Federal Agriculture Minister Marie-Claude Bibeau must consider the changing agricultural landscape when her ministry reviews business risk management programs, as she promised to do during the election campaign.
The agricultural world order is moving from a market-oriented, supply and demand function in search of an equilibrium to a politically directed landscape that is teeming with subsidies and policies aimed at protecting domestic markets and extracting political retribution.
So the massive agricultural subsidies in the European Union, and to a lesser degree in the United States, means Canadian producers face a playing field that is permanently tilted.
A recent New York Times expose of the European Union’s agricultural support program and the corruption it foments is a devastating indictment of EU policies. Agricultural supports, which comprise about 40 percent of the EU’s budget, provide payouts of about $65 billion per year.
The Times story shows that supports are so lucrative in the EU that officials in some countries — particularly in central and eastern Europe where governments owned large tracts of land — use access to farmland as payoffs to supporters. In some cases, owning farmland pays more in subsidies than actually farming it.
In the U.S., where farm subsidies are expected to top US$22 billion this year, nearly one-third of projected U.S. net farm income in 2019 will come from government aid and taxpayer-subsidized insurance payments, Reuters reports.
The U.S. Department of Agriculture says that without those payments, U.S. net farm income this year would have dropped by nearly eight percent.
The level of Canada’s farm subsidies are debated, since the Organization of Economic Development considers the supply management system subsidized through consumer spending. The Canadian Agricultural Partnership, negotiated in 2018, is shared in a 60-40 split between the federal government and the provinces. The program will cost about $3 billion over five years, though there are also many other government subsidies.
Still, the OECD estimates that government support of agriculture in Canada represents about of 8.3 percent of gross farm receipts. The EU subsidizes as much as 19.22 percent of gross farm receipts and U.S. subsidies equal about 12.2 percent.
When it comes to support of farmers, Canada is out of touch with the big players.
Canada needs to embrace the new reality when it comes to structuring its business risk management programs.
Producers are not asking for handouts. They seek the opportunity to buy into programs as insurance to help mitigate the risk of operating in an increasingly unstable world market that is no longer simply about supply and demand, but one that is skewed by geo-politics.
There is a solid argument for encouraging agricultural sector supports, not the least of which is that farmers could sell their land, cash in, and make more money investing elsewhere without buying and maintaining expensive equipment. Business risk management programs help ensure there is an affordable and stable food supply in the face of unpredictable crop markets and increasingly unstable weather patterns.
Tinkering with those programs is not enough, especially if the federal government wants to encourage farmers to take more risks by investing in land and equipment necessary to meet the objectives of $140 billion in domestic sales by 2025, up from $110 billion in 2017, and $85 billion in exports by 2025, up from $64.6 billion in 2017.
As a major exporter of agri-foods, Canada must not let support of the agricultural industry lag while major competitors become more aggressive.