Dissecting government support for producers

True or false: the billions of dollars in subsidies to American farmers are hurting Canadian farmers.

Most analysis adopts this premise as true while providing limited evidence.

Grain Farmers of Ontario, Producteurs de grains du Quebec and the Atlantic Grains Council have launched a joint campaign “to raise awareness with the public of the devastating consequences for all Canadians because many Canadian grain farmers literally will go out of business.”

In their joint news release, the organizations claim that grain and oilseed producers in Eastern Canada are unable to compete with the more than $32 billion in direct subsidies that United States President Donald Trump is providing to American farmers. These are subsidies over and above existing farm support programs.

After suggesting Canada may lose its ability to grow its own food, the release concludes by saying farmers need to be able to cover the cost of production or many of them will not be able to survive much longer.

Admittedly, adjustments to farm safety net programs in this country are long overdue, but with many grain prices rising, it’s a bit of a stretch to claim the situation is quite that dire. The grain sector is much healthier than many other sectors of the economy right now.

I know some of the farmers in each of the three organizations and I respect their knowledge and opinions, but I question their analysis of the situation. The same premise exists in the recent policy note called Business Risk Management Under Siege written by Al Mussell and Douglas Hedley of Agri-Food Economic Systems out of Guelph.

Mussell and Hedley argue that the distortionary market effects of the additional U.S. support “will logically undermine the basis and effectiveness of AgriStability, quite apart from the current dialogue on payment triggers and coverage levels.” They believe these ad hoc U.S. support payments are likely to continue no matter who is chosen as president in the upcoming election.

But do the big subsidies to U.S. farmers actually hurt Canadian producers? They certainly do if they encourage overproduction that drives down world prices, but the programs aren’t production-based price supports. How many bushels per acre of corn or soybeans an American farmer produces in 2020 or 2021 has little effect on the subsidy cheque received.

Billions in subsidies will certainly spur the purchase of new equipment and contribute to high land prices, but do they encourage the use of more crop inputs? Do they result in significantly more production when the subsidy isn’t based on how many bushels you grow?

Where’s the evidence that America is producing more grain because of the recent subsidies? Where’s the evidence that Canadian farmers are being harmed?

Certainly the worldwide wave of protectionism and the ramping up of farm subsidies by competing nations is a worrisome trend and it’s also natural to be envious of other nations when their farmers receive a lot more government support.

However, it isn’t useful to overstate financial distress in an attempt to spur government action. For most farmers in Western Canada, 2020 is going to be a good year financially. The situation may be less buoyant in Eastern Canada, but their grain prices have also been improving.

Business risk management programs should be safety nets. They shouldn’t be a guarantee that you’ll be able to cover your costs of production every year. Relying too much on government largesse isn’t a recipe for success in any business.

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