Historical Background

During the Great Depression of the 19 0s, many farmers believed they were no match for concentrated agribusiness. The general belief was that the small farmer faced low offer-to-buy prices from processors, and farmers could not successfully withhold their produce to force up the price. The political pressure from farmers led to the passing of the Natural Products Marketing Act in 19 4, which set up the Federal Marketing Board. This board could delegate its power to local producers' boards, and its most important power was controlling sales of agricultural products.

The federal law was struck down by the courts on the grounds that regulation of trade within Canada came under provincial jurisdiction. Several provinces, starting with British Columbia in 19 6 and Ontario in 19 7, passed laws allowing already functioning marketing boards to continue under provincial authority. By 1940 all provinces

Part Four • Microeconomics of Government and Public Policy canadian wheat marketing board A board that maintains the price of wheat at board-determined levels through the control of product supply and that acts as the marketing agency for wheat producers.

<www.cwb.ca> Canadian Wheat Board had farm marketing legislation in force except for Quebec, which passed such legislation in 1956. The main purpose of these marketing boards was supply management: the maintenance of prices at board-determined levels through control of product supply.

In 19 5 the Canadian Wheat Marketing oard was created. As of 2001 it still had complete control over the price and marketing of western wheat. When farmers deliver their wheat to the Wheat Board, they receive an initial payment per bushel that is 75 percent of the expected average selling price. This is in effect a floor price and is set low enough that the Wheat Board is reasonably able to sell the wheat at least at that price. The producers subsequently get the full average selling price the Wheat Board is able to get on the domestic and international markets, less transportation costs, storage costs, and administrative expenses. Farmers get the average price the Wheat Board is able to realize over the course of the year. A farmer thus does not have to worry what the price is the day the crop is delivered to the Wheat Board.

Marketing boards aim to stabilize agricultural prices at a level that ensures higher incomes to farmers. This can be accomplished through price supports.

There are two basic methods of supporting prices above their market equilibrium values: (1) offers to purchase and (2) deficiency payments.

Offers to Purchase

A marketing board can increase farm income by ensuring that the price farmers get for their produce does not fall below a specified minimum. In Figure 20-4(a) let's assume that the floor rice—or, as it is commonly called, the support price—is Ps. Then the major effects are as follows:

• Surplus output The most obvious result is product surplus. Consumers are willing to purchase only Qo units at the supported price, while farmers will

Was this article helpful?

0 0

Post a comment