A Canadian Institution Succumbs to Technological Change … Finally

The Canadian government has recently announced that it has halted the Canadian Wheat Board’s role as the monopoly seller of Canada’s wheat and barley production. See the Globe and Mail article for all the details. 

Farming conditions in the 1930’s were very different than they are today. Small family owned farms were the norm and farming was a labour-intensive industry. Communications technology made transactions costs relatively high and limited access to financial markets made risk management techniques expensive. Transportation technology also made long distance movement of grains expensive and access to the railway was required in every community. 

As a monopsonistic buyer, the CWB was able to act as an insurer of farm incomes. By managing grain inventories from year to year, the CWB was able to control prices, paying below market prices in some years and above market prices in others. As a monopolistic seller of Canadian wheat and barley they could capture the economies of scale in communication that were not available to individual farmers. As the owner of rail cars, they could reduce transportation costs and insure that all farmers could get their product to market. 

Technology has changed however. Farmers in Leader Sask. can check prices on the ICE Futures Exchange (formerly the Winnipeg Commodities Exchange), the Kansas City Board of Trade, the Chicago Mercantile Exchange and the New York Mercantile Exchange (a division of the CME Group). These exchanges also offer futures and options that can be used to hedge the risk of fluctuating prices. Farmers can even purchase financial derivatives based on the weather. 

Changes in materials and engine technologies have caused the price of capital to decrease relative to labour and farming has become more capital intensive. This has lead to the demise of the family farm and the rise of commercial farming. Larger operations are able to capture the economies of scale provided by bigger and faster harvesters. Transportation technologies have also decreased the price of transporting grains by truck to main railway lines. 

All of the CWB’s reasons for existence have been overcome by technological changes. That doesn’t mean that everyone is happy. Small farmers will no longer be able to compete with the agricultural conglomerates. This leaves them with two choices: continue as they are and bear the costs of their operations, or sell their land to a larger producer. 

Technological change is generally a good thing though it does not affect everyone in the same way. The farms around Leader Sask. will continue to produce food, thought the town of Leader may eventually fade away.