In Canada, canola and soybean production are likely to decline this year, driven down by the market signal of lower prices, according to Agriculture Canada analysts.
In the United States, by contrast, soybean production in crop year 2000-01 is projected to hit a record because of more acres and higher yielding crops. The increase is driven mainly by domestic policy and subsidy guarantees of better-than-market prices.
That increased U.S. production will dampen world oilseed prices and depress Canadian prices and production.
As Canadian farmers increase their pressure this winter for government support equivalent to American levels, it is a graphic illustration of the impact of high American subsidies.
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It comes courtesy of Agriculture Canada economists who late last year analyzed the effect of the U.S. farm bill on the soybean industry and competitor oilseeds such as canola.
The Canadian government economists concluded that changes made to U.S. farm policy in 1996, allegedly designed to wean American farmers off government supports and to make them market-dependent by 2002, actually undermined world oilseed prices while keeping American producers well protected.
The centrepiece of the U.S. legislation – production flexibility contracts – ended the requirement that land be set aside in order to qualify for government deficiency payments.
Loan program change
Changes in the loan program, which once set a world price, mean there no longer is a world floor price but American farmers still can guarantee a return that is higher than what is offered by the market by using the nonrecourse loan program (forfeiting unsold crop used as collateral for loans if the market price is less than the loan rate.)
“The marketing loan rate has provided artificial support for soybeans during a period of weak market prices, which would otherwise have discouraged soybean production,” said the Agriculture Canada analysis.
“High loan deficiency payments have insulated (American) producers from the impact of low market prices and encouraged increased soybean production, which in turn has contributed to the pressure on global oilseed prices.”
The result is that farmers in other, less-subsidized countries cut production while American farmers keep cranking it up.
Their government continues to support that increase, shoveling out higher subsidies than are available to soybean farmers in Canada.
“In 1999, the U.S. producer subsidy equivalent for soybeans is estimated at $85 (Cdn) per tonne, or 25 percent of the value of soybeans,” said the department.
“By comparison, the PSE for Canadian soybeans is estimated at $32 per tonne or 12 percent of the value of soybeans.”
Some in Canada have benefited from the lower price, including livestock producers who feed soymeal and vegetable oil processors. Consumers may have seen advantages as well. Farmers have not.
