There was a time, not so long ago, when advanced economies were headed down a path where farm commodities were largely free from government subsidies or other supports.
Compared to 40 years ago, this is still the case. It was good for global agriculture and especially good for Canada.
However, farm subsidies have recently been returning and so have the market distortions that come with them.
Governments typically subsidize farm production to create balance in parts of their economies. It stabilizes producer incomes, ensuring rural regions don’t become depopulated or over-exploited environmentally during the inevitable busts that all too often interfere with the short, occasional booms in farming.
National food-security policies also play into these decisions, ensuring countries have constant capacity, even if they can’t always achieve it.
The move away from direct subsidies and toward free(r) trade was progressing well before the wave of nationalism that has swept the world’s major economies during the past five years.
For example, the United States has increased its direct farm payments to more than $32 billion in three years from an already generous $17 billion.
The payments do target various commodities in variable ways, but mostly are designed to put money in farmers’ pockets in a general response to a populist, nationalistic political movement that resulted in an international trade war started by the U.S.
The money farmers receive compensates them for their loss of trade access to China but, most importantly for that government, helps to stabilize the federal voting blocks from rural America. It has little to do with more noble causes, such as domestic food security, rural population stability or environmental protection.
Back in the poorer western nations, such as Canada and Australia, the result is that American farmers have sold their commodity crops and meat, such as pork, for less than the cost of production, making them available for export and competition around the world at steep discounts.
The European Union has also been pulling away from farm programs that control production, such as for dairy. The result has been that production has increased in Eastern Europe, where it is cheaper to operate. Rising production there has lowered global prices for the past three years.
Eventually, balance will be found as lower-cost regions find their advantages break down from regional wage and price inflation, victims of their own success, but it requires adjustments and, of course, subsidies to compensate for losses during the transitions.
Western Canada has long been a low-cost export production region, with the exception of the cost to transport our goods to tide-water.
The Organization for Economic Co-operation and Development in its annual analysis of agricultural public policy found that Canada’s level of support for its agriculture was about nine percent of gross farm receipts, compared to 12 for the U.S. and China and 19 for the EU. Australia came in at 1.9 percent and Brazil about one percent.
However, Canada’s number is artificially high because the OECD considers supply management to be a subsidy, which results in prices that are five percent higher than world prices.
The sooner developed nations stop using subsidies to buy votes, and instead focus on public policies that assure domestic sufficiency and reward production efficiency, including sustainability measures, the better off the entire world will be.
In the meantime, governments, including our own, will need to provide cash to level the global playing field.
Karen Briere, Bruce Dyck, Barb Glen and Mike Raine collaborate in the writing of Western Producer editorials.