There's a popular saying that goes something like this: If you don't know your history, you're destined to repeat it. Let's look back to the period from 1935 to 1939 to see how smoothly a dual market worked. Full credit for the information contained in this article must go to William E. Morriss, author of Chosen Instrument, A history of the Canadian Wheat Board: The McIvor Years, and to a lesser extent C.F. Wilson, author of A Century of Canadian Grain.
1935-36
Open-market prices are lower than the initial payments : the CWB gets 70 per cent of the wheat deliveries and runs a deficit of $12 million
The initial payment for No. 1 Northern in store Fort William was set at 87½ cents per bushel by the federal government knowing that this could lead to the CWB running a deficit in the wheat pool account. Open-market prices remained above this level from August to the end of October 1935, then fell below it until July 1936, touching a low of 73 cents per bushel in May 1936. The CWB ended up receiving about 70 per cent of the marketings of wheat in 1935-36. Because most of this wheat had to be sold at market prices below the level of the initial payments, the CWB lost about $12 million on disposition of the 1935 crop.
1936-37
Open-market prices are higher than the initial payments : the CWB gets no deliveries from the 1936 crop
Open-market prices had risen above the $1.00 per bushel level by the end of July 1936. The Liberal government, elected in October 1935, had as its goal to get the federal government out of the wheat marketing business. To accomplish this, it set the initial payment for No. 1 Northern for 1936-37 at 87½ cents per bushel in store Fort William, but stipulated that the CWB could only accept deliveries if the open-market price dropped below 90 cents per bushel. This never happened, so the CWB was effectively removed from the market. There were virtually no deliveries to the CWB (only about 17 000 tonnes which had been delivered in August before the "90-cent rule" was set), and the CWB ran a deficit of about $50,000.
1938-39
Open-market prices are lower than initial payments: the CWB gets all the wheat deliveries and runs a deficit of $61.5 million
The CWB Chief Commissioner George McIvor recommended to the federal government in July 1938 that the initial payment for No. 1 Northern for 1938-39 be set at 60 cents per bushel in store, based on the CWB's realistic assessment of the wheat market outlook for that year. The Pools lobbied for an initial payment of 90 cents per bushel; the eastern Canadian ministers in the federal cabinet argued for 80 cents per bushel. The federal Agriculture Minister Jimmy Gardiner, a former Liberal Premier of Saskatchewan, wanted to keep the payment of 87½ cents per bushel. In the end, the initial payment was set at 80 cents per bushel, in the full recognition by the federal government that this meant a certain deficit for the CWB. Early estimates of how big that deficit would be ranged from $20 million to $40 million. Open-market prices remained well below the CWB initial payments for all of 1938-39. Farmers delivered all of their wheat to the CWB and the cost to the federal treasury was a whopping $61.5 million.
The result of a voluntary CWB or dual market was that when the initial payment turned out to be above the world price the CWB got all the wheat and paid farmers the difference between the "world price" and the initial payment. When the initial payment was lower than the "world price" the CWB got no wheat and the trade received all the wheat and hence all the profit.
Now that's a history lesson we could all brush up on.
