The economic impacts of the Canadian Wheat Board ruling on U.S.-Canada malt barley contracting

Abstract

The August 2012 termination of the Canadian Wheat Board's (CWB) monopsony and monopoly powers changed the market structure for Canadian grains. In this paper, we examine what this change means for North American malt barley markets. We develop decision-making models of Canadian barley producers and U.S. malt barley procurers (maltsters), and account for the relative costs of altering each party's existing contracting decisions. The contract decision model provides the foundation for an empirical simulation-based analysis of contracting decisions by Canadian and U.S. malt barley market participants in the new institutional environment. The simulation model is calibrated to jointly characterize the relationship among Canadian malt barley production factors such as yields and expected barley malting rates; transportation costs impacting U.S. firms; and relevant government policies and changes. The latter category includes termination of the CWB's single-desk authority and the continuing jurisdiction of the Canadian Grain Commission and the Canadian Transportation Act (1996). Our model suggests that terminating the CWB's monopsony and monopoly powers may give U.S. brewers and Canadian farmers incentives to contract for malt barley and further deregulation of transportation rates and wheat variety controls could benefit North American malt barley farmers. However, those incentives are not so substantial as to guarantee U.S. maltsters will contract with Canadian farmers for the procurement of malting barley.