As StatsCan noted in a 2019 report, agriculture and food contributed $49 billion to the nation’s GDP in 2015, or 2.6 per cent of total GDP. That’s been a target of growth too, as various projection and government plans have called for growing exports by further billions of dollars.

But for a country with a relatively small population, having an industry of that size that’s so prone to cyclical economic ups and downs can be a double-edged sword.

The needs of that industry can be hard to balance against other demands on the public purse when trouble hits — or so the old argument goes.

It can cause more than a little subsidy envy on the part of Canadian producers, particularly when they’re looking right across the fence at one of the richest subsidy regimes in the world.

While Canadian farmers have been offered changes to the cash advance programs and good loan terms, little in the way of new direct cash has been on offer. There would seem to even be little urgency to amending the suite of business risk management programs, namely AgriStability, that have long been described as inadequate, unresponsive and unreliable.

By contrast our Allan Dawson reports in our May 7 issue, U.S. producers have enjoyed a relative tsunami of support. They’ve already budgeted US$23.5 billion in ad hoc farm subsidies, part of a US$2-trillion coronavirus relief and recovery package. By contrast the Canadian Federation of Agriculture has so far been greeted with the metaphorical sound of crickets chirping in its request for a $2.3-billion ad hoc aid package on this side of the border.

There’s little doubt the federal government, facing a possible quarter-trillion-dollar budget shortfall, isn’t looking for new and inventive ways to spend more money.

But even without those budgetary constraints there’s been long-standing bipartisan reluctance to spend like the Americans, and even Canadian farmers have quietly agreed that Canada can’t compete with those sorts of deep pockets.

The numbers do seem to back that up. Canadian federal spending in the most recently completed fiscal year was roughly $322 billion, compared to the annual U.S. federal budget of $3.8 trillion. However, agriculture and food is actually an even bigger proportion of that exponentially larger and more diversified economy, coming in at about 5.4 per cent of U.S. GDP in 2017, at US$1.053 trillion.

It would seem that Canada might have enough fiscal capacity to at least meet the Canadian Federation of Agriculture’s requested level. Using the handy factor of “multiply it by nine” that is typically used to gauge Canadian efforts against the U.S., its request would translate into $23.4 billion — before conversion to U.S. funds.

What’s clearly lacking is the political will to do so, something that’s present in the U.S. system in spades. As Dawson reports, U.S. senators from farm states ensure rural areas — and agriculture by extension — are taken seriously. Some would argue too seriously, as serious urban issues are overlooked in favour of pumping U.S. federal dollars into flyover states.

By contrast Canadian agriculture in general, and Prairie agriculture in particular, struggles to have its voice heard. While politicians are always willing to provide a handy sound bite about ‘standing with our producers,’ the dollars never seem to materialize.

In large part that’s because agriculture in Canada is among the handful of ‘shared jurisdictions’ — places where both the federal government and the provinces have an iron in the fire. Unfortunately having two governments minding the store can at times be the worst of both worlds.

In crude fiscal terms it sets up a dynamic where not one, but two, governments have to agree to come to the table for most programming to work. It also sets up a dynamic where a clever politician, or politicians, can pass and repass the buck back and forth until one grows dizzy.

It also makes the numbers much harder to make work, and it’s at the provincial level where the true fiscal constraints begin to appear. In Manitoba, for example, agriculture and food processing make up close to five per cent of the province’s annual GDP, or nearly double the federal rate, according to the province’s own agricultural statistics.

That means federal governments looking to save a few bucks are frequently met with provinces with empty pockets, and nobody pushes terribly hard for an expansion of safety nets for Canadian farmers.

For Canadian farmers it’s a very frustrating and intractable situation with few obvious solutions. Addressing it may require that one jurisdiction or the other assume full responsibility for this portfolio.

If agriculture is a Canadian keystone, it deserves someone’s undivided attention.

The post Editorial: Agriculture slips through the safety net appeared first on Manitoba Co-operator.

American farmers will receive billions of dollars of subsidies through direct payments.

But the American government will also buy American agricultural products to bolster domestic food supplies, Agriculture Secretary Sonny Perdue has said.

According to some published reports, COVID-19 subsidies coupled with regular subsidies could make up 40 per cent of American farmers’ income in 2020.

Meanwhile, American farmers received $23 billion in subsidies in 2018 and 2019 to offset lower prices due to the U.S.-China trade war.

The COVID-19 subsidies coming this year will bring total ad hoc assistance to American farmers to $50 billion, or an average of $16.7 billion a year.

The administration’s largesse for its farmers hasn’t gone unnoticed in Canada.

Canadian farm leaders say the Canadian government should have compensated farmers for lower canola prices after China dramatically reduced Canadian imports starting in March 2019 following Canada’s decision to arrest Meng Wanzhou, vice-president of Chinese technology firm Huawei, at the United States’ request. The University of Missouri’s Food and Agricultural Policy Research Institute is predicting American farm income could fall 19 per cent in 2020.

Earlier this month the United States Department of Agriculture (USDA) predicted lower prices for livestock and most crops, except wheat and rice.

USDA lowered its forecast for corn by 20 cents a bushel, soybeans by five cents, cotton by one cent per pound, cattle by $3.50 per 100 pounds, pork by $8 per 100 pounds, broilers by nine cents a pound, and milk by $3.90 per 100 pounds, Ag Insider reported.

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They like to slot things into neat boxes and sketch out a few likely scenarios, and design the programs around them and call it a day.

But like so many of the best-laid plans, these fail to, as a military historian might say, survive their first brush with the enemy.

Those farmers who endured the prolonged international farm subsidy war between the U.S. and Europe in the 1980s, for example, complained bitterly that many of the programs of the time didn’t anticipate years of depressed prices.

These days there are similar complaints, albeit for different reasons. AgriStability, as the latest iteration is known, was once thought to work well.

Payments are triggered under AgriStability using a reference margin ‘Olympic formula’ that takes the last five years, looks at income and expenses, and throws out the top and bottom, leaving the ‘average’ three. Then if a farmer’s income falls below a predetermined percentage of that level, a payment can be triggered.

In the early years the program was reasonably well received and many farmers participated. Reference margins were set at 85 per cent, using the three-of-five-year formula.

However, after a period of historically high prices, governments realized they were exposed to excessive payouts if prices started to drop — even though returns remained high enough that most farmers were getting along quite nicely. Always concerned about moral hazard, they lowered the reference margins to 70 per cent.

Many farmers say that’s made the program essentially useless to them, and they’ve voted with their feet and wallets. A few years ago, Allan Dawson reported in the Co-operator that of KAP delegates surveyed in 2015 who said they had been in the program “in the last five years,” only 75 per cent were still in the program, translating into 20 per cent of those farmers dropping out.

“They and their accountants just deemed there was no chance that they would ever receive a payment,” then KAP general manager James Battershill said at the time.

The trend hasn’t reversed and if anecdotal discussions with the province’s farmers carry any weight, it’s probably accelerated. In 2018 just 6,099 enrolment notices were sent in Manitoba, according to figures from Agriculture and Agri-Food Canada. Those same figures show just 2,484 completed applications were received.

Another clunker of a support appears to be AgriRecovery.

The stated aim is to help producers recover from disasters they couldn’t predict or plan around, such as disease outbreaks, droughts or floods and other so-called ‘black swan’ events.

But the fact it’s a ‘framework,’ not a ‘program,’ appears to be its Achilles heel. A program, like it or not, is at least funded and has clear-cut criteria to trigger it, arguments over whether those triggers are suitable aside.

A framework, on the other hand, has no budget and can quickly become a political football as governments seek to tighten belts and balance budgets. Nobody likes an unplanned expense, whether it’s a blown transmission in the family car or a wreck in Manitoba’s ranch country.

That’s why we’ve had the spectacle of Manitoba ranchers, and their local governments, calling for disaster relief while they were stuck in the middle of dual provincial and federal elections — and the governance blackout they cause. And even after the elections are over, there appears to be little interest in the programs from elected leaders. They’ve been hemming and hawing, suggesting there must be a better alternative out there.

There is a crying need to rethink these programs in a serious way. Nobody wants to set up a dynamic where unscrupulous individuals will decide to ‘farm the programs,’ a risk that’s always presented as a caution about too-rich supports. But likewise, there needs to be baseline utility to them to justify farmers taking the time and expense to enrol.

Other programs continue to enjoy farmer support. AgriInsurance and AgriInvest participation rates are solid, even though both programs require farmers to invest considerable dollars. That’s because those programs are predictable and bankable. They work for farmers, so farmers keep them.

The AgGrowth Coalition, a partnership of farm groups, has been calling for changes including, perhaps most crucially, developing business risk management programs that are “… meaningful and focused on program effectiveness rather than funding levels.”

If the country wants agriculture and food to be a driver of economic growth, the various levels of government need to be prepared to ride out the ups and downs of a cyclical business alongside farmers.

The post Editor’s Take: Farmers need better financial supports appeared first on Manitoba Co-operator.

A free market idealist who favours letting the invisible hand sort it all out might think less support to producers is a good thing. But a grain farmer competing against better-supported producers in other jurisdictions might find it tough to remain a true believer.

No matter how you approach it, the numbers are stark, as contributor Alex Binkley reports from Ottawa in this issue. He details a recent OECD report on producer supports that confirms Canada remains a global Boy Scout when it comes to agriculture subsidies.

From 2016 to 2018, the last period full numbers are available, Canada saw “producer subsidy equivalents” average nine per cent of gross farm receipts, down from 18 per cent in 2000 to 2002 and 36 per cent in 1986 to 1988.

The report went on to note that “Canada’s PSE has been consistently below the OECD average over the period.”

Despite these numbers the organization couldn’t help but chide Canada for its supply-managed agriculture commodities, noting the decline “would be even greater” were it not for this indirect producer support.

It shouldn’t be surprising that the OECD takes this approach, as promoting and extending the long-running market consensus is its reason for being since its inception. But it and other free market advocates are becoming a bit harder to take seriously as the winds shift.

Much like the market consensus swept away the postwar liberal consensus in the 1980s, the new paradigm itself is starting to look a bit shop worn after close to 40 years at the centre of virtually every significant international policy consideration. It also now finds itself increasingly under siege internationally.

In the United Kingdom, the entire postwar project of uniting Europe has been repudiated with the Brexit vote. On the other side of the Atlantic Trump’s election has cast doubt on the willingness of the former champion of market liberalism to take things further. As a new player, China, who signed on to the WTO to access western markets while furiously foot-dragging on its own reforms, casts even further doubt.

Against this backdrop, one must wonder exactly how long it’s going to take our domestic policy-makers to cotton on to the fact things have changed, and they’ll need to govern themselves accordingly.

The prevailing wisdom is that Canada, as a trading nation, must rely on a rules-based system to iron out disputes, which would allow our prowess as a producer to shine. More colloquially, we were hoping to become the global agriculture Wayne Gretzky, skating rings around our opposition and putting the puck into the back of the net while they were flat footed.

But that only works for a relative lightweight like Gretzky (and Canada) when you’ve got a Marty McSorley waiting in the wings to flatten Doug Gilmour at the blue line then take on Wendell Clark when he skates to the rescue.

Today’s trading environment, led by Donald Trump, is more like professional wrestling than hockey. Somehow the referee is always distracted and the folding chairs and brass knuckles have, metaphorically, come out.

Canada must grasp this reality if it is to fight the coming fight. We won’t likely hit any export growth targets unless our government, regardless the party leading it, is willing to understand this and formulate policy for it.

That policy isn’t likely to be a blank cheque, but it should include real support for producers when necessary, and it shouldn’t involve agriculture groups trekking to Ottawa, hat in hand, seeking ad hoc payments.

The Grain Farmers of Ontario has, for example, advocated for a smarter policy that includes a “trade war chest” that would see farmers through market volatility.

That would be an excellent start, but it should only be the start. What’s needed is a complete reconsideration of the paradigm behind our current agriculture policy.

Do we in fact remain on a ‘team of rivals’ that’s at least working toward a shared goal of greater trade? Or has the world quietly slipped back into a ‘beggar thy neighbour’ model where only the domestic effects enter the minds of those making the decisions? It may be this is just a passing phase and in fact things will eventually revert to the old normal. But it could also be the start of the new normal and if that’s so, the faster we’re ready for that, the better.

Otherwise we may find ourselves laid out on the ice, wondering if anyone caught the number of that truck.

The post Editor’s Take: Canada at a crossroads appeared first on Manitoba Co-operator.

Surely 2019 is destined to join that company. Worse than that, it looks like 2019 will be a perfect storm of adversity for U.S. corn and soybean producers.

To start with, there are tens of thousands, if not millions, of acres that will not get planted to corn this year. While soybeans are the usual followup when it’s too late for corn, the soybean price is not encouraging, and more soybeans will not help the price.

Depending on the type and level of coverage selected, crop insurance may do little more than cover some of the input costs. It certainly will not provide the level of protection it did in response to the 2012 drought, but it’s better than waiting for the U.S. Congress to pass an ad hoc disaster relief package.

With late planting and soggy ground, several problems arise. The crop may be slow to emerge, and development may be delayed. The damp environment may give rise to the spread of plant diseases. And with late planting, growing degree days become a major factor for corn that is already in the ground.

In contrast to production problems in the U.S., reports coming out of South America indicate that the safrinha corn crop may be at near-record levels. In addition, a record or near-record Eastern European wheat crop could put additional pressure on feed grain prices including corn.

This year we are seeing the potential effect of the spread of African swine fever (ASF) in the Chinese hog herd on soybean and other oilseed imports. If the reported level of the slaughter of hogs to control the spread of the disease is as large as might be expected, the need for imported soybeans could be reduced for an extended period of time.

Most of the issues we have discussed so far are ones that are familiar to farmers. What is different is the trade environment. The last time U.S. farmers had to deal with a situation like the U.S.-China trade dispute was 1980 when the Carter administration placed an embargo on grain shipments to Russia in response to its invasion of Afghanistan. Even if the dispute were to be resolved in the next month, it would be months and more likely years — if ever — before U.S. soybean markets would return to the relative level they were before the Trump administration levied tariffs on Chinese imports. It takes years to develop export markets, but it only takes one mistake to undo all that work.

Farmers could take most of this adversity in stride, if the U.S. agricultural economy had not taken a severe hit over the last five years. For the 2011-13 period, U.S. net farm income averaged US$111 billion. In the five years since then, net farm income has seen a steep decline to the US$63 billion forecast for 2018. That leaves farmers with little remaining financial resilience to weather the consequences of crop production problems this year. And, the current U.S. Farm Bill with its weak commodity programs has little to offer farmers who are facing grim circumstances this year.

It didn’t have to be this way. Farm programs could have been designed in 2014 and 2018 in a way that would leave farmers in a position where they could make their way through a year like 2019. If we had adopted a supply management program that set the non-recourse loan rate at 95 per cent of the previous five years’ olympic average of the cost of production, farmers would have the wherewithal that they need to get through a year like this.

Harwood D. Schaffer is adjunct research assistant professor, University of Tennessee and director, Agricultural Policy Analysis Center. Daryll E. Ray is emeritus professor, Institute of Agriculture, University of Tennessee and retired director, Agricultural Policy Analysis Center.

The post Comment: Looks like 2019 is one of THOSE years appeared first on Manitoba Co-operator.

Meanwhile, crop prices are down after a decade of relatively good returns spurring global production to exceed demand, exacerbated now by African swine fever decimating China’s hog herd.

Making it worse, after 25 years of increasing trade liberalism, protectionism is on the rise — exemplified by the expanding United States-China trade war and linked to China’s de facto boycott of Canadian canola seed, and all but dried up soybean purchases.

As a result, MarketsFarms is forecasting a 100 per cent increase in Canadian canola ending stocks when the current crop year ends July 31.

Because of the trade war the U.S. is subsidizing its crop producers, further distorting world markets and undercutting Canadian farmers’ competitiveness.

It raises the spectre of the mid-1980s when surplus world grain stocks and the U.S.-European Union grain subsidy war depressed world grain prices for a decade. That, and other factors, including high interest rates, forced many western Canadian crop producers to quit. Land values started to fall, cutting farmers’ net worth, triggering a downward spiral pushing thousands off the land.

“I am not looking at things optimistically today — maybe it’s just the day — but I do see those who are raising the ’80s and early ’90s as examples and there are a lot of indicators that we’re sort of on the edge of going in that direction,” Cereals Canada president Cam Dahl said in an interview May 16.

“Again if you look back to the ’80s it wasn’t a good time for farmers. Someone asked me the other day if farmers should be concerned, and yes, farmers should be concerned.”

Ironically, last year the value of Canada’s agri-food exports hit a new record at $59.3 billion.

There could be a silver lining though — short-term pain for long-term gain, — says Mike Gifford, former chief agricultural trade negotiator for Canada.

“The Americans have deliberately created a (trade) crisis (as they did with the EU in the mid-1980s grain subsidy war) in order to force change in China and to also force change in the WTO (World Trade Organization),” Gifford said in an interview May 7.

“If there’s a failure in the Chinese-U.S. negotiation then you could be in for a real rocky ride with retaliation and counter-retaliation. If the China-U.S. deal was primarily preferential… then you could be concerned that this would have the effect of unravelling the multilateral trading system… ”

There’s a sense of deja vu, says University of Saskatchewan agricultural economist Richard Gray. The U.S.-China trade dispute isn’t helping, but the real problem is supply exceeding demand, he said in an interview May 15.

“If one set of countries puts a set of tariffs on the other it’s not a big deal, but if there’s too much grain in the world the whole price regime comes down and that’s where we’re at,” Gray said. “That’s where we were in the ’80s and early ’90s as well.”

A whole new generation of farmers hasn’t experienced tough times, especially those farming since 2006 when world grain prices began to take off, mainly because billions of bushels of primarily American corn was being made into ethanol, University of Manitoba agricultural economist Derek Brewin said in an interview May 16.

“The only thing they saw was the positive,” he said.

Normally the cure for low prices, is low prices. Farmers produce less, or sell more and as supply and demand become more balanced prices rise. But the U.S.-China trade dispute and other non-tariff trade barriers, muddy the waters, distorting market signals adding uncertainty and risk.

“It’s the trade dispute that’s causing new risk (to farmers),” Brewin said.

“It makes things significantly worse.”

Last year U.S. President Donald Trump created a $12-billion commodity-specific subsidy program to compensate American farmers for lower prices due to import tariffs China placed on American crops in retaliation for tariffs Trump put on imports of Chinese goods. Of the estimated $9.6 billion (all figures U.S. dollars) paid out, an estimated $7.7 billion, or $1.65 a bushel, went to American soybean farmers.

That makes it harder for Canadian soybean growers to compete.

Trump says the program will run again this year.

“If it’s $1.65 for every bushel they produce then they are not going to reduce their production,” Gray said. “I think it really matters for their production levels. Once this stuff is produced and sitting on the market it’s going to continue to have an impact on price regardless whether it’s the export market or domestic market.”

Even more concerning is Trump’s musing that the U.S. government will buy surplus American grain production and donate it as food aid — something that’s illegal under World Trade Organization (WTO) rules.

Such action is not only tantamount to an export subsidy — also illegal because of how it distorts world prices — but it can destroy local markets making countries even more food insecure by driving subsistence farmers out of business.

Despite the dire outlook, Dahl says Canadian farmers have some advantages.

“If you look right now at the financial stability of grain farmers here and in the U.S. we’re actually in a lot better shape,” he said. “Part of that, of course, is the exchange rate (lower Canadian dollar). But another part of it is our diversity of cropping options. Canadian farmers have been getting market signals and we have a much more diversified crop base and that’a very good thing.”

Arguably it’s a holdover from the 1980s when western Canadian farmers were desperate to find alternative crops, less affected by the subsidy war.

Making matters worse, the United States Department of Agriculture expects global wheat production in 2019 to hit a record of 777 million tonnes.

Most of that wheat will be “middle protein,” Dahl said.

“That distinction is important because we have something a little bit different in CWRS (Canada Western Red Spring wheat) and we’re going on to the world market with a major class that is differentiated from a lot of that,” he said. “Again, that’s a big advantage.”

The fog of (trade) wars

Not all agriculture subsidies are created equal — some can be downright deadly

As a new subsidy war looms, keep in mind agriculture subsidies have always been part of the economic picture for the sector.

They become problematic when governments stop using them for policy goals, like smoothing out the highs and lows of the market, and instead use them as political tools.

In the 1980s and 1990s, the U.S. and European Union were locked in a bitter fight to clear a global grain backlog that saw both subsidize exports, placing Canadian farmers squarely in the middle.

In the end the battle contributed to the transformation of GATT (the General Agreement on Trades and Tariffs) into the World Trade Organization, and the curtailment, if not elimination, of export subsidies.

However, subsidies that didn’t encourage overproduction for the export market still remained.

The post Is it the end of the ag trade world as we know it? appeared first on Manitoba Co-operator.

In 2001 the United States spent $10 billion in market loans to offset low prices for U.S. wheat, corn and soybeans, Glauber, USDA’s former chief economist and now senior research fellow at the International Food Policy Research Institute in Washington, D.C. said at Fields on Wheels in Winnipeg Oct. 21.

“I think it caused a real conundrum,” Glauber said.

Canada has been accused of hypocrisy too, for promoting market access except for supply-managed products chicken, turkey and dairy.

• Read more: Support for free trade ain’t what it used to be

Although trade liberalization is meeting resistance, Glauber expects it will become more popular again putting more pressure on supply management.

“It is hard to maintain supply management control if you start giving concessions,” Glauber said. “The only way to maintain those things is to keep a really high tariff wall at the border that gets harder and harder and harder. That said, I thought the U.S. sugar program (which restricts sugar imports) would be reformed by the time NAFTA was fully implemented and they found a way to renegotiate that with a nice side agreement. We just have to think over the long run that those would get undermined by market access. To me, the real tragedy is they hold us hostage.”

The results are agreements such as the Trans-Pacific Partnership that carve out certain products.

Domestic politics influences trade deals, he added. Dairy production is also sensitive in the U.S.

“You’ve got cows everywhere. But our dairy industry certainly now realizes it can export.”

While past WTO agreements helped decouple domestic farm subsidies from farm production (considered the most distorting), they are on the rise in developing countries, Glauber said.

“India and China have big domestic support programs with pretty much blank cheques to create some fairly large domestic support programs,” he said. “I really think that they’ll have to be addressed at some time.”

If they aren’t, surplus grain stocks are the likely result. Then they’ll be dumped on world markets or sold with the help of export subsidies, Glauber said. Either way means lower world prices.

While China has cut its corn production subsidy, similar support still exists for wheat and rice, he said.

Farm subsidies are also increasing in crop insurance programs, Glauber said. China has the second-largest crop insurance program in the world and 80 per cent of premiums are subsidized, he said.

“These programs are growing exponentially around the world and most aren’t yet reported,” he said. “China does not report this to the WTO at all.

“This is a big program all of a sudden. There are a lot of people concerned about, at a certain level of subsidy, what the impact on production might be. And I think most of this is coming in under the radar. I think there is a lot of reason for the WTO to be dealing with domestic support.”

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I recently harvested my 64th wheat crop and produced more bushels this year than any other year. Many Kansas farmers have had the same experience. Because of record yields, most people will assume this is also a good financial year for wheat farmers. Unfortunately, the low price will not cover the cost of production for most farms.

During the hard times of the 1890s, the era of the Populist Party, a farmer wrote to his local newspaper to complain about the editor’s misconceptions about farming. He noted that when farmers have a good wheat crop the newspaper declares the farmers must be rich because the wheat made 25 bushels an acre. What the editor failed to point out was that the price had dropped to 25 cents a bushel. Another year when production was down and prices were up, the farmer noted, the editor declared the farmers must be rich because wheat is up to $1 a bushel (all figures in U.S. dollars).

But the editor failed to point out that the farmers had nothing to sell. Many farmers are feeling the same way today.

While the custom harvesters were cutting my 2,000 acres of wheat this year and the price at the local elevator was hovering around $3 a bushel, I checked to see how this compared to previous eras of low commodity prices (see chart below). After looking at prices during the era of the dust bowl and Great Depression, converting those figures to 2016 dollars (result of inflation), I was astonished to discover the value of wheat is lower today. Wheat in 1932 sold for a national average of 38 cents a bushel, but that would equal $6.67 in 2016 dollars.

During the New Deal when federal programs were inaugurated to help farmers survive, the U.S. Department of Agriculture came up with something called “parity” which was based on farm costs and income during the period 1910-14, a time when commodity prices covered the costs of production and a reasonable profit. The USDA computes parity for many products each year, and the parity price for wheat in 2016 is $18.30 per bushel. The latest estimate for national average price of the 2016 crop is $3.45. That is 19 per cent of parity.

The statistics that follow (all available online through USDA and other sources) show national average price for wheat in selected years, followed by inflation adjustment for value of that price in 2016 dollars. It is important to remember these are averages. Some farmers had crop failures and nothing to sell. Some farmers had good production and sold when prices were good and did very well.

Even so, the averages indicate the state of the farm economy.

Any time commodity prices fall below the cost of production, every consumer is being subsidized by farmers. It should be noted that federal farm subsidies were designed to provide cheap food; the major item in every Farm Bill is food stamps. The amount going to farmers is partial compensation for providing food for consumers at less than the cost of production.

At current prices, the farmer’s share received for the flour in a loaf of bread is five cents. If farmers received parity price today, the farmer’s share in that loaf of bread would be 26 cents. This means the farmer is contributing 21 cents to your loaf of bread. If you think this is fair, please do not complain about farmers with your mouth full.

Congress could fix this problem with a new Farm Bill, but today Congress is deadlocked and unable to do much of anything. Kansas does not have a representative on the House Agricultural Committee. Historically, the national economy has prospered when farmers have prospered. Although less than two per cent of the U.S. population is engaged in agriculture, how they fare economically affects everyone.

Before we can solve a problem, we need to understand it. I hope this summary of wheat prices helps you understand the problem. Remember, as President John F. Kennedy said, farmers are the only people who have no control over the price of inputs or the market value of their product.

The national average cost to produce an acre of wheat in 2016 is $315.78. The projected national average yield for 2016 is 50.5 bushels an acre. At $3.45 average price a bushel, national average income per acre is projected at $174.23 (that is 55 per cent of the cost of production).

We deserve better.

Leo Oliva is a historian and author who lives in Woodston, Kan.

The post Look back to understand how low wheat prices are appeared first on Manitoba Co-operator.

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.

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The U.S. Wheat Associates and the U.S. National Association of Wheat Growers (NAWG) pegged the annual cost to Canadian farmers at about 249,000 tonnes in lost sales and $251.9 million in lower prices.

Previously the groups commissioned a similar study which found subsidies offered to Chinese farmers lowered American wheat prices by $550 million a year, predicted to rise to $653 million for 2016.

That earlier study on Chinese subsidies sparked a lot of interest from Canadian farmers, Wheat Associates spokesman Dalton Henry said.

“(They were)… wondering if these developing country programs were having a similar impact on their exports and prices,” he said.

The group did the additional analysis and came up with the impact figures for Canadian, Australian and European farmers.

Alan Tracy, U.S. Wheat Associates’ president, said in a statement that of all the trade-distorting policies U.S. growers face, wheat subsidies in China and other developing countries have the most serious effect on farm gate prices and trade flow.

“The studies we have sponsored clearly show the problem is growing more serious at the worst time for farmers who are already facing unprofitable prices,” he said.

Cam Dahl, head of Cereals Canada, said Canadian farmers are unquestionably feeling financial pain from domestic subsidies developing countries offer their wheat growers.

“There is no doubt that production and trade-distorting domestic support in other countries is costing Canadian farmers,” Dahl said.

In large part that’s why the industry supported the failed Doha round of WTO negotiations, which aimed to move towards the elimination of domestic support programs, he said.

Canada has done its part through various agriculture policy eras including the Agriculture Policy Framework, Growing Forward and Growing Forward 2, he said.

“Canada has moved away from production-distorting and trade-distorting support programs,” he said.

Chinese subsidies

Gordon Stoner, president of NAWG, said international wheat prices have collapsed in recent years, and at least in part he blames countries that fail to play by the rules. He warned losses will accelerate if China doesn’t rein in subsidies to wheat growers as it has promised in the past.

He wants the Obama administration to challenge the Chinese subsidy through the World Trade Organization.

An Iowa State University study said that removing China’s domestic wheat support would have significant benefits for farmers in wheat-exporting countries. It would have to increase imports to more than 9.6 million tonnes per year, a volume that is about equal to the Chinese wheat tariff-rate quota.

“That would increase wheat exports and farm revenue in the United States, as well as in Europe, Canada and Australia,” the report stated.

A 2014 study by DTB Associates showed that China effectively pays its farmers a minimum procurement price of more than US$10 per bushel for wheat and subsidizes input costs. In wheat alone, China provides support of at least US$15.4 billion or 36 per cent of the value of production, which far exceeds the 8.5 per cent limit set when it joined the WTO. China also agreed to allow wheat imports at a one per cent tariff rate, up to a quota of 9.64 million tonnes. The out-of-quota tariff rate is 65 per cent. China rarely administers this tariff-rate quota as agreed and imports invariably fall far below the quota, even when its domestic prices are far above world market prices.

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