and other magical beasts
(March 25, 2014) We all know that a month ago a grain trader opened the otherwise secret world of the grain trade and showed prairie farmers just how badly they were being ripped off on grain prices. A modest amount of research using readily available public sources soon demonstrated the grain companies are taking the lion’s share of that money.
None the less there are still some who want to see the Federal Government put in a sort of Czar who can “discipline” the railways.
Czar Nicholas II
However such a solution would be no solution at all for farmers who have seen their share of the international grain price drop from over 90% on wheat sold through the farmer controlled single desk Canadian Wheat Board to around 40% on the private market. That is a marketing problem, not a transportation problem.
Proponents of a railway Czar need to do a simple thought experiment. If Harry Potter waved his magic wand and instantly transported grain from the inland elevators to the terminal elevators, how would that change grain prices for farmers? Wouldn’t the grain companies simply have more money for themselves?
The evidence is pretty straight forward that even if we did have a farmer-czar to discipline the railways, that would do little good for farmers and farm gate prices. Worse, it would undermine the reasonably effective regulatory system we now have in place, a result which would make the railways and their AstroTurf supporters happy indeed.
Thanks to Ottawa, the grain companies now own the grain as soon as it is unloaded at the country elevator. Then they sell it to customers for their profit. When the Wheat Board was alive, farmers bargained collectively with the end use customers and got premium prices. Now the grain companies have taken those customers. So it is no surprise these new middlemen have put farm prices in the dumpster.
Something called “the basis” is used by grain companies to justify low prices and point at the railways. They try to pretend, with the help of an uncritical media and too many pliant academics that the basis comes down from Mount Olympus engraved on stone tablets. In practice the basis is whatever the grain companies say it is – they are after all oligopolies operating in secret.
Grain Co Basis Fairy
may not be exactly as illustrated
This can be seen as an example of “transfer pricing” much loved by oil companies and other multinationals to disguise what they are doing to avoid taxes, royalties, or in this case paying farmers their fair share of the economic rent they have a right to expect for their production. It is a structurally defective system and the single desk was one of the few market friendly mechanisms which worked for western farmers.
Even if you accept the notion there was a shortage of about 1,500 cars a week, for a few weeks this winter, on a shipping season of around 420,000 cars that could not be a very large percentage. The railways contend the grain companies simply did not order enough cars early in the crop year.
In any event, the system is working great for the grain companies and just fine for the railways. So if all some farm groups have on their agenda is asking for a transportation czar their meetings are a waste of time.
Farmers do not need to be shy about reminding the bunch that killed the single-desk of the mess they have made. Farmers do not even need to say “we told you so,” but they do need to demand a vote on restoring the single desk.
“Dream no little dreams” said Tommy Douglas. “Think big” said Preston Manning. Single desk supporters have always been the majority and it is time they started acting like it.
Video link
