Pay Farmers To Stop Farming

Agriculture, Canada, Commentary, Milton Boyd (historic), Rural, Trade, Uncategorized

Times are tough on the land. Desperate farmers rallying on the steps of legislatures or driving combines they can’t pay for in protest motorcades have become an occasional, depressing staple of the nightly news. But our governments are beginning to understand that production subsidies are a dead end.

In a world where other countries continue to keep prices artificially low through such subsidies, the wiser approach may be to create a fair and equitable long-term exit strategy for marginal Western Canadian grain producers, while preparing those who remain for life without grain subsidies. At the same time, taxpayers need a cap on future outlays. The latest farm crisis raises three concerns:

First, the most unprofitable farmers need a way out. Without one, they may remain trapped on a treadmill, harbouring false or uncertain hopes of future aid. The crisis will never go away, and mass bankruptcy is not an acceptable option for them or their elected representatives.

Second, other farmers who are nearing the brink but struggling with the decision to carry on should be given more certainty as to how much assistance they would receive if they continued to grow grain. Years of multilateral negotiations have failed to crack the subsidy nut, and many grain farmers in Canada may not see a profit in the foreseeable future. It’s hardly fair to leave them twisting in the wind.

Third, Canadian taxpayers have paid out more than $20-billion in farm subsidies through a variety of ad hoc programs over the past 15 years, with little to show for it. They are unlikely to continue doing so at past levels, and would like a cap on future expenditures. Statistics Canada reports net farm income last year was $3-billion, $2.8-billion of which came from government. This is unsustainable.

A straightforward solution would be a grains transition program, designed so both farmer and taxpayer can win. The program would pay the farmer a one-time lump sum similar to the buyout of the Crow Rate rail subsidy. It would have two main features:

First, the one-time payment would be given to all grain farmers in Western Canada, with few strings attached. They could put the money into a tax-free RRSP, or use it for education, retraining, starting a business or buying a house. Since many farmers are over 50, it could even be used for retirement. This payment would give growers sufficient funds to quit outright. If they wished to continue, they could, for example, choose to invest the lump sum in their farming operations. Or they could place it in an off-farm enterprise.

Second, in exchange for the lump sum, ad hoc grain subsidies would be stopped permanently, thereby relieving taxpayers from uncertain future costs. Only existing major programs such as crop insurance and the Net Income Stabilization Account (NISA) would be retained.

Assume (for the sake of illustration) an average $50 per acre is paid to farmers in a lump sum — twice the amount paid for the Crow buyout, which cost taxpayers $1.6-billion. All particulars of the program could be negotiated through stakeholder representatives, with a limit on the amount each farmer could receive, and with the funds paid out over several years. For some farmers, $50 per acre may seem low. But on closer examination, it looks better, assuming inflation doesn’t accelerate. A typical 1,000-acre farmer, investing the $50,000 tax-free in an RRSP at 8% over 25 years, would end up with more than $300,000.

To many lower-income taxpayers, a lump-sum payout may look too generous. The many 40-year-old non-farm single mothers working two part-time jobs at minimum wage without drawing social assistance far outnumber the 100,000 or so commercial farmers on the Prairies. They may argue that a lump-sum payment to grain growers is simply Robin Hood in reverse — the poor giving to the rich. They may also argue that farmers wishing to exit should simply sell their land, since many have more assets to fall back on than non-farmers.

But the program would benefit the taxpayer by putting a cap on future subsidy costs, which might otherwise climb substantially higher over the long term. A grains transition program twice the size of the Crow subsidy buyout would leave taxpayers with a one-time expenditure of about $3.2-billion. The federal debt amounts to about $550-billion, so such a program would not add greatly to it in the short term. In the long term, it would significantly reduce government spending by eliminating future subsidies. The program could be cost-shared by provincial and federal governments, and spread out over a few years.

While subsidies may help farmers in the short term, their long-term benefit is questionable. They perpetuate dependency, the answer to which, all too often, has been more subsidies. New Zealand got rid of most agricultural subsidies in 1985; most farmers there are better off today. Europe and the United States pay out much higher subsidies than Canada, yet this has only brought more overproduction and even lower prices in subsequent years. European experts estimate U.S. farm support levels will soar to US$32.2-billion this fiscal year, from US$4.6-billion in 1996.

A grains transition program — with a lump sum to allow farmers an exit, and a cap on taxpayer subsidies — is an alternative that could make both farmers and taxpayers better off in the long run. It could become a future model for the elimination of other farm subsidies, including NISA and crop insurance. Those programs might also become candidates for buyouts, if both farmers and taxpayers can be shown to win.

Most importantly, a transition program would end a delusion that has enticed thousands of Canadian grain farmers to struggle for years against insuperable odds. It would give them hope that they could break off their losing battle against the treasuries of Europe and the United States without facing personal disaster.