This was posted in the Western Producer
By Craig Docksteader
During the federal election campaign,the Conservative party made no secret of its position on the Canadian Wheat Board's monopoly. It's in plain English on page 19 of its platform:
"A Consrvative goverment will...give western grain farmers the freedom to make their own marketing and transportation decisions. Western grain farmers should be able to participate voluntarily in the Canadian Wheat Board."
The immediate response from the CWB was predictable.
"By backing voluntary participation in the CWB, a scenario has been put forward that cannot occur." CWB chair Ken Ritter insisted. "You either have a single-desk marketing system or you have an open market system. Those are actual choices."
According to Ritter, the voluntary option is not an option because it will not work.
But Ritter is wrong.
Not only can it work,but it already has worked. Twice. First in the 1920s when the prarie wheat pools were established. and then later in 1993 when Mulroney's Conservative goverment removed barley destined for the United States from the CWB's monopoly.
Neither of these experiences was without its challenges. But in both cases producers were given the choice of either selling on the open market or through a voluntary pooling agency. And in both cases the dual market worked. The resulting historical record provides us with clear answers to a number of objections that are commonly raised about dual marketing.
Objection: A dual market system cannot work because the CWB owns no grain handling facilities.
Answer: When the wheat pools opened for business in the 1920s, they had noi elevators and no terminals. Although this was not the preferred arrangement, it did not stop prarie farmers who were determined to esablish a voluntary pooling option. The pools simply made arrangements with exsisting elevator companies to receive deliveryof pool wheat. They then began deducting two cents per bushel until enough money was raised to acquire grain handling facilities.
Objection: Dual marketing would create marketing chaos. Producers would opt into the pool when open market prices drop, and opt out of the pool when the open market price goes up.
Answer: In the 1920s, those who wanted into the pool had to sign a five-year contract. Once in, you couldn't get out for five years.
Furthermore, alhtough anyone could sign up to get into the pool,you could only enter at the end of the crop year. This provided the stability necessary fot the wheat pools to operate.
Objection: Under a dual market system, wheat board would ahve no assurance of wheat supplies in order to make foward sales.
Answer: The five-year contract provided a significant amount of stability for the wheat pools and the basis to make marketing plans.
There was no problem projecting available wheat supplies because a contract included a record of the number of acres involved. Growers could not split their acreage between pool and non-pool, but were either in the pool or out.
Similarily, after the continental barley market was announced in 1993, the CWB eased the concerns of farmers in a summer edition of Grain Matters by explaining that,"In a multiple-seller environment, the CWB needs a firm commitment from farmers who wish to paticipate in the feed barley pool." The unceretainty of supply would be resolved through contracts.
Objection: The CWB would not be able to guarantee its initial prices in a dual market. Farmers would be forced to accept much lower initial payments on their grain.
Answer: Under the dual market system of the 1920s, the wheat pools were authorized to offer an intial price of up to 85 percent of the going market price. It was a simple business arrangement with the banks based on the agreement that the grain storage would provide security to banks and that its market value would at all times exceed the banks' advances by a minimum of 15 percent.
Advancing payment for future sales always involves risk. The degree to which this risk is managed properly is the degree to which the initial payment can approach full market value.
At the end of the day, a failure to gurantee initial prices evidences a failure in risk management, not an inherent weakness of a dual market system.
There was more to this article but I didn't want it to get to long. Moral of the article being dual marketing can work.
By Craig Docksteader
During the federal election campaign,the Conservative party made no secret of its position on the Canadian Wheat Board's monopoly. It's in plain English on page 19 of its platform:
"A Consrvative goverment will...give western grain farmers the freedom to make their own marketing and transportation decisions. Western grain farmers should be able to participate voluntarily in the Canadian Wheat Board."
The immediate response from the CWB was predictable.
"By backing voluntary participation in the CWB, a scenario has been put forward that cannot occur." CWB chair Ken Ritter insisted. "You either have a single-desk marketing system or you have an open market system. Those are actual choices."
According to Ritter, the voluntary option is not an option because it will not work.
But Ritter is wrong.
Not only can it work,but it already has worked. Twice. First in the 1920s when the prarie wheat pools were established. and then later in 1993 when Mulroney's Conservative goverment removed barley destined for the United States from the CWB's monopoly.
Neither of these experiences was without its challenges. But in both cases producers were given the choice of either selling on the open market or through a voluntary pooling agency. And in both cases the dual market worked. The resulting historical record provides us with clear answers to a number of objections that are commonly raised about dual marketing.
Objection: A dual market system cannot work because the CWB owns no grain handling facilities.
Answer: When the wheat pools opened for business in the 1920s, they had noi elevators and no terminals. Although this was not the preferred arrangement, it did not stop prarie farmers who were determined to esablish a voluntary pooling option. The pools simply made arrangements with exsisting elevator companies to receive deliveryof pool wheat. They then began deducting two cents per bushel until enough money was raised to acquire grain handling facilities.
Objection: Dual marketing would create marketing chaos. Producers would opt into the pool when open market prices drop, and opt out of the pool when the open market price goes up.
Answer: In the 1920s, those who wanted into the pool had to sign a five-year contract. Once in, you couldn't get out for five years.
Furthermore, alhtough anyone could sign up to get into the pool,you could only enter at the end of the crop year. This provided the stability necessary fot the wheat pools to operate.
Objection: Under a dual market system, wheat board would ahve no assurance of wheat supplies in order to make foward sales.
Answer: The five-year contract provided a significant amount of stability for the wheat pools and the basis to make marketing plans.
There was no problem projecting available wheat supplies because a contract included a record of the number of acres involved. Growers could not split their acreage between pool and non-pool, but were either in the pool or out.
Similarily, after the continental barley market was announced in 1993, the CWB eased the concerns of farmers in a summer edition of Grain Matters by explaining that,"In a multiple-seller environment, the CWB needs a firm commitment from farmers who wish to paticipate in the feed barley pool." The unceretainty of supply would be resolved through contracts.
Objection: The CWB would not be able to guarantee its initial prices in a dual market. Farmers would be forced to accept much lower initial payments on their grain.
Answer: Under the dual market system of the 1920s, the wheat pools were authorized to offer an intial price of up to 85 percent of the going market price. It was a simple business arrangement with the banks based on the agreement that the grain storage would provide security to banks and that its market value would at all times exceed the banks' advances by a minimum of 15 percent.
Advancing payment for future sales always involves risk. The degree to which this risk is managed properly is the degree to which the initial payment can approach full market value.
At the end of the day, a failure to gurantee initial prices evidences a failure in risk management, not an inherent weakness of a dual market system.
There was more to this article but I didn't want it to get to long. Moral of the article being dual marketing can work.
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