Canadian farmers aren’t supposed to be the agricultural world’s losers.
But they could become that if Ottawa and the provinces don’t step up to give them the level playing field they need.
If other countries are going to back their farmers with money, inflicting damage to the global price structure for crops and meat, Canada needs to do likewise or end up being the marginal loser in this era of low prices, volatility and uncertainty.
A strong argument for this position has been issued by Al Mussell and Douglas Hedley of Agri-Food Economic Systems. They see U.S. subsidies and offshore protectionism pushing down the prices Canadian farmers receive, but keeping their own farmers alive. (See related story – Ottawa urged to act before agricultural safety net fails)
Supply and demand is still operating in the world’s grain and meat industries, but the different behaviour of various governments has a big impact on which producers will survive and which will be pushed out of business.
If it was all left to supply and demand, who would end up the losers — who would be pushed out? A couple of American agricultural economists I spoke with a couple of years ago had concluded it would be American farmers.
Their costs of production, partly based upon sky-high land prices and high debt levels, made their ability to compete with the South Americans and Black Sea exporters a challenging situation.
Add to that the impact of a suddenly higher American dollar and farmers in the United States were looking like they were heading for a fall. Some land would be taken out of production, these economists thought. Other farmers wouldn’t be as aggressive with investing in their farms, crops and animals. Altogether it suggested that the marginal losers of the low-price era would be in the U.S. and that’s where ag production would relatively decline.
Canadian producers would fare better, they thought, having some lower costs and a currency that suddenly gave them a big break on debt payments and other domestic expenses.
Those assumptions all made sense in a world governed by free-trading principles, a commitment across the globe to restrain direct production support for farmers, and a World Trade Organization system that worked.
A few years later those assumptions are dead. Protectionism is rising from the trade grave, production-encouraging subsidies are being embraced in the U.S. and elsewhere, and the WTO is broken.
That leaves Canadian farmers, with their relative lack of support from their governments, in a vulnerable position. They won’t be the only losers if they don’t get more support to match U.S. and other subsidies and market measures.
Farmers in South America and the Black Sea region will also face greater pressure on their ability to turn a profit and avoid losses. But for all their economic inefficiency, production subsidies can keep on-the-edge farmers surviving long enough to eventually get off the edge. Farmers without that support are more likely to plunge off it.
Faced with U.S. subsidies, various types of European Union protections to its market, and the various market access and geopolitical situations Canada faces around the globe, the federal government needs to decide how much it wants to preserve Canada’s place in the world market for agricultural goods.
— Team Trump (Text VOTE to 88022) (@TeamTrump) September 18, 2020
The government has proclaimed an aggressive goal of massively expanding Canada’s agrifood exports. That is imperilled by this situation.
Today there’s a chance to begin working on a new strategy to preserve Canada’s place and stop its producers from becoming part of the farming world’s losers.
Other countries are trying to rig the market. Protecting farmers from that could be costly, but letting farmers fail, and allowing Canada’s position in the world to slip, would cost the country much more.
It’s time to face the new reality: the world has changed and we can submit to the future or fight for it.