Just Fiddlin...?

In this and next week's blog entry, we will sketch out six issues that we believe require attention from policy makers and thinkers both inside and outside of government. These issues, we believe, have not received sufficient attention by economists and policy analysts; given their importance, it is our view that the returns to additional policy analysis in any one of these areas could be very large. Since this posting does not provide enough space to deal with the issues in depth, we can only sketch out each issue; a follow-up blog entry in a couple of week's time will provide an estimate of the potential benefits associated with properly aligned policy changes. We will also return to each of these issues in subsequent blog entries for a more in-depth examination.

1. Rail Transportation - This issue is arguably the most important problem facing the western Canadian grain industry today. With the exception of the railways, virtually everyone in the grains industry - from the Canadian Wheat Board (CWB) to small independent marketers of specialty crops - agrees that service provision and car allocation is poor (see link); evidence to support these views is provided from numerous Canadian Transportation Agency (CTA) rulings (see link) and the Grain Monitoring Program (see link). The direct cost of poor service provision is added costs for farmers and shippers; the indirect cost - which can also be large - is the loss in Canada's reputation as a reliable grain supplier. While there is hope that Bill C8 (formerly Bill C58) will deal with some of the problems, greater attention to the underlying problem - namely the power of the railways - is required.

2. Commodity Markets - The meeting on April 22, 2008 held by the U.S. Commodity Futures Trading Commission to investigate whether futures markets are properly performing their risk management and price discovery roles (see webcast link) highlights the importance of this issue. The direct cost to farmers and agri-business firms of poorly functioning futures markets, as well as the indirect cost associated with poorer market signals, is potentially enormous.

3. Ethanol and Biofuels - The recent rise in grain and oil prices, and the subsequent lack of interest in investing in ethanol plants, suggest that Canada's policy towards biofuel production needs a major rethink. Given that that economic costs of the ethanol programs in the United States are in the billions of dollars (see, for instance, Bruce Gardner. 2007. "Fuel Ethanol Subsidies and Farm Price Support," Journal of Agricultural & Food Industrial Organization 5(2): Article 4), the development of a well thought out policy on this highly visible issue would be very beneficial.