The CWB and consumers

Stephen Gordon wonders whether eliminating the Canadian Wheat Board would be of benefit to consumers:

The Canadian Wheat Board: Won’t anybody think of the consumers?

The Canadian Wheat Board – a cartel for Canadian wheat producers – is experiencing the sort of troubles that all cartels have to deal with at some point or another: some of its members believe that they could do better on their own. We’ve all seen this story before, but a distinguishing feature of this issue is that the CWB cartel is enforced by the federal government.

So far, the debate has centred around the costs and benefits of the cartel for farmers: some are clearly winners, but some – especially those whose transportation costs to the world market are relatively low – would do better  by negotiating their own prices. CWB defenders aren’t shy about impugning the patriotism of those who would abandon it (“This is as wrong as it is un-Canadian“), and even the New York Times noticed the fuss.

But I haven’t seen any media report that has made the connection between high prices for producers and high food prices for consumers.

The CWB is an export cartel that pools the supply produced by Canadian farmers in order achieve greater market power and therefore higher prices (incomes). In the absence of of the CWB, farmers would likely have to sell to the two or three large US-based agribusiness firms who dominate the trade (this is why the US hates the CWB so much). While such a move would lower incomes for Canadian farmers there is no guarantee that this would lead to lower prices for consumers due to the structure of the market.

Having talked to farmers about the CWB, it seems to me that the CWB leads to higher prices for most farmers most of the time. It also greatly mitigates risk. And it’s not like farmers are making a killing out there. Do we value arrangements that enhance the lot of farmers when they are competing in international markets against producers in the US and the EU that are much more heavily subsidized by their governments?

Economists generally support arrangements like copyright and patent protection that create monopoly power for creators of new works, a major distortion in market forces. Supporting farmers to pool their supply is much less distortionary, and yet it gets attacked by economists.

5 comments

  • The difference is that wheat is rival good, and knowledge isn’t.

  • True, but my point is that both are interventions in the marketplace that redistribute income from consumers to producers. In the case of copyright and patents the impact of the redistribution is much much larger than in the case of the CWB.

  • No-one is questioning wheat farmers’ property rights over what they produce. Or even their right to form a cartel (although I do have a problem when the powers of the federal govt are used to enforce it). The point is that the story doesn’t end with a cost-benefit analysis for producers.

  • It also occurs to me that since low-income households spend relatively more on food, this particular transfer from consumers to porducers amounts to a regressive redistribution of income.

  • If selling to the CWB was mandatory for all wheat farmers in Canada then it would be on firmer ground.

    But the fact that the CWB applies only to western farmers (except for most, but not all, of British Columbia) makes it appear as an aggregious attack on the freedom of farmers to do with their produce as they like.

    I think that even if the CWB is good for western wheat farmers as a whole (a debatable proposition), the monopoly can not stand. Individual rights trump the right of the whole.

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