Freeing the Farmers

Media Appearances, Agriculture, Frontier Centre

If you’ve never heard the old folk tale about the Wild Hogs of Horseshoe Bend, just get Rolf Penner started on farming subsidies. The hog and grain producer from Morris, Man., loves to tell the story of how a clever farmer was able to pen a group of feral pigs by making them dependent on his corn. The analogy’s not hard to get: Canadian farmers have lost their edge, thanks to too many handouts. But while the comparison isn’t particularly flattering to his fellow farmers, that’s never bothered Penner. He knows subsidies are a fact of farming life in Canada. That doesn’t mean he has to like it.

Once upon a time, Canadian agriculture helped pay Ottawa’s bills. These days, it’s the reverse. According to the Organisation for Economic Co-operation and Development, roughly 20 per cent of Canadian producers’ gross income comes from the government, either directly or thanks to the inflated prices created by tariffs and supply management boards. And it’s still not enough, say farmers.

The Conservative government, having campaigned on a promise of a $500-million boost to the $5 billion in provincial and federal agriculture subsidies, announced a surprise $1.5-billion boost instead, in the May 2 budget. Farmers complained it still wasn’t enough, noting that it paled against pork sent to farmers by the U.S. and EU governments. This year alone, under World Trade Organization rules, the U.S. is cleared to ramp up their agricultural subsidies another US$4 billion, bringing the total to US$19 billion per year. But since competing against U.S. and EU subsidies appears to be getting Canada nowhere, what hope do Canadian farmers, particularly those in the cereal grain and oilseeds markets, have?

Penner, who doubles as an agriculture policy fellow at the Winnipeg-based Frontier Centre for Public Policy, says the answer isn’t more money–it’s less. Like the wild pigs of Horseshoe Bay, all the free handouts have Canadian farmers acting in ways they naturally wouldn’t. Subsidies entice farmers to grow crops they’d normally avoid, creating surpluses and driving commodity prices artificially low. The problem’s only made worse when export tariffs in foreign markets further encourage producers to keep more food at home.

“What we’ve been getting is this really vicious downward spiral, and what the farm lobbies are doing is trying to get temporary relief, asking for more money all the time,” says Penner. “It gives farmers incentive to keep doing what they’ve been doing.” The Canadian Federation of Agriculture, the country’s largest producer organization, estimates that the average Canadian farm net cash income for 2004 was a lousy $27,247 per year–and that the average farm is $207,406 in debt. Things are getting worse, not better. The only way to reverse the trend, says Penner, is to stop the subsidies altogether.

He’s not alone. The Copenhagen Consensus, issued in 2004 by a team of eight top economists from around the world (including four Nobel laureates, and famed Danish statistician and Greenpeace activist-turned-detractor, Bjorn Lomborg) reaches the same conclusion: tariffs and subsidies are killing the farm industry everywhere. An end to both, the study shows, would create a net annual gain of anywhere between US$245 billion and $US2 trillion, annually–70 per cent of which would end up directly in the hands of farmers. The magic formula? Let farmers decide what to produce based on their capabilities and potential profitability, rather than clouding judgments with subsidies, and they’ll naturally migrate to crops where they can make more money, faster. “Static gains arise from countries producing more of the goods and services they can provide most efficiently and less of what others can produce more efficiently,” write the Copenhagen authors. “Additionally, dynamic gains result as increased trade fuels economic growth . . . Evidence gathered during the second half of the twentieth century shows that countries which have liberalised their trade have enjoyed an average 1.5% increase in annual GDP growth compared with the pre-reform rate.”

If Canadian producers think another few billion dollars in subsidies is something to get excited about, they should look at the windfall trade liberalization could bring, as predicted by economists at the University of Guelph and Industry Canada. In a worldwide free-trade scenario, they estimate the direct benefit to our farmers to be between US$50 billion and $60 billion.

Unfortunately, one of the obstacles is the Canadian government itself. For years, Ottawa has been fighting to hang onto Canada’s ridiculous dairy tariffs, which get as high as 280 per cent (and mostly benefit Quebec). While the feds have been railing against U.S. and EU subsidies at the World Trade Organization’s Doha round–talks specifically aimed at agreements on lower tariffs and subsidies worldwide–they’ve refused to drop their dairy barriers. “The potential for Canada to come out on top of this is huge,” says Penner. “But instead we’re playing defence instead of offence.”

The Doha round was supposed to conclude on April 30, but the process has stalled. Much of the blame lies with posturing among EU nations, which subsidize their farmers on average 33 per cent of their gross annual income, and the U.S., which, at 18 per cent, is only slightly less generous than Canada. But Ottawa has only made matters worse, says Liam McCreery, president of the Canadian Agri-Food Trade Alliance, an association of groups seeking freer farm trade. By digging in on its own anti-competitive policies, Canada’s calls for more trade flexibility from the EU and the U.S. have made us look like hypocrites to Doha’s other 148 members, McCreery says. Sources close to the WTO talks say if an agreement isn’t reached by July, the six-year-old Doha round will likely fail. “If Doha falls apart, that means Canadian farmers are going to continue to get bashed by these subsidies and tariffs,” McCreery adds. “It’s going to get worse.”

On May 5, federal Agriculture Minister Chuck Strahl told the Calgary Chamber of Commerce that while his government doesn’t plan to match Europe’s sky-high subsidies, it’s not open to deregulating the marketing boards that protect Canada’s dairy and poultry producers. Instead, he noted that the feds are paying farmers to diversify their incomes. While two thirds of the farm aid announced in the recent budget will provide direct and immediate income relief, the other $500 million is intended to help them move toward new revenue sources–specifically, incentives to get into the ethanol game, explains Strahl’s communications director, Conrad Bellehumeur. The Tories have said they want to see five per cent of all Canadian fuel derived from grain-based ethanol by 2010. “This environmentally friendly program could require as much as eight million tonnes of grains, oilseeds and biomass, creating new economic opportunities for producers,” Strahl said in April. But since grain-based ethanol takes 27 per cent more energy to produce than it yields, according to some estimates, the plan may have the effect of enticing farmers to produce yet another uneconomical crop–keeping them penned in just a little bit longer.