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Protectionism, a trade war and U.S. farm subsidies

Is the stage being set for an economic downturn in agriculture?

Farmers who experienced economic hardships in the 1980s are concerned history may be poised to repeat itself.

Rising protectionism and an expanding trade war have some Manitoba farmers worried about a repeat of the 1980s farm crisis.

Neil Galbraith. photo: Allan Dawson

“I don’t want to be a pessimist like my son says I am, but what is the next thing that causes the ’80s all over again? A worldwide trade war could be the black swan event ” Minnedosa farmer Neil Galbraith told the Keystone Agricultural Producers (KAP) advisory council meeting here Aug. 9.

“We won’t be worried about land prices so much anymore because we won’t be able to afford it as it goes back down (in value). I don’t know if it’s going to happen or not, but I think it’s something we need to keep on the agenda with our government friends.”

KAP president Bill Campbell agreed.

Bill Campbell. photo: Allan Dawson

“My comment to your son is that you’re a realist, not a pessimist because this is happening and this is real‚” Campbell said.

“How are we going to compete with a (United States) government that says it’s going to look after its primary producers and offer them $12 billion?” he said in reference to the compensation package recently announced to make up for lost exports due to the Trump administration’s import tariffs.

The federal and provincial governments say AgriStability is meant to mitigate cuts in farm income, but Campbell said KAP and the Canadian Federation of Agriculture have told governments for years the program doesn’t work for most farmers.

The situation isn’t dire yet, but that could change, Galbraith said.

China is not going to give in to Trump (on trade) I don’t think,” he said. “As long as Trump is around things are very unpredictable and very unknown.”

Meanwhile, the newest generation of farmers have little or no knowledge of the economic hardships wrought in the 1980s.

“They just think land (values) go up and up and up and life is good and everything will be dandy, right?” Campbell said in an interview.

“What’s concerning is certain scenarios are lining up to be similar to where producers will be placed in similar situations as the mid-’80s. I’ve always looked forward and forgotten about history, but I do remember 22 per cent interest rates. I do remember barley at 47 cents a bushel. I also still have a grain ticket from Paterson elevator for three cents. I got three cents by the time they took the cash advance off.”

A combination of factors drove farmers’ market-based net incomes down during the 1980s, not just in Canada but in the U.S. and Europe too.

A sudden increase in grain demand in the 1970s, driven mainly by the Soviet Union, saw higher grain prices.

Many farmers expanded, pushing equipment and land prices up. By the 1980s, inflation was on the rise, Canada’s economy went into recession and interest rates on borrowings peaked at just over 21 per cent.

Surplus world grain supplies resulted in lower prices triggering a subsidy war between the U.S. and European Union as they tried to reduce stocks. Canadian farmers received subsidies too, but they were lower than their competitors.

Average Canadian net farm income during the 1980s, not including government subsidies, declined, to $6,378, versus $21,250 in the 1970s, according to a National Farmers Union report released in 2005.

Some farmers decided to sell while they still had some equity, while others were forced to sell by their lenders. That triggered a downward spiral. As more land hit the market, land prices fell even more, further reducing farmers’ net worth, pushing even more farmers off the land.

“You can damn near give it (land) to me (but) if I can’t cash flow it I can’t afford it,” Campbell said. “If you can’t make money on your asset why do you need more asset?”

KAP, like many other farm groups, contends cuts to AgriStability in 2012 turned into a disaster relief scheme from an income stabilization program.

The changes included increasing the payout trigger to a 30 per cent drop in a farmer’s reference margin from 15 per cent and basing payouts on 70 per cent of whichever is lesser, the reference margin or eligible expenses. Farmer participation in AgriStability has fallen since 2012.

AgriStability seems to work for some farmers, such as those who buy pigs to feed and also buy the feed, “whereas guys with cows who raise their own hay and have low margins never qualify,” Campbell said.

KAP hoped AgriStability would be improved under the $3-billion Canadian Agricultural Partnership (CAP) that replaced the Growing Forward 2 suite of federal-provincial farm programs April 1.

When it didn’t happen, farm groups convinced Canadian agriculture ministers at their annual meeting last year to review farm safety nets. When ministers met this July they disbanded the review committee, turning over the work to their departments,

“I was disappointed,” Campbell said.

“Essentially it boils down to what do you want agriculture to be?

“Agriculture has the potential to grow and help contribute to Canada’s GDP, but not if you don’t offer some risk protection.”

Farming will continue without adequate protection against production and price risk, but it won’t flourish, he said.

“If you don’t have risk protection, how can you get young people involved? You are going to hurt one of the only industries that helps with the carbon footprint,” Campbell said.

“I guess you can buy your food from wherever you want to. Safeway will always bring it in, but if you want to buy Canadian with our regulations, our food safety, our food security — all of those programs — will we be able to do that? That’s the question citizens are going to have to ask.”

About the author


Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.



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