WTO Changes Coming For Canadian Agriculture

Commentary, Agriculture, Rolf Penner

What a difference a year makes. In September 2003, the Doha Round of World Trade Organization (WTO) talks in Cancun, Mexico appeared to hit a brick wall. Last month, however, all 147 member countries approved a negotiating
agenda that some say has the potential to overhaul world trade in agricultural products. If the talks are successful in creating a new agreement, it will likely require Canada to deal with the thorny issues of supply management institutions, including the Canadian Wheat Board (CWB).

The stakes are high. According to the World Bank, the Doha Round could lift more than 500-million people out of poverty through increased trade. According to Canada’s Trade Minister, Jim Peterson, “The world was watching, and WTO members delivered.”

While this is good news for the world’s poorest countries and a lot of Canadians, including most farmers, prairie farmers who have grown comfortable with the CWB monopsony are worried. But Canada likely had little choice on this score. “In terms of supply management, and in the case of the Wheat Board, I have to be honest with you, we were under attack,” said Mr.
Peterson. “It was one against 146. We had absolutely no allies at the negotiating table.”

The negotiations have several goals. The most important is the elimination of all agricultural export subsidies, followed by a reduction in domestic agricultural supports. The third is the lowering of tariffs, while the fourth involves reining in state trading enterprises such as the CWB.

Canada’s supply-managed producers of milk, eggs and poultry have legitimate concerns about the effects of compliance. While these farmers are efficient, they carry a tremendous financial burden that their potential competitors do not — the cost of their quota. Here’s how it works. High Canadian tariffs, up to 300%, stop imports from entering our market. Meanwhile, marketing boards allocate the rights to produce these commodities domestically, setting floor prices in relation to production costs. The right to sell a quota of goods at this price is then assigned a value, which farmers must then pay to supply milk, eggs or
poultry. In Ontario, for instance, it costs about $27,500 to obtain the right to ship 26 litres of raw milk a day. This translates into $3-billion in quota equity. The emphasis on reducing tariffs in this Doha Round could collapse the value of those quota assets. The financial consequences of sudden tariff reduction would thus be catastrophic to farm families and is the single biggest dilemma in transitioning them to a global marketplace.

Our government should look to Australia for guidance on this score. In 2000, the dairy industry Down Under voluntarily reformed its supply-managed system. The Aussies implemented specific programs to facilitate the change, providing assistance for farmers to either adapt or exit the industry. A consumer tax, scheduled to expire in 2008, was levied on every litre of milk
to fund the strategy. While these programs do not compensate for the entire loss of the quota value, they have gone a long way toward ensuring that Australia’s producers don’t end up in the poor house.

The CWB, on the other hand, is a different case. It has long been questionable as to whether its monopoly buying and selling powers, government guarantees and special financing privileges provide Prairie farmers with greater returns than a competitive environment. Many argue that it returns less, calling it a toothless tiger. Recent experience in Ontario shows that moving to an open market for wheat can lead to positive results almost immediately. When the Ontario Wheat Producers’ Marketing Board sanctioned dual marketing in 1998, farmers there responded by planting more wheat acres. Investments in new value-added
processing plants flowed in, while older plants retooled and expanded their existing facilities to meet new demand. Grain farmers are already acclimatized to competition in the global arena through the sale of non-Board commodities such as canola, soybeans, corn and a host of other crops. The infrastructure, knowledge and relationships needed have all been in place for decades. A transition from CWB control would likely occur in a seamless manner, with benefits quickly outstripping
any possible negatives by a wide margin, just as they did in 1989 when oats were freed from Board control.

We know from previous WTO negotiations that, while they progress at a snail’s pace, they do move forward eventually. This means that there is still time to prepare our milk, egg and poultry producers for the new realities and avoid economic cataclysm. As for the Wheat Board, pulling the band-aid off quickly would achieve the greatest results. The question in both cases is: Do we have the will?

This article originally appeared in the National Post August 24, 2004.