Change is in store for the Canadian Wheat Board (CWB), which has the legal authority to purchase all Western Canadian wheat and barley produced for export and for domestic human consumption. The CWB defends the continuation of this legal authority on the premise that by selling together, Western Canadian farmers exert more market power in wheat markets and receive higher returns than they could if competing against each other. However, the declining global market share of Canadian wheat makes it increasingly unlikely that the CWB is able to exert market power: the CWB is a price taker in many markets. In the absence of strong evidence that the CWB is able to achieve its policy goal of higher returns to farmers because of the compulsory purchase of grains, its monopoly over Western Canadian wheat and most barley sales should be reconsidered with an eye to ending it.Governance & Public Institutions, Canadian Wheat Board (CWB), monopoly

Al Loyns

Richard Pedde

English

Research Papers in Economics

e-brief
GOVERNANCE & PUBLIC INSTITUTIONS
Pulling the Plug on Monopoly Power: 
Reform for the Canadian Wheat Board
June 23, 2011
 Change is in store for the Canadian Wheat Board (CWB), which has the legal
authority to purchase all Western Canadian wheat and barley produced for export
and for domestic human consumption;
 The CWB defends the continuation of this legal authority on the premise that 
by selling together, Western Canadian farmers exert more market power in 
wheat markets and receive higher returns than they could if competing against
each other; 
 However, the declining global market share of Canadian wheat makes it
increasingly unlikely that the CWB is able to exert market power: the CWB is a
price taker in many markets. In the absence of strong evidence that the CWB is
able to achieve its policy goal of higher returns to farmers because of the
compulsory purchase of grains, its monopoly over Western Canadian wheat 
and most barley sales should be reconsidered with an eye to ending it.
The federal government’s June 3
rd Speech from the Throne called for “legislation to ensure that western
farmers have the freedom to sell wheat and barley on the open market.” In so doing, Ottawa made clear
dramatic changes were in store for the Canadian Wheat Board, which has held monopoly market power for
over 75 years. This e-brief discusses the case for such a reform. 
The Canadian Wheat Board (CWB) is a national agency whose enabling legislation grants it the authority 
to purchase all Western Canadian wheat and barley for export and for domestic human consumption. This
authority is defended on the premise that its position as the single Canadian seller in relevant grain markets
gives it the market power necessary to obtain better prices for farmers collectively than they could achieve 
by selling independently.
1 According to the CWB, its compulsory nature is essential to the existence of the
organization. 
By
Richard Pedde and Al Loyns 
1 The authority was originally granted to implement a form of price control over grain sales (Carter and Loyns 1996).
E
S
S
E
N
T
I
A
L
 
P
O
L
I
C
Y
 
I
N
T
E
L
L
I
G
E
N
C
E
Institut C.D. HOWE Institute
 Essential Policy Intelligence  |  Conseils indispensables sur les politiques  e-brief | 2
While the CWB may have had market power in the past, grain markets have changed in scope and structure, and the claim
may not be true today. In our view, these changes mean the CWB is a price taker in many markets, suggesting that
compulsory grain acquisition in the prairies does not assure higher returns to farmers. In the absence of strong evidence
that the CWB is able to achieve its policy goal of higher returns to farmers because of the compulsory purchase of grains, 
its monopoly over Western Canadian wheat and most barley sales should be reconsidered with an eye to ending it. 
The Logic of Market Power
The CWB’s authority covers the three Prairie Provinces, and parts of British Columbia. It claims that:
As the sole marketer of the high quality wheat and barley grown in western Canada, the CWB is able to provide marketing clout to
individual farmers who benefit from higher returns. By selling together, western Canadian farmers are able to exert more power in
the marketplace than they could if they were competing against each other.
2
Market power in world markets is a necessary but not sufficient condition to generate higher prices for farmers (Pedde and
Loyns 2011).
3 The CWB has market power if its decision to withhold sales from the relevant export market or to expand
sales causes the market price to increase or decrease. It may also be able to improve farmers’ returns through cost-reducing
factors like economies of scale in transport and distribution. For farmers to benefit, the Board must exercise its power
appropriately, trade and operate efficiently, and share the excess proceeds with them. 
Attempts to harness marketing power, either coercively or voluntarily, are common around the world.
4 Legislation
enabling cooperatives and marketing boards aimed at improving producers’ bargaining power exists in most agricultural
countries.
5 In voluntary organizations, the cooperative purchases and markets the production provided to it by producer
members; farmers outside the cooperative are free to sell their production independently. If the cooperative is successful 
in increasing net returns through exercise of its market power, non-members may benefit from the higher prices, without
sharing in the costs of holding back and storing grain or of operating the cooperative (a practice known as free-riding),
and they may increase production accordingly. The presence of nonmember farmers in the market increases the number of
competing sellers and decreases the share of the market held by the cooperative, which puts downward pressure on prices.
This production volume and cost sequence, which is associated with voluntary membership in bargaining associations, 
is an argument for compulsory membership under marketing board legislation. CWB supporters draw on this logic to 
reject the concept of a voluntary CWB. However, the point rests on the assumption that the agency has the market power 
its supporters profess.
Defining the Relevant Market and Measuring Market Power
Among the factors that determine the extent of market power are the concentration of sellers and buyers in the relevant
market, and the availability of substitute products in that market.
Defining the Market. Wheat (or barley) is not a homogeneous product; for example, different qualities of similar
wheat can be blended in milling and baking mixes. To have pricing power in a given market, it is a necessary, but not
sufficient, condition that one grain cannot be substituted for another. Further, the market for international trade in wheat or
barley is only a fraction of world production and consumption. If importers can substitute different qualities and sources of
2 CWB website, “Hot Topics, the Power of the Single Desk.” Accessed on 7/8/10. http://www.cwb.ca/public/en/hot/choice/power/
3 Other factors between the farm gate and final delivery, such as grain handling costs, grain pool administration costs, and risk pooling,
mean there is no guarantee of increased returns at the farm.
4 Market power may derive from a number of factors, such as inherent market structure (e.g., few firms or a large market share), from
product characteristics such as unique quality, patent protection, or from significant scale economies.
5 See, for example, Helmberger and Hoos (1963) and Hoos (1979). 
E SSENTIAL P OLICY I NTELLIGENCE| 3 e-brief
grain, including domestic sources, among their inputs, then aggregate world grain production and sale, not the export market,
is likely the relevant market. 
Measuring Market Power. The Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of market
concentration that grades it on a scale from zero to 10,000, from least to most. The HHI is based on market share and
accounts for the number and size distribution of competitors. In a market with a large number of small firms (such as
unorganized farmers) the value of the HHI approaches zero, meaning there is negligible concentration; with one seller
monopolizing a market the value would be 10,000.
6 Markets with an HHI above 1,800 are considered to be concentrated by
the U.S. Department of Justice and the Federal Trade Commission.
7
Suppose, for exposition, that the relevant grain market is the world export market – the share of production that is
traded. Using US Department of Agriculture (USDA) data for world wheat export and production, we first calculate the
market share of each country in world export markets, and from these market shares we calculate the HHI concentration
ratio for the world export market. For this exercise, we take into account relevant information on market participants by
size and number in the large US and Australia export markets, where information is available and reliable. There are at least
five (relatively) equal-sized competitors in the US market and at least three in Australia, each vying for world market share.
8
Given this definition of the market, between 2000 and 2010, the HHI of concentration averaged about 1,100. 
Between 1970 and 1991, the average HHI was 1,159. If, during the 1970 to 1991 period, the CWB had instead been
replaced by three equally sized competing firms, the HHI would have been 891. This is a 23 percent drop in the index of
concentration between the base case and the counterfactual. However, applying this thought experiment to the 2000-2010
wheat export markets, a competitive Canadian wheat sector would have led to a relatively smaller change in the HHI, from
1,102 in the base case to 967 in the counter-factual, a 13 percent drop. This smaller drop in the HHI, from the base case to
the counterfactual, suggests that Canadian farmers would lose less market power in export markets today, than if the change
had occurred than in the past. 
6 The HHI is calculated by squaring the market share of each firm and summing these values. For example, a single firm supplying the
market has a 100 percent market share and an HHI of 10,000; a market supplied by four firms with forty, thirty, twenty and ten percent
market shares respectively has an HHI of 3000; for many small sellers with almost equal shares, the HHI approaches zero. Structural
measures such as the HHI are at best rough proxies for market power, because they cannot capture price behaviour directly, which is
influenced by supply and demand responsiveness to market conditions.
7 The Competition Bureau uses the concept of market share and generally does not consider a firm with a market share of less than 
35 percent to be capable of exercising market power. The Herfindahl – Hirschman Index, US Department of Justice,
http://www.usdoj.gov/atr/public/testimony/hhi.htm
8 There are at least of five roughly equivalent sized competitors in the US market – Archer Daniels Midland, Bunge Limited, Cargill,
Louis Dreyfus and CHS – although there are as many as 135 major exporting companies (USDA Grain Inspections, Packers and
Stockyards Administration, 2008 GIPSA Grain Exporters Directory). In Australia there are now three significant firms – Viterra,
Grain Corp Ltd and CBH Group – in addition to 26 Australian licensed exporters competing in the international sales market (Wheat
Exports Australia. 2011. “Register of accredited exporters.” January 6. Available online at:
http://www.wea.gov.au/WheatExports/RegisterOfAccreditedWheatExporters.htm). 
E SSENTIAL P OLICY I NTELLIGENCE
Table 1: World Wheat Export Market HHI Measures
Sources: Authors calculations from United States Department of Agriculture. 
1970-1991 2000-2010
Current Market, with 5 US and 3 Australian Firms 1,159 1,102
Counterfactual, 3 competing Canadian Producers 891 967e-brief | 4
Expanding Market Definitions: World Production and Demand
However, world market prices are not determined by the share of the grain traded: domestic production and domestic
demand in our trading partners affect prices as well. On this view, the relevant market is world production and what matters
is the share of it sold through the CWB. And, as farm productivity has grown throughout the world over the past generations,
Canada’s share of annual production has fallen from a high of 8 percent in 1962, to an average now of less than 4 percent
today. Meanwhile, Canada’s share of the export market has fallen from over 25 percent to less than 14 percent (Figure 1a)
over the same period. Similarly, Canadian market share in world barley export markets has declined from peaks of nearly
P
e
r
c
e
n
t
 
o
f
 
W
o
r
l
d
 
P
r
o
d
u
c
t
i
o
n
P
e
r
c
e
n
t
 
o
f
 
W
o
r
l
d
 
E
x
p
o
r
t
s
1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
-
5 
10 
15 
20 
25 
30 
35 
40 
45 
50 
1960 1966 1972 1978 1984 1990 1996 2002 2008
Canadian Wheat Exports, Share of World Exports, Left Axis
Canadian Wheat Production, Share of World Production, Right Axis
Figure 1a: Canadian Wheat Export and Production Shares of World Totals, 1960-2010
Source: Authors calculations from United States Department of Agriculture. 
E SSENTIAL P OLICY I NTELLIGENCE
P
e
r
c
e
n
t
 
o
f
 
W
o
r
l
d
 
P
r
o
d
u
c
t
i
o
n
P
e
r
c
e
n
t
 
o
f
 
W
o
r
l
d
 
E
x
p
o
r
t
s
 
Canadian Barley Exports, Share of World Exports, Left Axis
Canadian Barley Production, Share of World Production, Right Axis
1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
-
5 
10 
15 
20 
25 
30 
35 
40 
45 
50 
1960 1966 1972 1978 1984 1990 1996 2002 2008
Figure 1b: Canadian Barley Export and Production Shares of World Totals, 1960-20109 Meanwhile, even if the CWB has pricing power in some specific grain markets, such as high-quality spring wheat in a given region or
year, the CWB has not provided the data to show this. 
10 US buyers seek Canadian durum and hard red spring wheat for pasta flour production, for example, because of its consistency and
high protein content, for which they pay a premium (Mulik and Koo 2011). There is an extensive literature on grain prices and
market behaviour, much of it cited in Mulik and Koo (2011).
11 The CWB provides other services to farmers, such as advocacy and representation, which farmers may find important.
| 5 e-brief
50 percent in the early 1980s to less than 10 percent today (Figure 1b). If the CWB ever exerted pricing power in world
wheat markets (Furtan et al. 1999), it seems unlikely or impossible that it should do so now.
9
The bottom-line question for policymakers, therefore, is whether and why some Canadian grains might receive a price
premium. If these grains do, then the question becomes whether it is because of high demand for their quality and
consistency – which the empirical evidence says it is.
10 If, however, that is not the reason, then strong prices could be the
result of the CWB’s trading skills – which the CWB has not demonstrated to be the case (Pedde and Charlebois 2008). In turn,
if that is not the reason, it could be because of the CWB’s single-desk buying and selling power. This would support the
argument that, absent this power, Canadian farmers would compete against each other for sales, fragmenting their market
power and driving down prices. These questions cannot be answered without suitably detailed sales and price data
(Schnepf 2006), which to this point the CWB has not provided.
Policy Recommendations
As a first step, CWB sales and pricing data should be made publicly available, to ensure that it serves the needs of the
producers it is mandated to represent.
Life after Monopoly Power. If the CWB cannot demonstrate that sole buying and selling authority is necessary to
delivering better prices for farmers, it should not have that authority. Even without it, the CWB’s existing infrastructure and
the expertise and worldwide distribution of its trading staff would make it both an attractive pool for farmers to voluntarily
participate in and successfully sell their wheat in world markets.
11 Many farmers would choose to pool their grain through
the CWB, to reduce their individual exposures to fluctuations in wheat prices, and many more would prefer to specialize 
in producing wheat for domestic consumption rather than trading it on world markets, and to take advantage of economies 
of scale in marketing and transportation. Existing, for-profit companies provide these services for other grains, and a non-
compulsory CWB could compete with these firms for farmers’ business.
The world wheat market has changed and grown. If justification ever existed for the CWB’s mandatory status, on the 
basis that its world market power enabled it to generate better prices for domestic farmers, it seems to have passed. It is
time for reform. 
E SSENTIAL P OLICY I NTELLIGENCEThis e-brief is a publication of the C.D. Howe Institute.
Richard Pedde is a former derivatives trader and farmer in Saskatchewan.
Al Loyns is a former Professor of agricultural economics at the University of Manitoba and former farmer. He was an expert witness 
in the Charter Challenge on the Canadian Wheat Board in 1996 and in the Charter Challenge in 1998.
This e-brief is available at www.cdhowe.org.
Permission is granted to reprint this text if the content is not altered and proper attribution is provided.
References
Carter, Colin, and Al Loyns. 1996. The Economics of Single Desk Selling of Western Canadian Grain. March.
Charlebois, Sylvain, and Richard Pedde. 2008. “A Bushel Half Full: Reforming the Canadian Wheat Board.” E-Brief. Toronto: C.D. Howe
Institute. November 20.
Furtan, W.H., D.F. Kraft, and E.W. Tyrchniewicz. 1999. “Can the Canadian Wheat Board Extract Monopoly Rents? The Case of the
Spring Wheat Market,” International Journal of the Economics of Business 6(3) 417-437.
Helmberger, Peter, and Sidney Hoos. 1963. “Economic Theory of Bargaining in Agriculture,” Journal of Farm Economics 45.
Hoos, Sidney. 1979. Agricultural Marketing Boards: An International Perspective. Cambridge, Mass: Ballinger.
Mulik, Kranti, and Won Koo. 2011. “Substitution between U.S. and Canadian Wheat by Class.” Canadian Journal of Agricultural
Economics 1-17.
Pedde, Richard, and Al Loyns 2011. “Canadian Wheat Board: Market Power or Institutional Fiction?” Western Centre for Economic
Research, School of Business, University of Alberta.
Schnepf, Randy. 2006. “U.S.-Canada Wheat Trade Dispute.” Congressional Research Service. April 19.
United States Department of Agriculture. 2011. “Production, Supply and Distribution Online”, Foreign Agricultural Service. Available
online at http://www.fas.usda.gov/psdonline/psdQuery.aspx
E SSENTIAL P OLICY I NTELLIGENCE
e-brief | 6

Agricultural Marketing Boards: An International Perspective.

Can the Canadian Wheat Board Extract Monopoly Rents? The Case of the Spring Wheat Market,”

Economic Theory of Bargaining in

Production, Supply and Distribution Online”, Foreign Agricultural Service. Available online at http://www.fas.usda.gov/psdonline/psdQuery.aspx

Substitution between U.S. and Canadian Wheat by Class.”

The Economics of Single Desk Selling of Western Canadian

U.S.-Canada Wheat Trade Dispute.” Congressional Research Service.

Pulling the Plug on Monopoly Power: Reform for the Canadian Wheat Board

Pulling the Plug on Monopoly Power: Reform for the Canadian Wheat Board

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics