Are You Happy With Prices? Changing Market Structure Is Key To Changing That Dynamic

mktstructure1
Last week I was pretty hard on federal agriculture Minister Gerry Ritz.  It is one thing to criticize and another thing to make suggestions.  In the case of Federal Minister Ritz I think I was being charitable with my criticism.  However one thing that I did mention last week was how agricultural policy, which affects market structure, can be a very good thing.  That’s a world of difference between agricultural policies that does nothing to change the markets as they are now.

Simply put I believe that if we change market structure, Canadian farmers would have a lot more power over the pricing of their commodities.  The best example of that in Canada is our supply-managed commodities, dairy, eggs and feathers.  However there are other examples such as Ontario corn and maybe even Quebec corn, which have benefited from agricultural policy that is changed the structure of the bigger eastern Canadian corn market.

Examples abound in Canada on what could be done with regard to changing market structure whether that be for western wheat or barley, livestock and the many grains and oilseeds that are grown in eastern Canada.

I suppose you could say that one of the best examples of changing market structure has to do with the Canadian Wheat Board.  Whether you are a supporter of the wheat Board or a detractor, changing it means changing the whole structure for marketing Western grains.  For instance I recently read a defense of the Canadian Wheat Board in a Saskatchewan newspaper, which brought up Ontario wheat as an example of what could be done in Western Canada.  The defender of the Canadian wheat Board essentially said that most Western wheat is exported while Ontario wheat is used closer to where it is grown.   That may be true but clearly the fight in Western Canada is about changing the structure of the wheat market to garner more profit for those in a position to benefit.

There would be a whole host of ways to make that happens, however the politics of the Canadian Wheat Board make it a mute point.  As I’ve said many times in our minority Parliament the Canadian wheat Board is safe from any change.  Any changes to it are equated with changes in the Québec dairy economy and that is not going to happen.  So until the Conservatives get a majority, which is unlikely, there will be no change to the Canadian Wheat Board.

Nonetheless, changing market structure would be a good thing not only in Western Canada but also in eastern Canada when it comes to wheat.   For instance the entire Ontario and Québec corn market has been changed because of government policy put in place to increase the industrial use of corn.  Now corn producers in Ontario and Québec have the secondary market to send their corn other than the feed market.  This has caused a structural premium for corn compared to days gone by where the only option was to go into the feed market.  Sure, the livestock guys don’t really like that, but they too are adjusting to the structural change in a very big market.

Of course would this have happened if the “good versus fuel debate “had been raging a few years ago?  I don’t think so.  However because of the work of many farmers in Ontario and Québec as well as solid vision from some provincial politicians the ethanol complex got a jumpstart.   Forever moving forward the corn market in eastern Canada has been changed for the betterment of eastern Canadian corn producers.

The problem in Western Canada is it cannot be changed without a political fight, which can’t be won.  However for whatever agricultural commodity we might be talking about, farmers can forge structural change in the market to garner greater profits.  However I’m not talking about simply doing a good job of marketing.  What I’m referring to is changing the actual structure of the market to automatically bring back greater profits to all farmers.  Usually it takes some type of government policy to force change.

One of the most famous attempts at doing that was the ill fated countervail duty, which was almost, imposed on US corn coming into Canada.  The Ontario Corn Producers Association lost that battle but if they had won, it would have changed the corn market in Eastern Canada forever, effectively forcing end-users to pay more for corn.  Now, when corn is deemed too expensive imports of cheap US corn come over the border keeping a cap on Ontario prices.  It still better than it used to be because of the Ontario ethanol complex, however if the countervail duty had been successful the whole corn market structure would be altered significantly.

Of course that battle was lost and I think almost everybody wants to forget about it because it was very costly.  However it should serve as an example of what can be done if farmers want to try to do it.  Also too, it should be recognized that if government wants to help change market structure, they could do it for many other agricultural commodities throughout Canada.  Our supplying managed commodities are one example, Ontario corn is another and there surely are other smaller examples throughout Canada.

It is not the easiest thing to understand.  In fact it’s pretty obvious most of our politicians are very happy with the cheap food policy we have now.    Nonetheless, I believe changes in market structure are key to our future success in whatever region of Canada we live in.   That’s Western Canada included because someday you are going to wake up and the market structure for Western grains is going to be vastly different.   Lightning may strike even on the Canadian prairie.

A long time ago I told you a story about me and a colleague trying to figure out the vagaries of market prices for sheep in Australia.  Simply put the price for those sheep wasn’t adding up because the market they were sold in wasn’t working.  In Canada we have some of that too, in fact I suppose you could argue we’ve got quite a bit of it.  However it doesn’t have to be that way.  I often challenge you to find marketing opportunities.  However, changing the dynamics of our own market structure in the long run can be much more rewarding.  The hard part is getting there and to get everybody else to realize that.