Friday, August 3, 2007

Monopoly Means Lower Prices?

Okay, this one requires some explaining.
Barley prices dropped more than 20 per cent yesterday, down from recent record highs after a court ruling dashed the federal government's plan to strip the Canadian Wheat Board of its monopoly over the grain.
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But a vote in Parliament seems unlikely. The opposition parties had all voiced concerns about creating a dual-marketing system, which some say would effectively kill the wheat board and weaken Canada's marketing muscle.

So, the opposition parties think that allowing the farmers the choice between selling to the Wheat Board and taking whatever price results and selling their crops themselves will kill the Wheat Board. Isn't this de facto proof that farmers don't want the Wheat Board?

Presumably that means farmers would be better off by themselves, in turn reducing the need for farm subsidies. So, this deregulation would expand individual choice, make farmers richer, reduce government spending obligations, and opposition parties are complaining?

Note: this backgrounder shows how, in a vote, 48.4% of farmers voted to permit a choice between private sales and the Wheat Board, while 13.8% voted for the complete abolishment.

This cannot be the full story. Why would the price of barley fall on the news that a monopoly would be broken up? My only conclusion is that the Wheat Board, which I imagine has a degree of market power on the world stage, does not make use of such and instead sells at lower prices (or makes poor use of futures and whatnot) than do independent farmers. The government then partially fills the gap with subsidies. I would also bet inequality in the distribution of subisides accounts for a large part of the 38% of farmers who want to maintain the status quo, but as I am not conversant in the allocation of farm subisidies, I will not make firm conclusions.

I concede that the democratic process requires a vote in the House. However, it is ridiculous that the opposition opposes this kind of motion. I wait anxiously for 'Barley Freedom Day', but given how the board of directors of the Wheat Board is required to sign onto changes that would drastically reduce their number and influence, I can't see it happening.

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