Market regulation and productivity: The case of the Canadian Wheat Board

Abstract Changes to regulatory environments influence firm‐level incentives, which can move the productivity frontier or reposition firms within an existing frontier. Estimating causal effects of policy changes requires a credible counterfactual for productivity in the absence of policy change. We estimate causal effects of a major policy change in agricultural markets; deregulation of the Canadian Wheat Board. The Canadian Wheat Board was a state‐trading enterprise that controlled sale and distribution of wheat and barley produced in Western Canada through a single‐desk monopsony from 1943 to 2012. We investigate how deregulation affected farm‐level productivity for regulated crops. Field‐level production and input data for 13,000 farms over 17 years are used to generate a within‐farm difference‐in‐differences estimate of how relative productivity changed between regulated and unregulated crops when the single‐desk mandate was removed. Our within‐farm approach identifies the effects of regime change while controlling for factors that confound productivity estimation in other approaches, including unobserved time‐varying factors at the farm level. We identify significant positive effects of deregulation on farm‐level productivity of spring wheat. We also find heterogeneous effects across fields with different land productivity, and across farms with different levels of experience marketing their unregulated crops outside the single‐desk. Broadly, we find that deregulation of the Canadian Wheat Board's monopsonistic single desk incentivized farms to increase productivity of wheat. This research contributes to the understanding of how policy interventions can affect firm‐level productivity, and to the productivity literature with an estimation strategy for identifying productivity effects in the context of multi‐output firms.