The British Commonwealth and Canadian Wheat

MR. INWOOD: "The British Commonwealth and Canadian Wheat" is the timely subject chosen by our guest speaker today. The present wheat surplus in Canada can seriously effect not only the farmers and the grain people but our entire Canadian economy and that is the particular reason why we invited the President of the Winnipeg Grain Exchange at this time to come to this club from Winnipeg and talk to us about this vital international problem.

The public knows very little about the possible national effect of this wheat glut, but we do remember the surplus and government wheat hold-over of 1928 and its results in 1929 and we hope our honoured guest will enlighten us on today's conditions and what we may expect in 1954 and 1955.

Mr. Stanley N. Jones is one of the most qualified persons in Canada to talk to us on the "Wheat situation". He was born about 60 miles from Winnipeg in Roland, Manitoba in 1893. At the ripe old age of 19 he commenced his grain career by joining the Saskatchewan Cooperative Elevator Co. and then the N. Bawlf Grain Co. Ltd. In 1921 he founded his own business as a cash grain broker which he still conducts in Winnipeg.

Following his appointment to the board of governors of the Winnipeg Grain Exchange in 1932 he subsequently in 1946 was elected president.

His interests aside from business indicate he is a most public-spirited citizen and his activities have included or include being director of Manitoba Chamber of Commerce, Director of International Chamber of Commerce, Director of Canadian Exporters Association, Chairman of Manitoba Sea Cadet Committee, Chairman of St. John's Ravenscourt School for Boys, Director of the Winnipeg Y.M.C.A., and Director of the famous Westminster Actimist Club for young men. He is author of "Government Control and the Grain Trade" and a director of Sovereign Life Assurance Co. of Canada.

It is indeed a pleasure to welcome from Winnipeg and to present to you our fellow Canadian, Mr. Stanley N. Jones.

MR. JONES: In these modern times we rarely give much thought to the commonplace-to the ordinary procedures of life, to the things which make up the routine of working, playing and living. Our minds are preoccupied with thoughts of such things as atoms, jet-propulsion, cold wars, and McCarthyism. The familiar things of life make no headlines. The drawing of water, the hewing of wood and the sowing of seed are considered mundane and are hardly accepted as sufficiently exciting to attract our thoughts and interest, but perhaps we should follow the advice of the walrus in Alice in Wonderland, that famous story for children-both young and old:

"The time has come", the walrus said,

"To speak of other things; of sailing ships and sealing wax, of cabbages and kings."

-and wheat.

One of the commonplace things we in Canada are fortunate to be able to take for granted is our daily breadthe end product of a cereal plant known as wheat. Wheat is a commodity with which everyone is familiar, but concerning which, many people know very little, other than the fact that it is the raw material from which flour is made--which in turn is the principal ingredient of bread.

For a half-an-hour today I suggest that we direct our thoughts to this seemingly unexciting subject matter and forget for the moment the more glamourous and head-line-making topics which usually occupy our attention.

I would like to tell you very briefly something of the history of wheat, as such, and also a little of the history of the development of the wheat producing industry in Canada. Then let us examine, again briefly, the place of Canadian wheat production in the economy of the British Commonwealth and in the western world. Having done this I will call to your attention several points with respect to wheat marketing which I regard as truths and which have great significance for all Canadians.

Although I have referred to wheat as one of the commonplace things of life, it has a very romantic history. It is the premier cereal concerning the Caucasian race of man and has been a part of living for so long that its origin is lost in antiquity. Careful enquiries into the origin of wheat by botanists have been in vain. The belief is now held that the wheat plant--with which we are so familiar and which has been known to mankind for ages--is an organized product of man's ingenuity and not a simple form of plant life like the seed of any known grass.

There is historical evidence that wheat was cultivated around the eastern end of the Mediterranean Sea as early as 5,000 years before the Birth of Christ, and the Egyptians have depicted the unmistakeable picture of wheat on very ancient tombs. Wheat growing, its distribution and marketing and even government intervention are referred to in the Hebrew Scripture.

In fact, planners of today point to the efforts of Joseph of Egypt to operate an ever-normal granary scheme, involving the storage of wheat, as an example of the efficacy of government control and government in business.

Truly this welfare scheme, as outlined in Genesis 41, was one of the earliest government wheat monopolies known to mankind, the first Wheat Board.

As to its efficacy I hope our present Canadian experiment is less successful for in Genesis, Chapter 47, "Security and stability", the watch-words of present-day farm leaders, was achieved at great cost as the people's money, their cattle, their herds and their land became the property of the Pharaoh and thereafter Egyptians paid a rental of 1/5th of their production for the use of what had been their own.

But what of wheat in the modern sense and particularly what of the history of wheat in Canada-and what, too, is the significance of Canadian wheat in the economy of the British Commonwealth of Nations.

Wheat was first grown in Canada in 1605 at a little settlement in Nova Scotia, now known as Annapolis Royal. By the time Great Britain had acquired Canada in 1763 and settlement had extended westward into Ontario, or Upper Canada as it was then known, wheat was the staple crop of Canadian farms. In 1860 the Province of Ontario produced a larger crop of wheat than it does in modern times.

The true history of wheat, however, as a major factor in the modern Canadian economy began with the arrival of the first settlers in Western Canada. These people, known as the Selkirk settlers, came from the Highlands of Scotland and settled on the banks of the Red River in 1813. The adversities with which these hardy Scots contended are well known, and not the least of them was the continuous struggle to find a variety of wheat which would mature and ripen in the short growing season on the western plains. That their struggles were successful is self-evident and is a story in itself.

Early production was largely consumed on the farms where it was produced and it was not until 1876 that a small quantity, 857 bushels to be exact, was sent to Toronto to be used as seed. The price by the way was 85c. per bushel. At the same time in history farm wages were 25 to 50 cents per day, with meals. Potatoes cost 25 cents per bushel, beef 6 or 7 cents per pound, and imported whiskey--pure and unadulterated--was only a dollar for a 26 oz. bottle. Compare the lot of the poor misguided wheat farmer in those days of complete laissez-faire with the lot of his modern brother in these days of monopolistic state marketing who gets twice as much for his wheat but pays ten times as much for farm labour, potatoes and meat, and four times as much for whiskey-watered down by the state.

The first shipment of wheat from Western Canada direct to Great Britain was made just a year later and strangely enough the event seemed to herald the importance of western wheat to the Canadian economy for just at the same time in history, Winnipeg, the home of the Grain Exchange, instituted ten years later,--was incorporated as a city. If I may be allowed a modest boast here in Toronto, Winnipeg has never looked back since, nor suffered a setback and perhaps the principal reason it hasn't looked back can be credited to the parallel development of the grain trade.

From this humble beginning the great western Canadian wheat producing potential has developed. By the turn of the century the production of wheat had become an important industry, although the land area sown to wheat on the prairies at that time amounted to only 5 million acres. As the quality of Canadian wheat became known and as markets were developed--by private interests incidentally and not by a government board--the industry continued to expand and in recent years wheat acreage has averaged very nearly 25 million acres. Production has increased from around 100 million bushels at the beginning of the century to a modern average of well over 400 million bushels.

These figures, however, mean very little, unless they are compared with other facts in order to determine relative values. A good way of determining the relative importance of Canadian wheat production is to compare it with production in other countries within the Commonwealth and within the western group of nations.

Within the British Commonwealth of Nations there are only two member countries which produce wheat in excess of their own requirements. These countries are Australia and Canada. The United Kingdom itself, throughout modern history, has been a net importer of large annual quantities of wheat. The African Colonies and the Union of South Africa rarely produce enough wheat and other cereal crops to satisfy their own requirements. India is a net importer of wheat while Pakistan occasionally produces a small surplus, but generally speaking this surplus is consumed within the Indian Peninsula.

New Zealand, too, is a net importer of wheat and Australia, alone, of all the other Commonwealth Nations produces a surplus over and above its domestic requirements. Only on rare occasions is this surplus in excess of 100 million bushels, and often it is less.

We find, therefore, that within the entire British Commonwealth only Canada has a wheat economy which will produce this important commodity in sufficient volume to ensure an important and accessible supply of this basic food. As well as being the only Commonwealth producer of substantial surpluses Canada is uniquely situated to supply those surpluses over relatively shorter shipping distances than is Australia.

Canada's wheat position is not as straightforward when considered in the larger orbit of countries which make up the Western Bloc of Nations. Previous to the war the continental countries of Western Europe, as a group, were deficit wheat producers and in South America, Argentina was the only country which produced even a nominal surplus for export. The largest wheat producer in the western world was, of course, the U.S.A. Annual production in that country before the war was nearly double that of Canada, but the quantity of wheat available for export from the U.S.A. was only on rare occasions in excess of 30 or 40 million bushels in any crop year.

Since the war, however, Canada's enviable position as the most important exporter of wheat has become vulnerable due principally to a changing production pattern in the U.S.A. Very generous price support programs in that country have brought about an increase in wheat acreage since the end of the war resulting in U.S.A. production well in excess of one billion bushels annually. Since this production is far in excess of domestic requirements in the U.S.A., that country has become a major exporter of wheat, and has, in fact, usurped Canada's position as the world's largest exporter of wheat.

It is rather remarkable, however, that while the U.S.A. assumed world leadership in wheat exports the volume of Canadian exports did not decline. This was possible only because most European countries and many countries in the Far East were unable, until very recently, to restore, their pre-war production pattern for cereal grains. Consequently the demand for wheat during the post-war period was much greater than pre-war demand. Increasing population numbers and a growing sociological sense of responsibility to feed the hungry people of the world also contributed to the increased postwar demand. The major contributing factor, however, was the war-imposed curtailment of production in many countries.

Production in many of those areas has been restored and we are now in a period of competition, principally with the U.S.A., for world wheat markets. Successive bumper crops in Western Canada and in the U.S.A., which paralleled the recovery of overseas production, have further complicated the situation.

In capsule form and stated very simply, the history of wheat production in Canada indicates that shortly after the turn of the century Canadian wheat became a major factor in world trade. During the years between the two world wars, when Canada's wheat was marketed through the facilities of the Winnipeg Grain Exchange, Canada supplied about 40% of total world wheat exports. Since the war, however, the U.S.A. has emerged as a producer of even larger surpluses than those produced in Canada, and the world trade situation with respect to wheat has been complicated accordingly. In the last four crop years Canada has provided, on the average, only 31% of total world wheat exports.

Having assessed the relative position of Canada as a producer and exporter of wheat, let us now briefly examine the market for wheat. Previous to the war, Europe imported approximately 80% of the total world trade in wheat. Half of this amount, or more than 200 million bushels, was imported by the United Kingdom alone, and of the total Canada consistently supplied approximately 120 million bushels per year. Sales of this nature to the United Kingdom represented nearly two-thirds of the total of Canadian wheat exports. Thus we find that in the 20 year period between the two wars the United Kingdom alone bought nearly 40% of all the wheat moving in world trade, and during the same period another Commonwealth Nation, Canada, was responsible for selling a similar proportion of all the wheat moving in world trade. Surely an enviable trade situation between two Commonwealth nations.

Since the war United Kingdom imports have continued at equally high levels and Canada has continued to be the principal source of supply. In other words, the United Kingdom has been and continues to be Canada's best customer for wheat. Other markets have been developed and are being developed for lesser quantities, but the market in the United Kingdom represents the hard core of Canada's wheat export trade. The loss of this market or a curtailment of it would be a severe blow, indeed, to the Canadian wheat industry.

With these two truths in mind-one, that Canada is now experiencing greater competition in world wheat markets as a result of increased competition from the U.S.A. and two, that the United Kingdom is the world's most important customer for wheat; let us examine the developments in the world wheat trade in recent months. Early last spring at a conference of the International Wheat Council held in Washington, the United Kingdom declined to participate in a renewal of the International Wheat Agreement. At that meeting the United Kingdom took the position that it would be able to secure its wheat requirements more advantageously in world markets without committing itself to buy fixed amounts within a specific price range.

In Canada, much disappointment was expressed at the United Kingdom's failure to participate in the Wheat Agreement. There is one fact, however, which Canadians must bear in mind and that is that the United Kingdom, either as a participant in the International Wheat Agreement, or as a non-participant, is the most important wheat customer in the world.

If that customer wants to obtain its wheat requirements on the basis of values as determined by the market place, we must be prepared to sell on that basis. Too many people--people who should know better-are prone to say, to the devil with the British, we gave them cheap wheat when they sorely needed it--now let them make it up to us! But one thing I call to your attention, the British did not ask us for cheap wheat--rather the misguided advocates of so-called orderly marketing offered it. And I have never been one who believed that Britishers, when offered a bargain, would be silly enough to decline. If the British now want to utilize the world's market places in which to obtain their wheat requirements, it behooves us to recognize that fact.

There can be little doubt that British authorities were of the opinion, when they withdrew from the I.W.A. last April, that world wheat supplies would reach levels which would compel major price adjustments. Developments in the wheat supply position of the four exporting countries, in the meantime, lend emphatic support to that opinion. Even if world trade and domestic utilization are maintained at very buoyant levels this crop year, carry-over supplies with the four major exporters on July 31st, 1954, will be approximately 1,400 million bushels, or 350 million bushels more than carry-over supplies at the beginning of this year, which were the second highest on record. If only average crops are harvested in 1954, carry-overs will show little shrinkage at August 1st, 1955.

As you know, wheat supplies in Canada are held in what has been called, by some advocates of state marketing, the strong hands of the Canadian Wheat Board. In the U.S.A. large stocks of wheat have been acquired by the Commodity Credit Corporation under that country's price support program. The governments of Canada and the U.S.A., through these organizations, have sought to maintain price levels and have shown definite resistance to lowering prices. Whether or not the resistance of Canada and the U.S.A. to lowering prices is a good thing remains to be seen. The reluctance of major buyers, however, particularly the United Kingdom, to purchase substantial quantities of wheat this fall, would indicate that importers are of the opinion that present wheat prices do not represent true values.

This brings me to the third truth which I ask you to accept and that is, there is no better device for determining true values, and thus moving supplies into consumptive channels, than the market place. I am convinced of the futility of anyone endeavoring artificially to set the price of wheat or any other commodity. History recounts many instances when kings, princes, dictators, and governments, have tried to perform this impossible task and the outcome in each and every instance has been failure--and usually the augury of failure was an accumulation of large unsold surpluses.

There are, however, two schools of thought in connection with this matter, and it must be stated that those who favour the state marketing system and those who criticise it are all sincerely concerned with the welfare of the prairie wheat producer. I know of many farmers and of many sincere non-farmers who do not think that compulsory state marketing is in the best interests of farmers, and consequently of Canada. I should say, however, that the Grain Trade has co-operated fully with the Wheat Board and together have done an efficient job of marketing prairie wheat, within the limits of government policy. There are many, however, who are of the opinion that the best interests of Western Canadian farmers and of Canada will be even better served if the sale of wheat is accomplished in an open market.

Opponents of an open futures market complain of the speculative aspects of such a market. I suggest to you, however, that the present policy of withholding large supplies from the market, is nothing more than a very major speculation that prices will increase.

There can be no doubt that consumption is the surest cure of surpluses. The withholding of supplies from the market place disregards the primary function of the market--the determination of prices. Agricultural production is at a relatively steady rate, and the supply of agricultural products cannot be reduced rapidly or controlled in order to influence prices upward. When supplies, in relationship to demand, are at high levels, price declines must be realistically accepted in order to permit disposal of the supplies. The opposite concept of attempting to influence prices by withholding supplies from markets is a will-o-the-wisp, which has been pursued unsuccessfully in many attempts in many countries.

By realistic acceptance of price declines I do not mean that Canadian taxpayers and consumers can shrug off their continuing responsibility to the Canadian farmer. I, personally, and the Winnipeg Grain Exchange are strong advocates of agricultural price support legislation which would provide adequate financial guarantees to agricultural producers. Such financial guarantees should be so conceived that they will not confound and aggravate the problem by creating unsold surpluses, which can only have a further depressing affect on prices, nor should they deprive the producer of freedom of choice in selecting a market for his production. We, and you, as businessmen and consumers, both east and west, have a vital interest in Canadian agriculture--an interest so great that in times of low incomes and depressed prices it must become our responsibility to protect farmers from the full impact of conditions which are so often beyond their control.

If we recognize the right of industrial workers and other wage earners to state-sponsored unemployment insurance schemes, minimum wages, and the like, then we must recognize a similar right for agriculturalists. This type of protection, however, must be provided in such a way that production can be disposed of at the best price obtainable while avoiding the creation of burdensome surpluses.

At the outset of my remarks I suggested that I would conclude by calling to your attention several points which I regard as truths. These are:

(1) Canada has experienced, since the end of the war, and can continue to expect, greater competition in world wheat markets, principally from the U.S.A.

(2) The United Kingdom, which has deserted the I.W.A. and has turned to the open market for its wheat supplies, is the world's best customer for wheat and traditionally has purchased most of its requirements from Canada, and;

(3) There is no better device for determining true values and moving Canada's wheat surpluses into consumptive channels than the market place.

Based on these truths, what must we in Canada do to regain and maintain our leadership as the world's principal exporter of wheat, and to guard against the creation of burdensome wheat surpluses, such as those which developed under previous attempts to withhold supplies from market in order to influence prices?

First, to the extent that the present system has failed to move abundant production into use, the most important requirement is a frank admission of that failure by the advocates of the monopolistic price-fixing sales method.

In the second place, we must seize the problem of surplus as an opportunity to do something about it. One important thing which should be done is for those who are vitally interested--farm leaders, government officials, and representatives of the grain trade--to sit down together and, in an objective manner, seek solutions to our marketing problems. Out of such discussions, I am sure, would come an acknowledgment of the efficiency of the market place in moving supplies into consumptive channels. Out of such discussions, too, might come a concept of financial guarantees to producers which would divorce from the marketing function this completely unrelated but equally important matter.

Our individual freedom has been created on the basis of constitutional democracy, civil and religious liberty, and private competitive business. All of these are placed in jeopardy by statism and by government monopoly. Not the least of the dangers to our individual freedom is the growing intervention of government in business, even to the extent of depriving the individual farmer of freedom of choice in determining how he will market his own wheat production.

THANKS OF THE MEETING were expressed by Lt.Col. N. D. Hogg, Second Vice-President of the Club.