ITC Report Confirms Unfair Canadian Wheat Trade Practices

The U.S. International Trade Commission has issued the public version of a report on its general fact finding investigation into the wheat trade practices and competitive conditions between the United States and Canada.

Jim Peterson, marketing director for the North Dakota Wheat Commission, says the report definitely fingers numerous unfair policies and practices of the Canadian Wheat Board and the Government of Canada that are injuring U.S. wheat farmers.  Among the report’s findings:

•  U.S. exports to eight foreign markets that were part of the investigation are down 48% during the last five years, primarily due to Canadian activity;

•  The Canadian market is essentially closed to U.S. wheat;

•  The CWB has a competitive advantage in contracting for sales of durum wheat for future delivery. This has precluded the development of a viable futures market on U.S. grain exchanges;

•  The CWB benefits from substantial transportation preferences.

Several statements from the ITC report highlight these problems:

“The CWB can forward contract Durum to U.S. and/or third-country purchasers in a way that no U.S. Durum supplier can do given the high level of risk and price volatility facing small suppliers in a thinly traded market. The demise of the Durum futures contract on the MGE (Minneapolis Grain Exchange) is partly related to the presence of the CWB.”

“Market power is only one of the CWB’s notable structural characteristics.
As shown ..., the Board is in all significant respects an arm of the Government of Canada, with Government approval and backing of its borrowing and other financing, which reduces its costs and insulates it from the commercial risks faced by large and small U.S. grain traders.”

“Further, the CWB’s producer pool system (by which Canadian wheat producers
are remunerated) gives the CWB flexibility in marketing beyond the ability to forward contract. Producers receive a Government-approved and guaranteed initial payment early in the crop year, with subsequent interim and final payments as the crop is harvested and sold on world markets. Not only are such subsequent payments payable only to the extent the CWB makes money on its sales, but they are subject to a variety of CWB-determined deductions for freight and other expenses. Some of these deducted expenses are “phantom” expenses (expenses not actually incurred by the CWB). The resulting surplus revenue gives the CWB a price cushion in its negotiations with domestic and foreign buyers.”

“The lack of price transparency within Canada gives the CWB an inherent marketing advantage over U.S. competitors. This is particularly true in durum markets, but also in HRS markets.”

“Additionally, the CWB sells wheat to domestic Canadian millers using a North American pricing policy that ensures that its selling prices to Canadian millers are competitive with U.S. prices. According to U.S. interests, the CWB will lower its price to Canadian wheat mills in order to eliminate any possibility of U.S. wheat or flour coming into Canada.”

The ITC report is an important part of a larger investigation under Section 301 of the U.S. Trade Act of 1974 that has been undertaken by the Office of the U.S. Trade Representative. The investigation is in response to a petition filed by the NDWC.

Peterson says the report includes some attempts at pricing comparisons between U.S. and Canadian spring wheat and durum sales, but that these are of questionable value because the CWB has again refused to provide specific pricing data. He says it’s obvious why the CWB does not want to release pricing data. “Unlike its private competitors, the CWB is not required to ever turn a profit or maximize Canadian grower returns. Instead, as a state trading enterprise, it simply passes its sales discounts on to Canadian farmers in the form of lower returns than they would otherwise receive.”

The NDWC is requesting fundamental reforms to Canada’s grain marketing system and, until such changes are implemented, quantitative restrictions on imports of Canadian hard red spring and durum wheat into the United States by means of a tariff-rate quota. The U.S. Trade Representative is scheduled to make a formal determination on the matter by January 22, 2002.

The NDWC provides statistics on the production and trade of U.S. and Canadian wheat, and remedies being sought, on its web site, www.ndwheat.com