in western Canada
• Canadian Pacific Railway
– No competition allowed
– 1888 the monopoly clause cancelled
– The CPR was compensated
– East ↔ West battle
• Monopolies were not a national concern
• Many industries were not competitive
Market Power Impacts
Agriculture
Ag. Implements
Prices
Production
Prices
Production
1929
100
100
100
100
1930
82
102
99
73
1931
56
98
99
19
1932
48
113
97
9
1933
51
104
94
14
Agriculture in the early West
• Continual protests over low prices
• Target – mostly Eastern interests
• Proposals: state owned grain trade,
cooperative organizations
• Actions to help raise selling price and
lower cost of goods purchased (today,
FNA)
Wheat Pricing, early 1900’s
• World price → Liverpool price
• Winnipeg price was the spot price
• Spot price = Liverpool less transport, handling,
insurance, profit, etc.
• Canadian producers – no impact on Liverpool
price
• The Liverpool-Winnipeg price spread could
maybe be altered, and farmers viewed the
spread as excessive
• Producer target → elevator companies
Elevators
• First elevator, Gretna, MB, 1881
• A large capital expense
• Large storage capacity because of
seasonality of grain supply
• “Line” elevators, some farmer owned
• Elevators were grain merchants and
warehousers
• Limited rail and terminal capacity
1906 Royal Commission
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Improper weighing
Excessive dockage
Rail car shortage and allocation
Grading and inspection concerns
Uncompetitive bids (telegraphing prices)
– Courts agreed with grain co.s
• The Winnipeg Grain Exchange was not
viewed as the source of the problem
Continued
• Terminal elevators
– Undercleaned – poorer quality product
exported
– Excessive dockage charges
– Mixing of foreign material just to meet
minimum standards, even if brought to lower
quality than producers delivered
Locally Owned Elevators
• Farmers raised capital to construct elevators
• The Grain Growers Grain Co. operated as a
merchandiser for the farmer elevators
• Low turn-over all most farmer elevators, little or
no profit
• Locally owned elevators could not compete with
the line elevators
• Provincial legislation to facilitate cooperatives
– MPE, SWP, AFCE Co.
• 1917 – GGG and AFCE combined → UGG
Post WW I
• 1916 – poor US wheat crop and Canadian
crop badly rusted
• 1917 – spring, there started to be the
realization there was inadequate wheat
supply to match wheat future bought
• WGE requested government intervention
• Fed. govt established the Board of Grain
Supervisors with wheat monopoly powers
BGS
• To control the distribution of grain as
between domestic requirements and Allied
purchasing agencies
• To prevent to the utmost possible extent
neither value inflation or depreciation by
speculation, hoarding grain, or by other
means
BGS
• Handled the rest of the 1916 crop and all
of the 1917 and 1918 crop
• Note: There was a similar entity in the
United States during this time period
• The WGE started trading again on July 21,
1919
– Trading pushed prices up and by July 31,
1919, the Canadian Wheat Board was
established with exclusive responsibility to
handle the 1919 crop
CWB - 1919
• Was to be temporary
• Initial price paid, additional funds paid at
the end of the crop year
• The CWB closely resembled the Australian
Wheat Board
• Ended in the autumn of 1920
• Smooth ending, the CWB continued to use
the private grain trade during the year
After the CWB
• There was a large decline in grain prices
with the 1920 crop
• Wheat price fell from about $3/bu to
$1.15/bu over several months
• 1917-1920 with CWB → prices high
• 1920 onward under WGE → price low
• Conclusion by some: WGE was
responsible for the low prices
WGE post 1920
• Viewed as detrimental to farmers
• Perception that speculators were driving
down the price to make a profit
• Producers at the mercy of speculators
• However, cash and futures prices were
closely related
• Prices lowest at harvest
Speculators
• Take on price risk
• Part of price discovery
• Prices lowest at harvest because that is
when all producers were wanting to sell
and there is a cost to carry the grain to
later in the year
– Warehousig, insurance, and price risk
1930’s
• Prices fell by about one-half from 1929 to
1932-35
• Increased pressure by producers and
some producer organization to abolish the
WGE and replace it with a government
agency
• 1935 – a wheat board was established,
but it was voluntary (contract sign-ups)
Wheat Pools
• The wheat pools grew during the 1920’s
• The pools had a common selling agency
to cut out the middle man
• Paid producers an initial payment and final
payments if any surplus
• Price was pooled over the year – same
price no matter when you sold
• Pooling ended in 1931
• Pools went on to operate as elevator co.s
Pools’ Central Selling Agency
• Selling agents domestic and abroad
• Initial price < market price
• Producers contracted, but delivery could
not be enforced
• Post 1929, market prices fell and initial
price > market → lots of deliveries
• 1931, the CSA was in the hands of the
Fed. Govt to bail out the system
1930’s
• The Central Selling Agency, under the
Fed. Govt, pursued “stabilization” policies
• 1935
– The second CWB was established (voluntary)
– Took 2 years to sell the inventories of the CSA
– Price < market in 1936-37 → no deliveries
– Price > market in 1938 → received entire crop
Board to Continue?
• 1939 – an Act was introduced to maintain
the board, set the initial price, and limit
producer deliveries to 5,000 bu
• WW II
– Wheat board retained as optional
– Initial price increased due to producer
pressure
– Yields high, markets lost (Europe),
accumulation of grain stocks
• Marketing quotas (1940), acreage reduction (1941)
Board Permanent
• Sept. 27, 1943, the CWB ceased to be an
alternative, and was given exclusive
jurisdiction to receive Canadian wheat
• Trading of wheat on the WGE ended
• A reaction to war time emergency, not a
policy change
• Prices increased due to reduced supply in
the US and Canada
• A concern about increasing prices in 1943
CWB
• After the war, the CWB was retained, not
like in WW I
• Other crops were added to the CWB
jurisdiction (oats, barley)
• In the 1980’s, oats were removed from the
CWB
• Future – a current political issue 65 years
later
CWB - pricing
• Initially, all deliveries of a specific grade
were pooled and one price paid to
producers
• Alternative pricing options exist now
– Pooling, initial payment plus interim and final
– Contract, hedged on Minneapolis
– Full payment at delivery with no interim or
final payments
– Other payment options could be forthcoming
CWB - pros
• Is able to price discriminate in premium
markets and get higher prices (Japan, UK,
USA)
• Coordinates grain movement to get
appropriate grain at terminal locations
• Counters some of the market power of the
few multinational grain companies
• Sales and promotion of Canadian wheat
CWB - cons
• Restricts producer choice
• A level of administration that is not
costless
• No ability to off-load price risk out into the
future
• Distorts trade (mostly from other trading
countries)