Is it time for a fundamental rethink of Canada’s agriculture trade policy?
That simple question is, these days, tantamount to heresy in the agriculture sector, long preoccupied with trade issues. However, a new policy note from the independent research group Agri-Food Economic Systems in Guelph, Ontario, suggests it might be worth asking.
The research team, led by respected agriculture economist Al Mussell, dove into the data to get a better handle on what has actually been happening behind the rhetoric and headlines. What they found was, frankly, more sizzle than steak.
Take the issue of agriculture subsidy levels, for example. One of the stated goals of the WTO Agreement on Agriculture was the reduction of subsidy levels. After more than 20 years, about the best one could say is they haven’t grown. The researchers looked at the available data on “producer subsidy equivalents” (PSE) from member states of the Organization for Economic Co-operation and Development (OECD) for the period of 1986-2014, the last year complete data was available. They found that in 2014 PSE levels were roughly US$240 billion — essentially unchanged from 1986.
That’s not to say nothing changed. There was a fair bit of shifting around going on, especially out of the categories considered most trade distorting, such as subsidies directly related to production. It’s also worth noting that the figures aren’t inflation adjusted, so subsidies as a proportion of farm receipts did fall. But contrary to what everyone predicted at the time, there was no sizable reduction in the subsidies.
“Based on support estimates by the OECD, it is hard to argue that support for agriculture has really declined much since the WTO agreement in 1995,” noted Kamal Karunagoda, a co-author of the paper. “The structure of support has shifted away from agricultural subsidies regarded as most trade distorting, but countries have been very creative in designing new subsidy programs.”
The authors also noted current global agriculture trade policy remains rooted in the “three pillars” of the WTO Agreement on Agriculture: market access, domestic support, and export competition.
This was all based on studies from the 1980s and 1990s. In the meantime, there’s been considerable changes in global agriculture production and trade, which have created new issues. Some are entirely new, others were always there but have only become more visible as tariffs and export and production subsidies have been scaled back.
There are tax breaks and subsidies at the state, provincial or municipal level, for example. There’s lingering price suppression from the remaining direct and indirect subsidies. There are resources that are strategically underpriced, such as water or hydroelectricity. There are issues that are artfully ignored, such as environmental degradation or the costs of providing environmental services to the rest of society. There are also wildly differing labour standards and animal welfare standards, just to name a few. All are now, or are becoming, market access issues not covered by the existing model of global agricultural trade.
“Agricultural trade has evolved significantly since the 1990s — today we worry about natural capital, labour standards, and competing claims/measures related to sustainability in foods. These all impact agricultural trade, but were not contemplated in the trade policy framework,” said co-author Douglas Hedley.
A final, and perhaps even more concerning, issue is that the current framework largely ignores a lot of countries that weren’t an issue back when it was set, but certainly are now.
The OECD figures noted there are countries — many of them emerging agriculture powers — where subsidies have in fact been rising quickly. Between 1995 and 2014, Russian agriculture subsidies grew by 33 per cent annually. During the same period Brazil saw annual growth in subsidies of 26 per cent, Kazakhstan 25 per cent and China 22 per cent. That’s been less problematic in recent years because of higher prices for agricultural commodities, but that seems to be changing too, according to Mussell.
“In the immediate future, an escalation in global agricultural support can be anticipated, given lower farm prices,” Mussell said. “Without a better framework to assess domestic support, it will be increasingly difficult to address the skeptics.”
He ended by calling for a more meaningful structure that would better support Canadian interests.
We take pride in being a trading nation and have over the years taken great pains to ensure we’ve been compliant with our various trade obligations.
In light of these new facts, however, it probably is time to take a long, hard look at what our trade goals are, and how we can get from here to there.