Editor’s Take: The new normal of subsidies

Many would say Canada’s suite of agricultural business risk management programs is falling short of blunting the whipsaw of the markets. Now, it faces being further overwhelmed by non-market forces.

That was the gist of a recent policy note issued by the Agri-Food Economic Systems think tank, authored by respected agricultural economists Al Mussell and Douglas Hedley.

Farmer critics have long targeted these programs in general, and AgriStability in particular, for falling short of expectations.

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They say AgriStability is neither predictable nor bankable, and its effectiveness has worsened due to the lowering of the program trigger from 85 per cent of ‘reference margin’ to 70 per cent.

Producers have also criticized the complexity of enrolling in the program, and its inadequate coverage for losses.

There is clear evidence of this in the falling enrolment numbers as farmers vote with their feet.

But the real Achilles heel of a program designed like this one is the way it’s intended to replace market income. This concept is ineffectual when prices are chronically low.

The older farmers in the audience will remember this all too well from the 1980s and 90s, when a prolonged subsidy war between the U.S. and EU left far-flung collateral damage in the farm economies of less well-heeled nations.

The report authors now fret that Canada is stuck with the program — and mindset — of yesterday, as other major agricultural producers forge on into a post-globalization world in deed, if not in word.

As Hedley and Mussell put it “… important changes to the context for BRM programming have occurred.”

The U.S. was already dramatically outspending Canada under its latest Farm Bill. But now it’s thrown repeated ad hoc programs at the sector as well, under the guise of offsetting the effects of a trade war and the coronavirus. It’s added up to tens of billions of greenbacks in the pockets of U.S. farmers.

That might be good news for them, but here north of 49, it could prove disastrous for our farmers.

The authors sound what amounts to a claxon alarm in the ordinarily sedate world of agricultural economics, noting “… the distortionary market effects of this additional U.S. support will logically undermine the basis and effectiveness of AgriStability.”

There’s also the very real possibility other jurisdictions will follow suit, using the U.S. action as cover for their own limits-evading farm support.

And it would be a mistake to consider what’s happening just a temporary blip.

The policy note says putting these sorts of programs into place is the easy part. The hard part is ripping the bandage off from a sector that’s grown used to them and “…must now be loathe for them to disappear.”

For a U.S. politician, for example, it would be political suicide, given the power of their farm state senators within their political system.

For a Canadian farmer, left more fully exposed to the reality of supply and demand, that’s troubling and could set up a dynamic with long-lasting negative repercussions.

It’s said that in a free market, nothing corrects low prices like low prices. They signal it’s time to adjust supply and make business decisions that will inevitably shrink the supply side of the equation, and then eventually spur higher prices.

But when farm incomes are protected from this harsh reality, there’s no need for farmers to adjust their production. As Hedley and Mussell put it, “…farm program payments blunt this effect and derail the need for adjustment.”

This is compounded by the collapse of the globalization consensus and an increasingly nationalist bent in many nations. This trend has seriously undermined international bodies such as the World Trade Organization, where Canada and other nations stuck in the midst of this emerging reality might have sought to “…enforce disciplines on domestic support.”

The authors make the case, albeit in measured academic language, that discussion surrounding reforming the existing BRM programs could well amount to rearranging deck chairs on the Titanic even as an iceberg rips a hole in the hull, noting “… that proposed reforms undershoot the mark.”

The real problem seems to be that the current BRM design is mired in a relatively predictable past, where Canada could rely on “reliable policies and behaviour” from its trading partners and competitors.

That’s clearly no longer the case, and just how long that remains so is anyone’s guess. The globalization era lasted decades. The post-globalization world that’s currently emerging could well last that long too.

For Canada’s agriculture sector to survive and thrive in this new landscape, policy needs to reflect this new reality.

There’s no point in planning for yesterday today.

About the author

Editor

Gord Gilmour

Gord Gilmour is Editor of the Manitoba Co-operator.

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