Hog Subsidies vs Comparative Advantage

Commentary, Agriculture, Frontier Centre

It was a classic doublecross.

Last fall environmentalists gave a few votes to the Green Party, but most of them cozied up to the New Democrats, who have successfully courted their support for years. For good reasons, the greens don’t like pig farms very much. So when the J. M. Schneider company looked for subsidy money for a new hog processing plant, their antennae started to quiver.

Forget it, Jack. The new facility will generate up to a thousand unionized jobs. Unions form the NDP’s most important political base, one that donates a lot of money and foot-soldiers at election time. The greens didn’t stand a chance. And politically they have nowhere else to go. The Tories would have given Schneider’s the money, too, maybe more.

But amusement was not the melodrama’s only value. It illustrates important lessons in public policy.

Why is the hog industry growing so rapidly? Five years ago, Ottawa cancelled the Crow Rate, a freight subsidy which discouraged local processing because it was only paid for moving raw grain. Manitoba’s livestock industry is just getting back to where it should have been in the first place. Then the Province took away Manitoba Pork’s marketing monopoly. Pig farmers boomed without the straitjacket, just as removing oats from the Wheat Board’s suffocating control boosted that crop.

The greens come close on the second problem. Hog operations of the size needed to supply Schneider’s pose a potential danger to the purity of rural water supplies in some areas. Occasionally they generate far more manure than the land can safely absorb. The high cost of proper disposal would put a damper on runaway growth. Who is the public steward responsible for arbitrating such issues? The same government that’s encouraging the expansion with business subsidies.

It’s a clear conflict of interest. Ownership of Manitoba Hydro puts the Legislature in a similar box. Should they maximize profits by keeping lake levels high or do their duty by protecting property owners from high water damage? When government is involved in commercial activity or promotion, it stops being a neutral party. Its proper role is to devise fair rules that clearly define rights, and to ensure compliance.

The popular bogeymen for all this are corporate welfare bums, especially multinational ones. Sorry, but J.M. Schneider has been an excellent corporate citizen, staying here while others headed west, providing stable employment and paying millions in taxes. The company would be stupid not to accept subsidy support when it’s offered, because its competitors will. The money pot itself corrupts. It’s not a failure of commerce, it’s a failure of government.

Dreamers on the old left talk in wispy generalities about business grants directed towards “community” goals. Guess what? The community expresses itself through elected governments. Federal and provincial governments have all been racing to hand out lucre to anybody who promises to create jobs. Until voters tell them to stop wasting money on a futile subsidy chase, economic distortions will be our lot. Sustainable development is only possible with clean market signals.

If smart public policy had prevailed in the first place, Schneider’s hog processing plant might have been built fifty years ago. If environmental rules were clearly defined, fewer rural folks would have to cart bottled water. If the government got out of the job creation business and left the money in the people’s hands, investment would head where it should, towards its most efficient use.

With abundant, quality feed, Manitoba has a natural comparative advantage in the livestock industry. Without subsidies.