The Canadian Wheat Board

Feature by Rhonda Parkinson || Jun 1, 2007

Central to the Western Canadian grain industry is the Canadian Wheat Board, which is the sole marketer of western Canadian wheat and barley sold for human consumption. This article discusses the Canadian Wheat Board, including its mandate and operation, the history of wheat regulation in Canada, as well as current debates and pressures on the Board.

What is the Canadian Wheat Board?

Overview of the guiding concepts behind the Canadian Wheat Board

History of Wheat Regulation in Canada

Historical overview of the formation of the Canadian Wheat Board

Structure of the Canadian Wheat Board

The corporate structure of the Canadian Wheat Board

Issues and Debates on the Canadian Wheat Board

Domestic and international pressures on the Canadian Wheat Board

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This article was orginally written by Rhonda Pharkinson. It has since been altered by Jay Makarenko.


What is the Canadian Wheat Board?

Overview of the guiding concepts behind the Canadian Wheat Board.

The Canadian Wheat Board (CWB) handles the marketing of all wheat and barley from Canada's Western provinces, grown for human consumption. The Canadian Wheat Board (CWB) was born in the Depression era of the 1930s, when unprecedented drops in the worldwide price of wheat resulted in bankruptcy for many farmers, and threatened the economic collapse of provincial governments in Western Canada.

At the micro level, the Canadian Wheat Board attempts to stabilize the market for individual farmers, protecting them from unanticipated sharp fluctuations in the price of wheat. A broader objective is to prevent unexpected shocks to the Canadian economy.

As with any marketing agency, the Canadian Wheat Board's objective is to obtain the best possible price for its product. Its day-to-day operations are based on three guiding principles: single desk selling, price pooling, and government guarantees.

Single Desk Selling

The Canadian Wheat Board has exclusive authority over the marketing of wheat and barley grown in Western Canada, both for the domestic and international markets. Farmers are not free to sell their grain independently, but must deliver it to the Canadian Wheat Board. This approach is based on the belief that a single organization representing all of Canada’s Western grain farmers (a ‘single desk’) will have more clout negotiating the best price for wheat on the open market than individual farmers. Furthermore, since the Canadian Wheat Board has a record of the type, grade, and quantity of grain produced by each farmer, it is able to enter into contracts to deliver grain to buyers at a specific date in the future (commonly referred to as “futures contracts”), knowing these contracts can be fulfilled.

In order to ensure that grain is collected from individual farms, stored, and transported to shipping terminals as efficiently as possible, the Canadian Wheat Board is responsible for overseeing the storage, cleaning, and transportation of the grain to points where it is shipped overseas. However, the CWB does not own any grain elevators or railway cars. Instead, it enters into contractual agreements with grain elevator operators, rail operators, and shipping terminals.

Price Pooling

The Canadian Wheat Board operates as a collective, with the risks and rewards shared equally, or “pooled,” among its members.  Price pooling operates in the following way:

  • At the beginning of the crop year, the Canadian Wheat Board sets the price it will pay for a particular grain. The price varies depending both on the specific type of grain and its quality or “grade.”

  • Farmers are guaranteed to receive this price for their grain, regardless of any changes or developments in grain prices or the demand for grain throughout the crop year.

  • The farmer signs a delivery contract with the CWB, specifying the type, grade, and amount of grain s/he wishes to deliver. However, the CWB is not obligated to purchase the amount of grain specified in the contract. Market conditions will determine how much grain the Board accepts from the farmer throughout the crop year.

  • The Board is obligated to sell any grain that it calls to be delivered. If the Board is unable to sell the grain in the current crop year, it is set aside for sale in the next crop year.

  • Upon delivering the grain, the farmer receives an initial payment for the grain, based on the price set by the CWB for the different types and grades of grain.

  • Farmers are individually responsible for transportation charges to deliver the grain to a terminal and these are deducted at the time s/he receives the initial payment. These charges may also include storing the grain in a grain elevator, cleaning the grain, and any freight charges to transport the grain to the nearest port.

  • The CWB continues to purchase grain from farmers throughout the crop year, based on market demand.

  • The money from the sale of these grains is pooled into one of four pools, based on the type of grain. Depending on sales and whether the price of grain rises or falls, farmers may receive additional payments (called adjustment or interim payments) throughout the year.

  • At the end of the crop year, the total amount in the pool is calculated, and expenses, marketing, and operational expenses for the Canadian Wheat Board are deducted. Any additional transportation expenses, such as shipping charges, are also deducted.

  • All excess revenue is returned to the farmers. Each farmer receives a portion of the pool, based on the proportion of grain s/he delivered.

Under price pooling, a farmer receives the same price for his/her grain, regardless of when it was actually sold. Furthermore, the costs incurred with operating the CWB are shared equally among all farmers. From the farmer’s perspective, price pooling provides a safeguard against fluctuating prices; the amount s/he receives from the Canadian Wheat Board does not vary depending on when the grain is delivered. On the other hand, combined with the Board’s monopoly over selling wheat and barley, it prevents the farmer from taking advantage of any sharp spikes in grain prices.

Government Guarantee

If the total revenue from the grain, minus expenses, is less than the initial payment made to farmers, the federal government guarantees to make up the difference. The Government of Canada also guarantees Canadian Wheat Board borrowing (currently totaling approximately $6 billion), which allows the Board to obtain loans at more favourable interest rates than would otherwise be the case. Finally, if a buyer of Canadian grain defaults on payment to the Canadian Wheat Board, the federal government guarantees to absorb the costs of the defaulted payment.

Of all the federal government guarantees to the Canadian Wheat Board, the initial payment has received the most criticism as being a subsidy to farmers. However, it is important to note that the initial payment is only (approximately) 75 percent of the expected market price of the grain throughout the crop year. There have only been a few occasions where the federal government has been forced to back up the guarantee after wheat prices for the crop year dropped unexpectedly. The most notable example to date came in the 1990-91 crop year, when the federal government was forced to pay more than $670 million.

The following table illustrates the concept of price pooling and the initial payment system:

Canada Wheat Board Payments for No. 1 Canada Western Red Spring Wheat, 1994-94 to 2003-04, dollars per bushel

Pool
Account

Initial Payment

Adjustment Payment

Interim Payment

Final Payment*

Final Realized Price*

1994-95

125.00

67.00

10.00

8.38

210.38

1995-96

175.00

86.00

-

10.75

271.75

1996-97

200.00

10.00

-

14.88

224.88

1997-98

147.00

42.00

8.00

14.68

211.68

1998-99

151.00

39.00

9.00

8.54

207.54

1999 – 2000

144.30

38.00

5.00

5.13

192.43

2000-01

149.60

41.70

7.00

4.28

202.58

2001-02

169.20

29.10

8.00

10.72

217.02

2002-03

155.20

95.00

-

-

250.20

*Final payment and final realized price after deduction of costs
Source: Canadian Wheat Board

What About the Eastern Provinces?

Currently, the Canadian Wheat Board does not exercise authority over the marketing of wheat outside of the four western provinces. While Western Canada, particularly the three Prairie provinces, produces over 95 percent of Canada’s wheat for sale, wheat is grown commercially in all provinces with the exception of Newfoundland & Labrador. In Ontario, which produces approximately four percent of Canada’s total wheat for export, wheat is marketed through the Ontario Wheat Producers’ Marketing Board. The remaining provinces market wheat and other grains that are grown through a variety of marketing schemes. No commercial agricultural crops are grown in the northern territories.


History of Wheat Regulation in Canada

Historical overview of the formation of the Canadian Wheat Board

Early Wheat Marketing in Canada

Up until the early 1900s, wheat marketing in Canada was a completely private industry. Individual or small groups of farmers dealt with the railways, private elevator companies, and the Winnipeg Grain Exchange for the delivery, weighing, grading, and pricing of their grain. The federal government first entered into the area of wheat marketing in 1912 when it passed the Canada Grain Act, which established the Canadian Grain Commission (a federal government agency) as the official weigher and inspector of grain. Delivery and pricing of grain products, however, remained a private industry.

Grain Marketing During WWI

During World War I, the federal government became more involved in grain marketing in order to ensure stable supplies and distribution during wartime. In 1917, the federal government suspended the trading of grain futures at the Winnipeg Grain Exchange, and established the Board of Grain Supervisors (BGS) to oversee the purchase, sale, and pricing of wheat for export. After the War, the federal government replaced the Board with the first Canadian Wheat Board (CWB), which was mandated to sell wheat in domestic and export markets at prices in accordance with world levels. The Board operated under a two-payment system, in which farmers were given an initial, partial payment when they delivered their wheat to elevators, and a final payment at the end of the marketing year.

Farmer-controlled Wheat Pools

The federal government viewed the BGS and CWB as extraordinary and temporary measures during wartime conditions. In 1920, following the end of the First World War, the federal government disbanded the CWB, returning wheat marketing to a private industry. Several groups of farmers across the country, however, continued to support the idea of a central organization controlling the pricing and sale of grain. In 1923, this led to the creation of farmer-controlled Wheat Pools in each of the three Prairie provinces. These Pools also established their own joint Central Selling Agency in order to centralize the sale of grain from those provinces. Like the first CWB, these Pools operated under a two-payment system, in which farmers were given an initial, partial payment and then final payment at the end of the marketing year.

Re-establishment of the Canadian Wheat Board

During the late 1920 and early 1930, the federal government began to re-enter grain marketing due to the Great Depression and the collapse of international wheat prices. In 1929, international wheat prices fell so low, that the farmer Wheat Pools where unable to recover from the market what they had paid out in initial payments to farmers. In order to keep the Pools from going bankrupt, the federal government provided guarantees on the Pools’ loans, as well as guaranteed the initial payment to farmers for the subsequent harvest. Moreover, the federal government installed its own representative as the manager of the Pools’ Central Selling Agency. Eventually, the federal government formalized its involvement in grain marketing by passing the Canadian Wheat Board Act in 1935. Under the Act, the farmer-controlled wheat boards were consolidated into a single Canadian Wheat Board, which operated under the authority of the federal government. Moreover, under the new system, the federal government was responsible for covering any losses in the marketing of grain, while any profits were to be returned to participating grain producers.

Evolution of the Canadian Wheat Board

Since its re-establishment in 1935, the Canadian Wheat Board has undergone several key changes in its operation. During World War II, the Canadian Wheat Board changed from a voluntary marketer to a monopoly board. Previously, farmers could choose to market their grain through the Board, or could do it privately. During the War, however, it became compulsory for farmers to deal exclusively with the Board.

In 1949, the marketing responsibilities of the Board were extended to include other grains in addition to wheat, such as oats and barley. Since then, however, the Board’s responsibilities have been cutback. In 1974, the inter-provincial sales of wheat, oats, and barley for use in animal feed were removed from the sole authority of the Board. In 1989, the federal government ended the Board’s monopoly over the marketing of oats for human consumption. In 2006, the federal government announced its intention to further reduce the Board’s authority by removing its monopoly over the marketing of barley for human consumption. As of August 2007, however, the reform has been stalled due to legal battles in the Canadian courts.

Governance of the Board has also evolved significantly over the years. From 1935 to 1998, the Board was overseen and managed federally-appointed Commissioners. In 1998, this governance structure was altered with the creation of a 15-member Board of Directors. Ten of the members were elected by Prairie grain farmers, while five were appointed by the federal government.


The Structure of the Canadian Wheat Board

The corporate structure of the Canadian Wheat Board.

Legislative Framework

In 1935, Canada passed the Canadian Board Wheat Act. Since its passage, the legislation has been amended several times. Additionally, the Act gives the Canadian Wheat Board greater potential powers than have been exercised to date, in terms of the types of grains and the specific provinces and geographical regions that it has jurisdiction over. The following provides an overview of the main features of the Act, and how it is applied:

  • The Canadian Wheat Board enjoys a monopoly over the marketing of designated wheat and barley products meant for human consumption, both domestically and for the export market, in Western Canada.
  • While the Board currently maintains a marketing monopoly over wheat and barley, under the legislation its authority can be extended to cover other crops including oats, rye, flaxseed, rapeseed, and canola.
  • The Board’s monopoly covers the designated grains grown in the provinces of Alberta, Saskatchewan, Manitoba, and the Peace River district of British Columbia.
  • Under the legislation, the Board’s authority may be extended to cover designated grains grown in parts of Ontario and other sections of British Columbia.
  • Participation in the Wheat Board is mandatory. With the minor exception of domestic feed grains, which are not for human consumption, Western farmers must sell their wheat and barley to the Canadian Wheat Board.
  • For each crop year, the federal government guarantees to cover any financial losses incurred by the Canadian Wheat Board. Any profits, however, are returned to the producers (farmers) who delivered grain to the Board during the crop year.

Corporate Structure of the CWB

The legislation also outlines the Boards’ corporate structure:

  • The Board has a “shared governance” corporate structure, where responsibility for the management and operation of the Canadian Wheat Board is shared between the Board and the federal government.
  • There are 15 members on the Board of Directors. Farmers directly elect 10 members. Each elected director represents a specific regional district, and serves a four-year term.
  • The federal Cabinet appoints the remaining five members, including one member who serves as both President and Chief Executive Officer (CEO).
  • The Board of Directors is responsible for the Canadian Wheat Board's day-to-day operations. However, the Act gives the federal government final authority over the direction and operation of the Canadian Wheat Board, stating, “The Governor in Council, may, by order, direct the Corporation with respect to the manner in which any of its operations, powers, and duties under this Act shall be conducted, exercised, or performed.”
  • The Board is required to file an annual financial plan with the Minister of Finance, as well as monthly reports disclosing grain purchases and sales.
  • The Board is also required to file an Annual Report with the federal minister designated to be responsible for the Canadian Wheat Board, outlining the performance of the Board for that crop year; the report is then submitted to Parliament.

In the international arena, Canada has used the revised corporate structure as evidence that the Canadian Wheat Board is essentially a “farmer-governed” organization. However, while it is true that farmers elect two-thirds of the Board of Directors, ultimately, the Canadian Wheat Board is legally responsible to Parliament.

Evolution of the Canadian Wheat Board 

There have been several significant amendments the Canadian Wheat Board's structure as set out in the Canadian Wheat Board Act:

  • In 1943, the federal Parliament amended the legislation to make membership mandatory, instead of voluntary. This action was taken in conjunction with the federal government’s efforts to provide food aid during World War II. However, the mandatory requirement remained in place after the war.
  • In 1967, a subsequent amendment removed the five-year renewal clause, making the Canadian Wheat Board a permanent fixture.
  • In 1998, a further amendment significantly altered the Board's corporate structure. Under Bill C-4, the Canadian Wheat Board was no longer deemed to be a “Crown Corporation,but operated under a “shared governance” structure. The most visible sign of the change lies in the Board of Directors' makeup, which formerly consisted solely of federal appointees.
  • The 1998 legislation signaled an attempt by the federal government to address concerns that the Canadian Wheat Board was not responsive enough to farmers. However, it reaffirmed the federal government’s authority over the Canadian Wheat Board, and introduced the reporting requirements to the Ministers of Finance and Agriculture.

Issues and Debates on the Canadian Wheat Board

Domestic and international pressures on the Canadian Wheat Board

The Canadian Wheat Board has its critics. Despite the fact that farmers were the driving force behind its creation, organizations representing groups of farmers actively lobby for significant changes to, or the outright abolition of, the Wheat Board. The following examines domestic and international issues facing the Canadian Wheat Board.

CWB and Obtaining Best Possible Price

Some opponents argue that the original concept behind the Canadian Wheat Board, that a single organization will have more power negotiating contracts for the sale of grain than individual farmers, no longer holds true. For example, critics argue that changes in technology mean that farmers can use computers to obtain up-to-the-minute data on grain prices. Under a more open system, farmers (or groups of farmers) could use this data to obtain the best possible price for their grain, whether by selling it to buyers over the internet, transporting it across the border to sell to US markets, or through some other method. Supporters of the CWB have argued, however, that the ability to obtain the most recent data on wheat prices does not necessarily give farmers the skills required to sell these grains in a competitive marketplace.

Furthermore, some argue that Canada’s ability to obtain the best possible price for farmers in the international market is limited. While Canada has a monopoly over the marketing of the majority of wheat that is commercially grown in Canada, it does not have a worldwide monopoly over wheat sales. Canada accounts for less than 20 percent of the worldwide wheat export market, which means that it must compete with other sellers when setting prices. Setting prices too high will reduce sales Supporters of the Canadian Wheat Board argue that while Canada does not have a monopoly over worldwide wheat exports, Western Canada’s wheat is respected around the world for their superior quality. Therefore, having a monopoly over the selling of these grains, and not having to compete with other sellers, helps the Canadian Wheat Board obtain the best possible price for farmers. Furthermore, combined with “Single Desk Selling,” a monopoly allows the CWB to price differently to different markets on any given day. This allows the Board to sell wheat to one customer at a lower price (in order to secure a sale), without being threatened with the loss of “premium markets” that are charged a higher price.

CWB and "Buy-back” Licenses

A particularly sore point with many farmers involves the issue of “buy-back” licences. A farmer wishing to sell his wheat or barley to a third party (for example, by transporting his grain across the border to take advantage of higher prices in the United States) must first deliver the grain to the Canadian Wheat Board and buy it back again. The price charged for the farmer to purchase the grain (the price that the Canadian Wheat Board would charge to sellers on that particular day) essentially removes any advantage that would be gained from selling it to a third party. Furthermore, Canadian Wheat Board officials are free to refuse the farmer’s request for a buy-back license.

Supporters of the Canadian Wheat Board argue that buy-back licenses are consistent with the philosophy of price pooling, whereby all farmers who deliver wheat and barley during the crop year share in the profits. Requiring farmers to purchase a buy-back license allows other farmers to share in the proceeds from the sale. 

CWB and Price Pooling

Some argue that the system of price pooling, like any bureaucratic system, inevitably leads to a time lag between receiving information about market conditions and acting on that information, both at the micro and macro level. At the micro level, since they are receiving the pooled price for their grain and not the market price, farmers may be slow to respond to changes in demand. In the 1994-95 crop year, the CWB was unable to undertake a potentially lucrative contract to supply Japan with barley, as it could not attract enough barley into the pool to fill the contract. At the macro level, it can lead to poor marketing decisions, such as selling grain to the export market when it would have received a higher price on the domestic market, and vice versa.

Supporters of the Canadian Wheat Board argue that any financial losses that may have been experienced in specific cases are minor compared to the overall financial benefits to farmers of the system of price pooling and single desk selling.

CWB and International Disputes

Issues regarding the CWB are not just domestic, but are also international in their scope. For example, the CWB has been attacked by the United States on several occasions. The US has claimed that Canada, through the CWB, dumps wheat onto the United States market at prices below market value. (“Dumping” is an economic term referring to a situation whereby a product is exported and marketed at an unreasonably low price, in order to undercut the competition.) Furthermore, the US has claimed the Canadian Wheat Board is able to do so because it is unfairly subsidized by the Canadian federal government.

Between 1990 and 2002, the United States launched a total of 10 trade challenges against Canada. Canada vigorously fought the charges, arguing that the Canadian Wheat Board is a farmer-governed organization, and therefore committed to ensuring that the farmers it represents receive the highest possible price for their wheat. In 2003, after Canada won the majority of the trade challenges, the United States Department of Commerce (DOC) imposed a series of tariffs on Canadian wheat. Canada appealed, and the tariffs were eventually either reduced or dropped.

Reforming the Marketing of Wheat

The issues discussed above have led some to advocate reforming the CBW and the way in which wheat is marketed in Canada. Some have called for a completely open system, in which wheat and other grains are bought and sold on the open market. Others favour a “dual marketing” system, where farmers could choose between selling their wheat independently and participating in the Canadian Wheat Board. Supporters of the Canadian Wheat Board’s monopoly argue that, as with any other monopoly, being the sole provider of Western wheat gives the CWB greater clout in negotiating the best possible price for the product. Furthermore, the system of “price pooling,” whereby all farmers share equally in the risk, could not continue if the CWB was in direct competition with other grain sellers. Therefore, a dual market is neither practical nor in farmers’ best interests.

Supporters of dual marketing point out, however, that a type of dual market operated successfully in the 1920s, when approximately one-half of Prairie farmers participated in provincially run Wheat Pools, while the remainder marketed their own grain. Furthermore, they argue that a dual marketing system exists in Ontario, where farmers have a choice between selling their wheat themselves, or through the Ontario Wheat Producers’ Marketing Board.

Debate over Barley Marketing

As of August 2007, the Canadian Wheat Board had the sole responsibility for marketing western barley for human consumption. As such, it is compulsory for barley producers to deal exclusively with the Board. In 2006, the federal government announced its intention to open western barley sales to a dual-marketing system, in which farmers could choose to sell their either independently or go through the Board. In this context, the federal Cabinet, helmed by Conservative Prime Minister Stephen Harper, imposed new regulations which ended the Board’s monopoly over barley sales.

In 2007, however, the reforms were put on hold, following a ruling by the Federal Court. In that decision, the Court held that the federal Cabinet could not alter the authority of the Canadian Wheat Board without first gaining Parliamentary approval. This would involve a majority vote in the House of Commons. The ruling placed the minority Conservative government in a difficult political position, as it did not have a clear majority in the House. As such, the government would have to rely on the support of opposition parties in order to pass the new regulations on barley marketing. However, opposition parties in the House have indicated they would vote down any change to the Canadian Wheat Pool. As of August 2007, it is not clear whether the federal Cabinet's reforms will be implemented.


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