Country Focus: Canada
February 01, 2002
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Canada’s single-desk wheat marketing continues to stir controversy
Canada has a land area of more than 900 million hectares, making it the second-largest country in the world behind Russia. In spite of its size, only 68 million hectares, or about 7% of the total, are farmed. The main factor restricting crop production is climate.
The Prairie provinces in the west, where most of Canada’s export grains and oilseeds are grown, has a frost-free period of about 110 days. Eastern Canada, where about two-thirds of Canada’s population is located, is more agriculturally diversified with livestock, horticulture and grains and oilseeds, particularly maize, soybeans and soft white winter wheat.
More than 98% of all farms in Canada are family owned and operated. With the support of modern infrastructures and transportation systems, Canada’s agricultural producers enjoy a reputation for efficient, high-quality production and reliable delivery.
Canada boasts world-class management in its agri-food sector, supported by cutting-edge research at federal, provincial and university research centers. And through the World Trade Organization, the North American Free Trade Agreement and other trade agreements, Canadian producers and agri-businesses enjoy access in markets all over the world.
Canada’s grain and food inspection systems are continually reviewed and refined to reflect the latest scientific information, new inspection technology, new processes and products and new approaches to food safety to ensure consistency with consumer needs and international requirements. For example, Canada controls the quality of western wheat through a system of seed devel-opment and registrations that prohibit the planting of all but approved seed varieties.
Although the Canadian economy and its agriculture sector are primarily market-based, the major exception occurs for the two major Canadian grains, western wheat and barley, grown in the Prairie provinces. These grains fall under the exclusive marketing control of the Canadian Wheat Board, a government-legislated monopoly, for both export and domestic markets.
The CWB was created during the 1930s Depression, when farmers sought government financial guarantees for their provincial wheat marketing pools. The CWB initially was voluntary, serving primarily as a residual buyer in times of low market prices, but was granted monopoly marketing status during World War II.
Today, Canada is among the "Big Five" world wheat exporters, and the CWB reports annual sales revenue of C$4 billion to C$6 billion, depending on grain prices and crop production. Following reorganization in the late 1990s, the CWB’s board of directors now includes 10 farmer-elected directors in addition to five government-appointed directors.
The CWB pools all of Western Canada’s wheat and barley and sells to domestic and export markets. Sales proceeds, less marketing and administrative costs, are returned to farmers.
In the past few years, the CWB has stirred much controversy, both within Canada and among U.S. wheat interests.
Some Prairie farmers, particularly those represented by the Western Canadian Wheat Growers Association, have lobbied hard, but unsuccessfully, for an end to the CWB monopoly. Their complaints about Canada’s single-desk system have centered on the inability to market their own grain, particularly in the U.S., where market prices sometimes are attractive to Canadian growers.
Most Western grower lobbying has focused on promotion of a so-called dual system similar to one for eastern Canadian wheat growers. Under that mechanism, Ontario wheat farmers can exercise the option of selling wheat through the Ontario Wheat Producers’ Marketing Board, an agency similar to the CWB, or directly to customers on their own. Although the CWB board considered the Ontario program for its grains, it denied that option for Prairie farmers.
Although pro-monopoly growers continue to be elected to the CWB board of directors, tensions continue to run high. Some growers opposed to single-desk have trucked grain over the U.S. border and sold it, and some of these protesters have been arrested and jailed.
The CWB also has come under fire repeatedly from U.S. government officials, who claim that single-desk systems violate free trade agreements and World Trade Organization principles. U.S. wheat producer groups also have taken aim at the CWB by filing formal complaints with the U.S. International Trade Commission.
In addition to controversy over grain marketing, the CWB in the past few years became embroiled in disputes with railroads and the grain trade over transportation and grain movement issues. Although the Canadian government traditionally played a role in the movement of western grain through subsidies paid directly to railroads, the subsidies were abandoned amid a move to overall transportation deregulation.
Recurring grain transportation performance problems in the mid-1990s prompted the government to establish a review process, and the subsequent recommendations were dubbed the "Estey Report" after the head of the review committee, former Supreme Court Justice Willard Z. Estey. The "Estey Report," released in December 1998, was designed to serve as a blueprint to create a more competitive, market-oriented grain system that would maintain some regulatory safeguards to protect the public interest.
Key recommendations of the "Estey Report" included ending CWB involvement in grain car allocations and replacing regulated rate caps with caps on rail revenues. The rate caps ultimately were dropped in favor of revenue caps, but new policies continued to let the CWB manage the distribution of railcars for grain movement.
Subsequently, numerous battles flared between the CWB and the two railroads handling western grain and between the CWB and grain companies. Grain companies said the CWB’s allocation system did not allow them enough flexibility to combine shipments of their non-board commodities and increased their risk by not letting them set their own terms and conditions with the railways. They also noted that CWB control over railcars impeded their ability to take economic advantage of new, high-capacity grain terminals.
After more than a year of acrimony and intense negotiations, the CWB and the grain trade in August 2001 announced they had reached an agreement to end the disputes. Citing sensitive commercial issues, they declined to provide details, but they said the pact would lay the groundwork for a more "commercial" grain transportation and handling system.
WHEAT AND FLOUR MILLING.
Canada’s flour milling sector is modern and its markets are mature. As in many other countries, the Canadian milling industry has undergone plant closings, reorganization through takeovers and increased automation.
Canada at the end of 2001 had 27 wheat flour mills with total daily wheat flour milling capacity of 196,535 cwts (8,915 tonnes in terms of flour). According to industry sources, Canada’s milling sector in 2001 operated at more than 90% capacity.
The industry is highly concentrated, with two U.S.-owned companies controlling about 66% of total capacity. ADM Milling Co. has daily capacity of 89,960 cwts (4,081 tonnes) in nine flour mills. Robin Hood Multifoods, Inc., with three mills, has daily capacity of 39,100 cwts (1,774 tonnes).
A number of small mills also serve local markets. Some of these mills produce stone-ground specialty flour for sale on the premises.
Canada also has five durum mills with total nationwide daily capacity of 23,100 cwts (1,048 tonnes). ADM and Robin Hood, with two mills and one mill, respectively, account for 57% of Canadian durum milling capacity.
Ontario, the most populous province, is the location of 12 wheat flour mills with 42% of the country’s wheat flour capacity. Quebec is home to four mills with 13% of total capacity.
Since the U.S.-Canada border opened under the Canada-U.S. Trade Agreement in 1991-92, the domestic Canadian flour milling industry has expanded with the opening of the new U.S. market. Daily Canadian milling capacity at the end of 2001 was 15.8% higher than at the end of 1992, and capacity has increased every year since 1995.
Millers must purchase all domestic wheat and barley from either the CWB (for grains grown in the Prairies) or from the Ontario Wheat Producers Marketing Board (for wheat grown in Ontario). Millers are also able to purchase imported wheat and barley duty-free from the U.S. and Mexico.
In terms of domestic flour markets, Canada has about 450 wholesale bakery establishments. This sub-sector also is concentrated, with four companies controlling 52% of sales, and has undergone some restructuring since 1988. Canada exports minimal amounts of flour.
FEED AND LIVESTOCK.
The Canadian feed industry comprises slightly more than 500 feed manufacturing establishments. They vary in size and manufacturing capacity from relatively small mills to large sophisticated and vertically integrated operations, although most feed manufacturers are medium-sized. Annual sales of operations vary from C$1 million to more than C$150 million.
Estimated total complete feed equivalent required to feed all live-stock and poultry in Canada is 23 million to 25 million tonnes. Approximately 50% of the overall complete feed equivalent volume is manufactured on non-commercial, on-farm mixing establishments.
Total commercial production of complete feeds, supplements and premixes in Canada is estimated at 14 million tonnes. Swine, dairy and poultry feeds account for approximately 85% of the feeds sold by commercial manufacturers.
The industry relies on imports from the U.S., Europe and Asia for the majority of the high-value, single micro-ingredients such as vitamins, trace minerals, amino acids, animal health pharmaceuticals and other micro-feed additives.
Exports into the U.S. include cross-border movement of complete feeds and originate mainly in Ontario and Quebec in the east and primarily in Manitoba and Alberta in the west. Exports of value-added specialty products, such as milk replacers, mink and fox feeds, horse feeds and specialty micro-premixes, are expanding in Mexico, Latin America, South America, Europe and Asia.