Canada-U.S. grain panel calls for end to discretionary pricing of grain
July 01, 1995
by Teresa Acklin
Both Canada and the United States are guilty of discretionary pricing of export grain and should take steps to end price-distorting trade and agricultural policies, according to the preliminary report of the Canada-U.S. Joint Commission on Grain.
The report, released in June, urged that the United States move toward ending its export subsidy programs and that Canadian Wheat Board practices be modified to put the agency “at risk of profit or loss” in the marketplace.
The recommendations, drafted and signed by all five Canadian and five American panel members, also asserted that domestic farm programs in each country should be reformed to avoid trade-distorting effects. The panel's final report was expected to be completed by the Sept. 11 deadline specified in a Canada-U.S. memorandum of understanding.
The memorandum, which took effect on Sept. 12, 1994, established the panel to advise on how future trade disputes could be prevented or defused. It also implemented a one-year tariff rate quota limiting the export of Canadian wheat to the United States. In its preliminary report, the commission did not recommend an extension of the tariff rate quota, which expires Sept. 12, or other action that would limit the amount of wheat Canada could export to the United States after that date.
The panel's most far-reaching recommendations concerned discretionary pricing. The commission recognized that some degree of discretionary pricing is normal in commercial practices but that the use of discretionary pricing by governments has led to trade distortions. The panel asserted that competition by means of discretionary pricing in many cases had reduced prices at the point of sale in international markets, with adverse effects for the U.S. and Canadian grain sectors.
The commission recommended that both countries eliminate discretionary pricing practices. In this regard, the United States should eliminate or “significantly reduce with a view to eliminating” its export subsidy programs. Also, the C.W.B. should be placed at risk of profit or loss in the marketplace “or conduct itself in an equivalent manner.”
The panel offered specific suggestions on how these recommendations could be implemented. First, use of the U.S. Export Enhancement Program for all cereals and their products should be ended and a commitment made by the U.S. government not to implement replacement programs that would have similar effects.
The C.W.B. could be put at risk in the marketplace by allowing individual producers to determine whether they would participate in the Board's wheat and barley pools. Private grain companies then should be allowed to trade non-C.W.B. wheat and other grain in domestic and international markets “without undue impediment.”
Currently, the C.W.B. is the only authorized entity trading Western Canadian wheat, except feed wheat, and barley, and producers may market their grain for human consumption only through the C.W.B.
Alternatively, the panel suggested that the C.W.B. could be put at risk by requiring it to use “public offer prices on a global basis” or the C.W.B. could continue to use private offer prices “with a commitment to pricing discipline at the point of sale and a confidential audit.” The panel indicated that the governments could decide on any other mechanism but that the goal should be to encourage the C.W.B. “to conduct itself as if it were at comparable risk in the marketplace.”