Fear Trumps Reason in the Politics of Agriculture

Worth A Look, Agriculture, Frontier Centre

Down Under they said it couldn’t be done, not without economic devastation and social upheaval. But it was done, and no one wants to go back.

Australia, the country where supply management in agriculture began in the 1920s, scrubbed the system for dairy producers in 2000.

This decision followed a previous one in New Zealand, where all agricultural subsidies were eliminated.

The sky was supposed to fall on farmers in both countries.

Without subsidies, quotas, tariff protection and/or supply management, critics predicted nothing but misery for farmers. Exactly the reverse occurred, according to a paper prepared by David Harris for Australia’s Rural Industries Research and Development Corp.

New Zealand’s agriculture is healthier than ever. The country’s farm groups vigorously oppose any politician who suggests subsidies.

Australia’s dairy industry, following a necessary period of adjustment from scrapping supply management, is also healthy.

Milk production per farm in Australia has risen since 2000, as farms got larger. After the end of supply management, 45 per cent of producers expanded their herds, 27 per cent increased their non-agricultural income, others enlarged their farms for other products.

A consolidation definitely followed the scrapping of supply management.

A quarter of farms are out of the dairy business. To ease the transition for farmers who got out of, the Australian government established a $1.5-billion transition fund, financed by an 11-cent-a-litre charge on milk to last until 2010. Even with the 11-cent charge, the price of a litre of milk dropped 20 cents, because consumers were no longer subsidizing production.

Agricultural subsidies can be eliminated. Not without pain. Not without transition costs. But it can be done, as Australia and New Zealand have shown. It takes immense political will and cash up front.

Alas, the Australian and New Zealand examples don’t cut it with Canada’s supply-managed farmers (eggs, poultry, milk) who, like protected farmers elsewhere, hold governments in their thrall.

This week, the World Trade Organization trade liberalization talks were suspended. They appear to have collapsed, although no one will quite use that word. The suspension came less than two weeks after the G8 leaders passed another one of their useless resolutions urging progress in trade talks.

The talks came a cropper over agricultural protection, especially in the developed countries that keep out products more cheaply grown in the developing world. Once again, the poorest lose, the richest win.

The worst offenders against reform were the perennial ones: Japan, Korea, the big producers in the European Union (notably France), the United States and Canada. Politicians in all these countries are scared stiff by their farm lobbies, in Canada’s case by the supply-management farmers concentrated in Ontario and Quebec.

As usual, Canada talked out of both sides of its mouth, further devaluing the country’s already minimal credibility in trade talks.

Backed by a pre-election, all-party Commons resolution defending supply management, the Conservatives (like the Liberals) instructed our negotiators to oppose reform, hoping to sustain the outrageous 200- to 300-per-cent tariffs that protect supply-managed products.

That same Commons resolution also called on our negotiators to open markets for Canadian agricultural exports, an example of complete political hypocrisy equally shared by all parties.

Canadian grain and oilseed farmers get clobbered by subsidies in larger countries. These are so large in Europe and the United States, courtesy of the notorious Farm Bill, that Canadian farmers struggle to compete.

Successive Canadian governments are therefore forced to design new programs and inject emergency funds into supporting these farmers.

These are the farmers who would most benefit from the phasing out of subsidies along the Australian and New Zealand lines.

Their supply-managed cousins, by contrast, are protected by import controls and huge tariffs. These artificial constraints on trade have had utterly predictable effects, in addition to increasing costs for consumers: sky-high costs for production quotas and an inflated value for land.

Remove the constraints, argue supply-management defenders, and poverty will stalk rural Canada, lives will be ruined, rapacious multinational corporations will take over, Canada will lose its assured supply of food, and health risks will arise for consumers.

Every one of these oft-repeated assertions is demonstrably false in theory, and, in the Australian case, in practice. But in agricultural politics — in Canada and at the WTO — rationality long ago yielded to political fear, lobbying muscle and inertia.