Controlling Supply

We have been discussing ceilings and floors in our economics class lately and how these manifest themselves in the “real world”. We certainly can envision how government can affect things like rent, but what happens when supply is controlled or not in agriculture? With the Tories set to dismantle the Canadian Wheat Board, many farmers, suppliers, and retailers are suggesting either a greater control of supply on things such as milk and eggs, or an opening of the free market.

Here is a link to a couple of Globe and Mail articles. READ THEM. Discuss with your family and friends (you’ll be the coolest guy/girl at school!):
Finally, here is a podcast from the CBC Radio program, The Current. Here, the idea of controlling the supply if milk is discussed.
What is your view? Do you think governments should control the supply of commodities? Why do they do it? Please post your response by Friday morning (I’ll give you some marks or chocolate)

21 thoughts on “Controlling Supply

  1. There are many pros and cons to governments controlling the supply of commodities. When the government controls the supply of commodities such as wheat/grain and milk they can place ceilings and floors on the prices to ensure the price never gets to high or to low. If the price gets to low the farmers will not make any money on the product and they will not be able to sustain their farm. If necessary the farmers can discuss the issue of to low of prices with the government to allow for a larger profit for farms. As well the, Wheat Board for example, maintains and organizes the distribution of wheat and which type of wheat will be grown on each farm. Without this board we will not be able to organize and sustain what we have. A pro for farmers is that if we get rid of government intervention they will be able to charge any price they want for their products thus allowing for them to gain a larger profit. Although if this happens we as consumers may not be able to afford the product any longer and thus decreasing the demand. If the commodities market is left to the free market who knows if we will ever find a happy equilibrium. I feel as though we should keep the system we have going at the moment. Although some farmers are frustrated like those who are dairy farmers I feel as it will be more beneficial for the farmers if it stays intact. Farmers remain more organized and are not able to charge outrageous amounts for their product. As well if we get rid of just the Wheat Board for example, where do we stop? Will we start to become a free market in all aspects of commodities? If we were to become a free market in all aspects of commodities I feel as though this would not be beneficial for Canadian society.

  2. Thanks for starting us off, Alli. Kudos.My big question about the Wheat Board is this: Why did it start if the free market is suppose to magically fix all issues of supply and demand? Why did people have to come together and organize the supply of certain commodities? My second question is why is the Conservative government so adamant about getting rid of the Wheat Board? Does it not look at history? Do it know something we don't about free markets?In any event, look forward to your thoughts, everyone, and looking forward to our discussion on Friday.

  3. I sort of agree with Alli and what she is saying about farmers being able to set their own prices now that the Wheat Board is gone, but you also have to remember that now that everyone is setting their own prices for their Wheat/crops, there's going to start to be some competition and people are eventually going to have to lower their prices, therefore getting them less of a profit than they would have gotten with the Wheat Board. Also, people with small farms, such as the guy from the article, are going to have a much harder time trying to sell their own crops without the Wheat Board compared to people with bigger farms and more crops who have more ways to bring in a profit. I think the government needs to figure out a way to keep both sides happy, such as making it an option to use the Wheat Board. Then people who feel they can get a high profit on their own can do so and people who feel they will get a higher profit with the Wheat Board can still rely on that as well.

  4. Having read both articles, it is extremely apparent that the farmers that would like to keep the wheat board and a controlled dairy market are 'smaller' farmers. The other farmers that are "easy" and lobbying to have the wheat board raised are very strong in the industry, and will benefit greatly from a new system.Norman Shoemaker (a well off dairy farmer) argues that by eliminating the wheat board farmers, such as himself, will be able to "be in charge of their own destiny". Smaller farmers, such as Bill Gehl stated that, “we will be going backward in time to a system in place 70 years ago when five or six multinational companies controlled our grain market." He is under the impression (and he could be correct) that by getting rid of a controlled agriculture system, he, as a small farm owner, would not be protected, and eventually essentially bought out by larger multi-billion dollar companies. It is extremely apparent that companies such as Paterson Global Foods wouldn't mind having the wheat board scratched, as they could then dominate the grain industry.As for the dairy farmers, as prices are rising and consumption is going down, they are realizing that the system they have now is not sustainable, and needs serious re-evaluation. I don't agree that either the wheat-board or the dairy system should be eliminated just yet, but I do agree that they should be re-evaluated.

  5. A free market economy with government controlling some commodities would be the most efficient and beneficial system. When the government controls supplies such as wheat and milk, they could monitor the prices to ensure efficiency. According to the articles, the smaller farmers prefer to have the wheat board control the grain market, as the “board organizes grading, shipping and selling for each variety.” The wheat board also regulates what type of wheat is grown on each farm. If needed farmers could discuss price issues with the government, to find a comprising price to increase profit. The larger companies argue that by diminishing the wheat board, they would have more control over their product, just like canola, peas and other crops, which are not sold through the wheat board. Supply management would be efficient if it leads to a stable food supply. The wheat board shouldn’t be demolished completely; it must be further looked at to ensure efficiency for all farmers.

  6. As with any issue, there are two sides to the debate on controlling supply. By looking at the specific example of the Wheat Board, we are able to see how exactly this issue pertains to economics in our world. After looking at both sides of the issue it is clear that two definite sides have been taken. The first is the stance of most small farmers, who rely on the monopoly for their survival. If the wheat board were to be dismantled, these small farmers would be taken over by large corporations who would ultimately hold all the power in the industry. For the large farmers, the abolishment of the CWB would increase their profits and give them the ability to market their own grain, allowing for more economic freedom. In the article All Farmers are Equal- But some are more equal that others the “supply management system” that Stephen Harper stands behind is criticized, “There is no sound economic or policy rationale for keeping supply management. The government is sacrificing the interests of 34 million Canadians for the sake of fewer than 15,000 dairy and poultry farmers”. This issue should be taken into account when it comes to the Wheat Board debate and government control of supply in general. Is the government looking out for the best interests of most Canadians, or simply standing behind a few large corporations who have the ability to take over an entire market? For the sake of expanding our economy is it ok that we give total control to these corporations, even if we hurt the small farmer in the process?Looking at the personal stances of Norman Shoemaker and Bill Gehl helps us to understand the pros and cons of this issue. Shoemaker argues that the demolition of the CWB would allow farmers more control and would allow these farmers to operate in much the same way as canola and pea farmers. Gehl takes the other side of the debate, arguing that the CWB puts Canada’s farmers on the global map helping them get more for their products, and if removed these factors would also disappear. I think that governments should have some control of the supply of commodities, but not total control. Giving them some control allows them to implement ceilings and floors so that consumers and producers are both satisfied. Giving total control to the government can be dangerous when you take into account government affiliations with large corporations, and the majority governments ability to undermine the popular vote on an issue. I think that the government insists they have some control because they have to monitor the supply and demand and in some cases intervene when it comes to the laws of economics concerning supply and demand equilibriums.

  7. It is quite clear that the famers want to keep the wheat board, but they would like to find a compromise. The wheat board does a lot for the farmers, but the farmers are expecting more. Abolishing the wheat board has its pros and cons. The pros is that farmers may "be in charge of their own destiny". The reason for this is that they do not have to go through the wheat board for deals, the can make deal directly with the buyers. They will have more control over their product. The Cons is that for smaller farms that their business will tank. The wheat board needs to help all famers not just the top grossing ones. All farmers need to get treated the same, I don't understand why the dairy, egg, chicken farmers get it different. The government needs to protect all farmers, and all the same other wise its not going to turn out well. In the end the wheat board should stay, but they need to work out a deal with the farmers so that they get what they want and need.

  8. There are two sides to this topic, and it is very obvious that people are strongly opinionated about it. Mr. Ritz and Mr. Harper both agree that they want a free market economy, yet they both are controlling it in a Soviet way, as stated in the first article. Whilst the government thinks it is a good idea to shut down the wheat board, there are others who agree and disagree with this decision.Initially, farmers started out with nothing. When settlers started migrating to Canada, it was encouraged that they buy land and start a farm. Bill Gehl, who owns a small farm, stated that if the government decides to shut down the wheat board, they will start to go backwards and lose everything they had. Also, their prices will start to drop as well. The wheat board helps the farmers immensely, but some farmers believe they will be okay on their own, like Norman Shoemaker for instance, who is a dairy farmer. He explains that it will give them a chance to "be in charge of their own destiny," but what if it is easier said than done? For Bill Gehl, it is crucial that the Wheat Board does not get taken away, for it regulates many things in his point of view and he relies on it for monopoly. Farmers like Norman Shoemaker think differently, because it means they would have a larger profit. Small farms should not be regulated by large corporations and businesses, because it is not what they had bargained for. The Wheat Board should not be completely demolished, but the government should still contribute to the situation sometimes.

  9. Putting this situation in different perspectives, it seems like it's neither right or wrong letting the government have manipulative powers over commodities.Norman Shoemaker, is being helped by the Wheat Board, and claims that the control over his resources creates confusion. "Mr. Shoemaker could deal directly with malting companies and eliminate the middle man." Bell Gehl, states that as a society we would simply be backtracking. The elimination of the Wheat Board would mean small farmers would be less able to sell into the market, as larger companies would have greater power. "The board organizes grading, shipping and selling for each variety, often at premium prices. Without it, he argued, there will be pressure to drop varieties, meaning lower prices for farmers."The Wheat Board serves as a tool to help smaller farmers get involved in the market. Without this tool, they could still make profits, just in a riskier manner. They would literally have to sell their product themselves rather than letting the WB collectively market their product (where the Board would benefit, too). On the other hand, The WB probably makes the larger farmers frustrated. If they it were their choice, they would overpower the smaller and take over most of the market when selling their product. Since there's so many pros and cons over this matter, it's difficult to determine who's right or wrong. The government and the farmers don't have the same perspective on the issue. In the end, the WB revolves around the farmer's products therefore the decision to keep or toss the board should be based off the farmers opinion rather than the government's (who want to control the farmer).

  10. The government should not have control over the supply of commodities. The government doesn’t control how much Apple sells a Mac Book for, so why should this be any different? By eliminating the Canadian Wheat Board, the Canadian farmers would be allowed to be completely in control of how much money they make and how much they supply without having to go through a “middle man”. They would not have to deal with delayed payments, complicated pricing or price ceilings/floors. Farmers would become more like businessmen without the wheat board and they would have the freedom to “be in charge of their own destiny” as Norman Shoemaker says. The farmers that are in favor of dismantling the wheat board are mostly the ones that are very strong in the industry who would end up making a better profit without it. These people are the ones that without the Wheat Board, would be dominating the industry. Obviously from the point of view of a small farmer that doesn’t have very much power, the Wheat Board is a very positive thing. People like farmer Bill Gehl think that without the Wheat Board, we would essentially be going “backwards” to a time where only a small handful of farmers controlled everything. The purpose of the Wheat board is to basically keep a level playing field . The price ceilings that it sets are the maximum price that the commodities can be sold at and this benefits the consumers. The price floors that it sets benefit the farmers because they set a lowest price that the commodities can be sold at. The Wheat Board is also responsible for a number of other jobs but it appears to me that the general idea of it is to avoid having everything controlled by a small handful of organizations.

  11. Blog 2. Wheat Board The Canadian Wheat Board is theoretical a monopoly system of wheat and barley in west Canada. Accroding to history fact, there are more than 85,000 farmers delegate their products to the Wheat Board and the Wheat Board will try to sell them at a best price in the international and internal market (4 – 6 billion dolalrs per year). This is intense for Canadian agriculture. From my point of view, getting rid of the Wheat Board is a hasty and immature decision. First of all, the Wheat Board has been existed for more than 75 years. The system is well organized and overall considered. If it is broken easily and quickly, then many farmers may not able to adapt the market. Not all of them are economists. Also, it is way better for the government to control the market because individuals cannot predict the market situation quickly and percisely. They might not make the best decision for themselves. Second, if the provision market is totally free, then something dangerous might happen. Food supplies are the most basic supplies for a country. Therefore as long as the market is not well controlled by the "Invisiable Hands", both people in Canada and farmers will not be satisfied. A shortage will cause famine and surplus will let the farmers lose profit. However, if Wheat Board still exists, the government will control the price. They will put the ceiling and floor on it to make sure the price of food supply could benefit both farmers and consumers. Third, cut – throat competition will appear if Whear Board is cancelled. Large food supply firms are way more powerful than individual farmers. Therefore, my suggestion to the government of Canada is that the Wheat Board could decrease the percentage of the wheat they collect from the farmers. Let the farmers dominate a part (which won't cause a huge damage to their economic situation even if they don't control it well) of their products. Then observe the situation how the farmers do. Afterwards, government can decide what to do next. Increase the percentage of the "free part" or decrease it.PS 1: the other food supplies such as milk, eggs ect. are not as "important" as wheat or rice. They both can be instead of other supplies. Since the job of the government is to make sure all the basic materials could satisfy its people, it does not need to creat "Milk Board" or things like that. Therefore, farmers can have free market on selling milk, egg ect.PS 2: according to my own experience, China has the similar food supply policy as I mentioned above. The government will purchase a part of farmers' production (not only wheat but also corn, peas, but not milk) and pay them back. Milk is supplied by big companies, so do eggs. The effect of this policy is pretty good. Up to 2008, China's rural situation has changed a lot. Such as the government have the ability to wipe out 90% of farmers' dreadful disease (cancer, AIDS ect.) curing costs and the ability to provide allowance to farmers based on the hectares they farm.

  12. The government having control of a certain commodities can be examined in 2 different aspects. We can look at this from the perspective of a consumer and a producer (in this case, farmers). Having a government controlled monopoly over Canadian wheat manly benefits small, family run farms. Without this control in place these small farmers would not be able to compete with the prices set by huge corporations. These huge corporations would grow to the extent that there would be next to no small farmers in the Canadian market. Many small farmers reply on the Wheat Board to supply definite prices for the wheat they produce because they do not have the necessary means to sell their wheat to national consumers. If the CWB was demolished, these large companies would form a monopoly over the market with no government regulation. The key incentive of a huge company is to maximize profit. They have no incentive to protect Canadians. It seems as though Steven Harper and the Conservatives wish to dismantle the wheat board to please certain Canadians. In other words, the larger wheat companies that back his political campaign. Gerry Ritz states that demolishing the CWB would “attract investment, encourage innovation and create value-added jobs.” In reality it seems like the conservatives have the interest of the larger farming corporations in mind. In the article All farmers are equal – but some are more equal than other, Barrie Mckenna writes “The catch is that ‘farmers first’ often implies ‘consumers last.’ And what Mr. Ritz really means is that some farmers come first, but not all farmers.” This new legislation does not benefit Canadian Citizens, not does it benefit many Canadian Wheat Farmers. On the other side of the scale we have to analyze how the Canadian Wheat Board affects the citizens of Canada. We can compare the grain market to the auto insurance market in Canada. In Ontario, auto insurance brokerages are controlled by individual companies (no monopoly). In Manitoba, auto insurance is sold from one central brokerage: Manitoba Public Insurance. We see significantly lower rates in Manitoba that we do in Ontario because of this government regulation over insurance sales. This situation can easily be compared to the Canadian Wheat Board. If the regulation is removed, a monopoly would be formed by huge wheat companies, who would set their own wheat prices. There would be nothing stopping them from increasing costs in order to benefit their own profits. Every decision has its pros and cons. In the case of the Canadian Wheat Board destruction, we must analyze who is benefited and who is not, in order to determine if it is truly beneficial.

  13. fter reading the two articles, and reading some of the comments on the blog I am left feeling on the fence regarding the issues with the wheat board, and the how the government treats different branches of farmers. The first article “All farmers are equal- But some are more equal than others” it states that Canadians are paying twice as much for dairy products compared to other people around the world. The money that we are spending is being split between the farmers, and the government, and resulting the in the dairy famers getting much more money than wheat farmers, and for roughly the same amount of labour. The article also looked at how smaller farms are continuously being swept out by larger farms. – – This bridges nicely into the second article, which begins by saying that 60,000 farmers would be directly affected if the wheat board is cut. Although the farmers will be affected differently there will still be drastic changes in farming, which would affect not only the farmers, but obviously the consumers as well. The two farmers in the article seem momentarily similar, but after seeing their reasoning behind whether or not the wheat board should remain, you begin to see the main difference. The wheat board is a security blanket for smaller farms. As mentioned in the first article, the bigger farms are beginning to take over, and without the wheat boarders protection in prices, etc, the smaller farms would be bought out, and essentially unable to survive. On the other side of the scale there are large production farmers, who think scrapping the wheat board would be a productive way of eliminating the “middle-man”, and reducing delay’s in payments. Both sides have their pro’s and con’s, and I think it will be interesting to see what happens if the wheat board is cut, and how, or if it will affect us as consumers.

  14. After reading both articles “All farmers are equal”, and “The future of farming cut two ways”, it is quite evident that we have a very controversial issue on our hands. While Stephen Harper is very aware that ‘free markets drive innovation, spur investment, and create value-added jobs’, the government is ready to go defend a Soviet-style system which would be doing the complete opposite for some farmers. I believe that our current government actually knows that abolishing the Canadian Wheat Board is a bad idea; however would like to pretend the complete opposite because they’re politically useful. I say this because through the research I have conducted, I see that The Liberal government had plenty of time to fix this horrendously bad system that hurts small farmers, and consumers but saw no interest in doing so. This being said, the NDP have come out in favour of protecting this form of corporate welfare, while attacking other forms of corporate welfare. This just shows that all these parties could care less about the actual issue, and they’re acting on what they believe will get them the most votes, and not on good morals, or principle. As for the issue, there are both advantages, and disadvantages depending on what kind of farmer you are. For Norman Shoemaker, getting rid of the White Board’s wouldn’t be a significant issue as he would be able to make more money which he would obviously love to do; however for farmers such as Bill Gehl who don’t have as large a farm, it is clear why they’re totally opposing the idea. I personally believe that a free market economy with the government controlling some commodities would be the most efficient and beneficial solution as it takes best from both solutions.

  15. The system of government controlling the certain comodoties is not exclusive to Canada, other countries in the world have marketing boards that do the same thing, such as australia and united states have subsidies that benefit the farm communities. The benefit that the dairy farmers in Canada receive is a guaranteed market for their products, therefor the farmers can do what they best do and that is producing the products and they leave the marketing and sale of their products to the experts. Few dairy farmers have the ability to be marketers as well as producers. The Governments do not control the supply of commodities, in a real world the supply is controlled by influences such as weather, man power, and resources, unless of course they institute quotas where the farmers can only sell what the government tells them. If the governments sets quotas for farmers they do it to strengthen the market by limiting supply. It may appear as though the government is interfering with the dairy farmers business, but in fact they have the farmers best interest at heart.

  16. The canadian Wheat board has helped small farmers be successfull for many years. It has allways given them a fair price, and have provided a wide range of contracts around the globe. The problem is that times have changed, and a longterm shortage of grain has emerged. People don't realize that because people are eating more meat, and our population is still growing. This all presents an opportunity for the price to hit record heights.This BEING SAID, farmers no longer have the same protection the wheat board gave them against diseases, such as fusirium. For example, look at the BSE/mad cow disease. Within days the price of a cow dropped over $700. Even though there are some negatives, I still believe that the extermination of the CWB is a good thing.

  17. It is quite clear that their are inherent pros and cons in dealing with the elimination of the Canadian Wheat Board. While some farmers are in full support of its elimination, others dread the results. As far as I can tell, the way in which the government deals with wheat should be no different than the way in which they deal with any other market commodity. And, to extend that, no commodities should be controlled by the Canadian Government to the extent that the wheat board controls wheat. The free market is quite brilliant in that it consistently regulates itself. When supply goes down, farmers can raise their prices. When demand goes down, farmers can produce less wheat. The biggest worry with the elimination of the wheat board seems to be the issue of small farming families. There is no reason, however, that these farmers can't sell their products to big corporations. In effect, it is just the same as selling your product to the Wheat Board. While there are certainly benefits and consequences to the removal of the wheat board, in my opinion the pros outweigh the cons.

  18. There are 2 sides to the question of whether the government should control the supply of commodities. If the wheat board becomes eliminated, it would result in the farmers having complete control over the price and how much they supply. I agree with many of the people that said how the wheat board should not be treated differently than any other market products. The government should not really interfere with the system because when the ‘invisible hand’ takes over, the supply and demand settles to a happy medium and the farmers can decide whether to produce more or less wheat depending on the demand. However, the cons of eliminating the wheat board are that it affects the smaller farms because they are the ones that rely on the monopoly for survival. It would result in the small farmers being taken over by larger corporations who would gain all the power in the end.

  19. Getting rid of the Wheat Board would allow Canadian farmers to become independent from the government, which would let prices be set on crops by farmers themselves. As opposed to the government regulating the prices for them, everyone will be able to charge their own prices. This means there will be more competitive selling, and some farmers will be making lots of money while others make less because both are charging different prices. While many farmers are unsatisfied with government intervention on their trade (who aren't doing the farming) the wheat board has been around for many years now. Some farmers may feel pressured by selling crops at their own prices if the wheat board were removed.

  20. It is quite clear that the famers want to keep the Wheat Board, but they would like to find a compromise. The Wheat Board does a lot for the farmers, but the farmers are expecting more. Abolishing the wheat board has its pros and cons. The pros is that farmers may "be in charge of their own destiny". The reason for this is that they do not have to go through the Wheat Board for deals, the can make deal directly with the buyers. They will have more control over their product. The Cons is that for smaller farms that their business will tank. The Wheat Board needs to help all famers not just the top grossing ones. All farmers need to get treated the same, I don't understand why the dairy, egg, chicken farmers get it different. The government needs to protect all farmers, and all the same other wise its not going to turn out well. In the end the Wheat Board should stay, but they need to work out a deal with the farmers so that they get what they want and need

  21. The government should control over the supply of the commodities because the government's regulation regime may prevent from market monopoly. However, recently, the government is trying to dismantle Canadian Wheat Board in order for the farmers to have free and open markets. Eliminating CWB may benefit the farmers who are strong in the farm industry, and do not need of any government's support. In contrast, the farmers who are powerless in the farm industry will not survive from the market competition with other big farm companies and ultimately die out in the farm market. In this manner, big farm companies will likely raise the price of the dairy farm commodities (essential food for living) which people are going to buy anyway. Since the government is no longer involved in supply management system and other small farmers have died out, there is no way to protect consumers from the big farm companies' monopoly business. All consumers are willing to buy commodities at minimum price as possible as they can, especially since the world economy has been collapsed. For this reason, some people argue that government should get rid of CWB so that consumers are able to buy commodities in free market at lower price. However, "free market" does not only mean that consumers will achieve advantages but also mean that market monopoly may occur. Of course, what in the world, do people want to pay "twice the world average for dairy products – and up to three times what Americans pay?" No one will say, 'yes, I want to pay three times what Americans pay, but people should bear it in mind that once the big company become monopolies, they can raise the price four times or ten times more, up to wherever they want to raise, and unfortunately there is no solution to prevent from its monopoly.

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